Asymmetric Information and Wage Differences Across Groups: Another Look at Statistical Discrimination
An alternative theoretical explanation for the existence of wage differentials between minority and majority groups is proposed. It is demonstrated that wage differentials that arise from uncertainty about minority group abilities relative to those of the majority group are not exclusively the result of statistical discrimination. It is proposed here that wage differentials are made up of two elements: a statistical discrimination component and a wage disparity component. Wage disparity differentials are a consequence of uncertainty over the flow of labor factor services affecting the production technology of the firm. Wage disparity is demonstrated to be a competitive outcome resulting from the minority group's higher variance associated with the flow of factor services relative to the majority group. Consequently, in response to lower expected average and marginal productivity, this group of workers receives a lower wage or employment level. It is established that nondiscriminatory wage differentials can persist in a competitive risk neutral market environment in the long run.
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