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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 paper reports results from controlled laboratory experiments designed to study second moment statistical discrimination in a labor market 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, 2004. "Statistical Discrimination in Labor Markets: An Experimental Analysis," Working Papers 2004-04, Utah State University, Department of Economics.
  • Handle: RePEc:usu:wpaper:2004-04
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    References listed on IDEAS

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    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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    3. 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.
    4. Baert, Stijn, 2015. "Hiring a Homosexual, Taking a Risk? A Lab Experiment on Employment Discrimination and Risk Aversion," IZA Discussion Papers 9536, Institute of Labor Economics (IZA).
    5. 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.
    6. Lionel Désiage, 2010. "What are Entrepreneurs’ Objectives When Starting a New Business?," TEPP Working Paper 2010-06, TEPP.
    7. 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.
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    11. 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.
    12. 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.
    13. David Neumark, 2018. "Experimental Research on Labor Market Discrimination," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 799-866, September.
    14. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
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    16. Chen, Yiu Por (Vincent) & Zhang, Yuan, 2018. "A decomposition method on employment and wage discrimination and its application in urban China (2002–2013)," World Development, Elsevier, vol. 110(C), pages 1-12.
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    18. Gomes, Magno Rogério & Souza, Solange de Cássia Inforzato de & Mantovani, Gabriela Gomes & Paiva, Vanessa Fortunato de, 2019. "Wage gap decomposition models: A methodological contribution," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 39(2).
    19. Gomes, Magno Rogério & Souza, Solange de Cássia Inforzato de & Mantovani, Gabriela Gomes & Paiva, Vanessa Fortunato de, 2020. "Wage gap decomposition models: A methodological contribution," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 39(2), March.
    20. 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.
    21. 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.
    22. 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.
    23. 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.

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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