LABOR MARKET INFORMATION: Introduction

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Labor economists agree on the existence of persistent wage differentials by race and sex in the U.S. labor market, but disagree on the source of these differentials. There are two dominant explanations of these wage differentials that are the basis for most empirical research on this topic. The first is the employer discrimination hypothesis, developed in Becker’s seminal work (1957), in which minorities or women are paid less because of employers’ distastes for hiring from these groups. The second is that women or minorities come to the market with unobserved productivity shortfalls. payday loans online reviews

An alternative model of discrimination that has not received nearly as much empirical attention is the statistical discrimination model, originally developed by Phelps (1972).2 In a simple statistical discrimination model in which the distribution of productivity in sub-populations of white men, women, and minorities is the same, the inability of employers to accurately predict or measure an individual worker’s productivity does not generate average wage differentials among these subgroups. As Cain (1986) emphasizes, average wage differentials only emerge if there are average productivity differentials, in which case the average wage differentials do not reflect “group discrimination.” Thus, without extensions of the simple model, statistical discrimination is not thought to provide a compelling theory of wage discrimination against particular groups in the labor market.