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Statistical Discrimination in Labor Markets: An Experimental Analysis

  • David L. Dickinson

    ()

    (Department of Economics, Appalachian State University, Boone, NC 28607, USA)

  • Ronald L. Oaxaca

    ()

    (Department of Economics, University of Arizona, Tucson, AZ 85721-0108, USA)

This article reports results from controlled laboratory experiments designed to study secondmoment (that is, risk-based) statistical discrimination in a labor market setting. Since decision makers may not view risk in the same way as economists or statisticians (that is, risk 5 variance of distribution), we also examine alternative measures of risk: the support of the distribution and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that employers made statistically discriminatory wage offers consistent with loss aversion in our full sample (though the result is driven by the male employer subsample). If one can transfer these results outside of the laboratory, they indicate that discrimination estimates based only on first-moment (mean-based) discrimination are biased. The public policy implication is that efforts and legislation aimed at reducing discrimination of various sorts face an additional challenge in trying to identify and limit relatively hidden, but significant, forms of statistical discrimination.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2009)
Issue (Month): 1 (July)
Pages: 16-31

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Handle: RePEc:sej:ancoec:v:76:1:y:2009:p:16-31
Contact details of provider: Web page: http://www.southerneconomic.org/

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  1. Fershtman, C. & Gneezy, U., 2000. "Discrimination in a Segmented Society: an Experimental Approach," Papers 2000-9, Tel Aviv.
  2. Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 91-100, Spring.
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  9. Dennis J. Aigner & Glen G. Cain, 1977. "Statistical theories of discrimination in labor markets," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(2), pages 175-187, January.
  10. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-21, June.
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  12. Lang, Kevin, 1986. "A Language Theory of Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 363-82, May.
  13. John A. List, 2004. "The Nature and Extent of Discrimination in the Marketplace: Evidence from the Field," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 49-89, February.
  14. Richard Startz & Lundberg, . "Private Discrimination and Social Intervention in Competitive Labor Markets," Rodney L. White Center for Financial Research Working Papers 19-81, Wharton School Rodney L. White Center for Financial Research.
  15. David Dickinson & Ronald Oaxaca, 2005. "The Equivalence of Panel Data Estimators under Orthogonal Experimental Design," Working Papers 05-07, Department of Economics, Appalachian State University.
  16. Goldberg, Pinelopi Koujianou, 1996. "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 622-54, June.
  17. Glenn C. Loury, 1998. "Discrimination in the Post-Civil Rights Era: Beyond Market Interactions," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 117-126, Spring.
  18. Vernon L. Smith, 1965. "Experimental Auction Markets and the Walrasian Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 73, pages 387.
  19. David W. Harless & George E. Hoffer, 2002. "Do Women Pay More for New Vehicles? Evidence from Transaction Price Data," American Economic Review, American Economic Association, vol. 92(1), pages 270-279, March.
  20. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
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