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Statistical Discrimination in Labor Markets: An Experimental Analysis

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  • David Dickinson
  • Ronald Oaxaca

Abstract

Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). First moment statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. Second moment discrimination occurs when risk averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. Empirical work on statistical discrimination is hampered by the difficulty of obtaining suitable data from naturally-occurring labor markets. This article reports results from controlled laboratory experiments designed to study second moment statistical discrimination in a simulated labor marker setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk=variance of distribution), we also examine two possible 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 individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion in our full sample (though differences between male and female employers can be noted). If one can transfer these results outside of the laboratory, they indicate that labor market discrimination based only on first moment discrimination is biased downward. 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.

Suggested Citation

  • David Dickinson & Ronald Oaxaca, 2005. "Statistical Discrimination in Labor Markets: An Experimental Analysis," Working Papers 05-11, Department of Economics, Appalachian State University.
  • Handle: RePEc:apl:wpaper:05-11
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp0511.pdf
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Discrimination (5): Statistical Discrimination
      by Filip Spagnoli in P.A.P.-Blog on 2010-07-24 13:39:28

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    Cited by:

    1. Baert, Stijn, 2015. "Hiring a Homosexual, Taking a Risk? A Lab Experiment on Employment Discrimination and Risk Aversion," IZA Discussion Papers 9536, Institute for the Study of Labor (IZA).
    2. Dickinson, David L. & Masclet, David & Peterle, Emmanuel, 2018. "Discrimination as favoritism: The private benefits and social costs of in-group favoritism in an experimental labor market," European Economic Review, Elsevier, vol. 104(C), pages 220-236.
    3. Lionel Desiage, 2010. "What are Entrepreneurs' Objectives When Starting a New Business?," Working Papers halshs-00809716, HAL.
    4. Ronald L. Oaxaca & David L. Dickinson, 2016. "Symmetric experimental designs: conditions for equivalence of panel data estimators," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 2(1), pages 85-95, May.
    5. Drydakis, Nick, 2011. "Roma Women in Athenian Firms: Do They Face Wage Bias?," IZA Discussion Papers 5732, Institute for the Study of Labor (IZA).
    6. David Neumark & Judith Rich, 2016. "Do Field Experiments on Labor and Housing Markets Overstate Discrimination? A Re-examination of the Evidence," NBER Working Papers 22278, National Bureau of Economic Research, Inc.
    7. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
    8. David Neumark, 2012. "Detecting Discrimination in Audit and Correspondence Studies," Journal of Human Resources, University of Wisconsin Press, vol. 47(4), pages 1128-1157.
    9. repec:aea:jeclit:v:56:y:2018:i:3:p:799-866 is not listed on IDEAS
    10. Castillo, Marco & Petrie, Ragan, 2010. "Discrimination in the lab: Does information trump appearance?," Games and Economic Behavior, Elsevier, vol. 68(1), pages 50-59, January.
    11. Beaurain, Guillaume & Masclet, David, 2016. "Does affirmative action reduce gender discrimination and enhance efficiency? New experimental evidence," European Economic Review, Elsevier, vol. 90(C), pages 350-362.
    12. Marco Caliendo & Steffen Künn, 2015. "Getting back into the labor market: the effects of start-up subsidies for unemployed females," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(4), pages 1005-1043, October.
    13. Rödin, Magnus & Özcan, Gülay, 2011. "Is It How You Look or Speak That Matters? - An Experimental Study Exploring the Mechanisms of Ethnic Discrimination," Research Papers in Economics 2011:12, Stockholm University, Department of Economics.
    14. David L. Dickinson & Ronald L. Oaxaca, 2014. "Wages, Employment, And Statistical Discrimination: Evidence From The Laboratory," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1380-1391, October.
    15. Joshua Pitts & Daniel Yost, 2013. "Racial Position Segregation in Intercollegiate Football: Do Players become more Racially Segregated as they Transition from High School to College?," The Review of Black Political Economy, Springer;National Economic Association, vol. 40(2), pages 207-230, June.
    16. Rödin, Magnus & Özcan, Gülay, 2011. "Is It How You Look or Speak That Matters? - An Experimental Study Exploring the Mechanisms of Ethnic Discrimination," SULCIS Working Papers 2011:3, Stockholm University, Linnaeus Center for Integration Studies - SULCIS.
    17. Lopez Barrera, E., 2018. "Hispanics immigrants in the fields: is discrimination a barrier to get non-agricultural jobs?," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276016, International Association of Agricultural Economists.
    18. Yariv Fadlon, 2015. "Statistical Discrimination and the Implication of Employer-Employee Racial Matches," Journal of Labor Research, Springer, vol. 36(2), pages 232-248, June.
    19. repec:eee:wdevel:v:110:y:2018:i:c:p:1-12 is not listed on IDEAS
    20. Magnus Rodin & Gulay Ozcan, 2013. "Is It How You Look or Speak That Matters? “An Experimental Study Exploring the Mechanisms of Ethnic Discrimination”," Working Papers 009, Bahcesehir University, Betam.
    21. David Masclet & Emmanuel Peterle & Sophie Larribeau, 2012. "The Role of Information in Deterring Discrimination: A New Experimental Evidence of Statistical Discrimination," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201238, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

    More about this item

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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