Statistical Discrimination in Labor Markets: An Experimental Analysis
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.
|Date of creation:||03 Jan 2004|
|Date of revision:|
|Contact details of provider:|| Web page: http://apec.usu.edu/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
- Curley, Shawn P. & Yates, J. Frank, 1985. "The center and range of the probability interval as factors affecting ambiguity preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 36(2), pages 273-287, October.
- Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
- Joseph G. Altonji & Charles R. Pierret, 1997.
"Employer learning and statistical discrimination,"
Working Paper Series, Macroeconomic Issues
WP-97-11, Federal Reserve Bank of Chicago.
- Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
- Joseph G. Altonji & Charles R. Pierret, . "Employer Learning and Statistical Discrimination," IPR working papers 97-18, Institute for Policy Resarch at Northwestern University.
- 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.
- Muriel Niederle & Lise Vesterlund, 2005.
"Do Women Shy Away from Competition? Do Men Compete too Much?,"
04-030, Stanford Institute for Economic Policy Research.
- Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away from Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1067-1101, 08.
- Muriel Niederle & Lise Vesterlund, 2005. "Do Women Shy Away From Competition? Do Men Compete Too Much?," NBER Working Papers 11474, National Bureau of Economic Research, Inc.
- Vernon L. Smith, 1965. "Experimental Auction Markets and the Walrasian Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 73, pages 387.
- 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.
- 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.
- John List, 2004.
"The nature and extent of discrimination in the marketplace: Evidence from the field,"
Natural Field Experiments
00299, The Field Experiments Website.
- 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.
- Chaim Fershtman & Uri Gneezy, 2001.
"Discrimination In A Segmented Society: An Experimental Approach,"
The Quarterly Journal of Economics,
MIT Press, vol. 116(1), pages 351-377, February.
- Fershtman, C. & Gneezy, U., 2000. "Discrimination in a Segmented Society: an Experimental Approach," Papers 2000-9, Tel Aviv.
- Cornell, Bradford & Welch, Ivo, 1996. "Culture, Information, and Screening Discrimination," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 542-71, June.
- Lang, Kevin, 1986. "A Language Theory of Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 363-82, May.
- 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.
- 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.
- Lundberg, Shelly J & Startz, Richard, 1983. "Private Discrimination and Social Intervention in Competitive Labor Markets," American Economic Review, American Economic Association, vol. 73(3), pages 340-47, June.
- 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.
- 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.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Davis, Douglas D., 1987. "Maximal quality selection and discrimination in employment," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 97-112, March.
- 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.
When requesting a correction, please mention this item's handle: RePEc:usu:wpaper:2004-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John Gilbert)
If references are entirely missing, you can add them using this form.