Chapter 29 The Economics of Race and Sex Discrimination McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc All rights reserved Chapter Outline • The Economic Status of Women and Minorities • Definitions and Detection of Discrimination • Discrimination in Labor, Consumption, and Lending • Affirmative Action McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-2 1-2 Economic Status of Women • Labor-force participation rate – Labor force participation rate: the percentage of people in a particular category who are over 16 and working – After adjusting the labor-force participation rate to reflect the fact that as the U.S population has been ageing the real impact is • Men – have 58% more income than women, – make 22% more in wages for full-time employment, – are 11% (5 percentage points) more likely to be covered by pensions, – are less likely to be in poverty • Bankruptcies of single women are increasing McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-3 1-3 Economic Differences between Men and Women Men Income from all sources Average weekly wages for full-time employment Mean net worth (singles) Covered by a pension Poverty rate Percentage of singlefiling bankruptcies McGraw-Hill/Irwin Women $31,184 $20,957 $824 $669 $163,489 $136,351 75% 63% 11.4% 13.6% 46% 54% ©2012 The McGraw-Hill Companies, All Rights Reserved 29-4 1-4 Ratio of Women’s Income to Men’s McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-5 1-5 Difference in Earnings by Occupation Occupation Women’s Earning’s as a Percent of Men’s Physicians 71% Lawyers 77% Managers/Executives 72% Teachers (elementary) 91% McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-6 1-6 Social and Economic Conditions for African-Americans • African-American family income is rising • The relative position of African-American family income to white family income has risen slowly • Rates of poverty and unemployment are much higher for African-Americans than whites • More African-American men are in prison than in college McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-7 1-7 Median Family Income by Race McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-8 1-8 Black/White Median Family Income McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-9 1-9 What is Discrimination • Disparate Treatment Discrimination treating two otherwise equal people differently on the basis of race • Adverse Impact Discrimination doing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others • Rational or Statistical Discrimination discrimination that is based on sound statistical evidence and is consistent with profit maximization McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-10 1-10 Why Competition Would Eliminate Discriminatory Pay • Businesses that hired only whites at the higher wage would have higher costs than businesses that did not discriminate • Businesses that did not discriminate could lower their prices and take the market share of those firms that did discriminate • As this happened firms would see that discrimination was not consistent with maximizing profits and would stop discriminating McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-14 1-14 Why Competition Would Not Necessarily Eliminate Discrimination • In industries where there is economic profit, firm owners may continue to discriminate and consider it a price they are willing to pay so as to not employ blacks • In industries in which the customer chooses which business to patronize based on race, firms may be willing to discriminate because their profit maximizing interest and discrimination are consistent McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-15 1-15 Why Women Make Less than Men • Pregnancy • Loss of time in the field and intermittent absence can put women at a economic disadvantage (Many times this difference in treatment is against the law.) • Stay-at-home Moms • 98% of stay-at-home parents are women leaving them out of the job market for extended periods of time McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-16 1-16 Why Women Make Less than Men (continued) • Different Professions • Teachers (82%) • Nurses (92%) • Social Workers (81%) • Day Care workers (95%) • Secretaries (97%) McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-17 1-17 Why Women Make Less than Men (continued) • Flexible Employment • Women, more than men, tend to choose jobs that allow them to deal with her children’s activities and illnesses McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-18 1-18 Sociology vs Economics • Economic Explanation for pay differences • People make choices and one of the consequences of those choices is their earning capacity • If women choose • professions that not pay well, • to have and stay home with children • jobs that allow them to deal with their children • they will make less money McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-19 1-19 Sociology vs Economics (continued) • Sociological Explanation for pay differences • Women are socialized • to pick certain professions • into being the parent to stay home • into being the parent that sacrifices career for family • which causes them to be paid less McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-20 1-20 Consumption Market Discrimination • Blacks pay more for cars • Blacks are shown fewer homes and those homes are in already integrated neighborhoods • Blacks are more likely to be turned down for a mortgage loan McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-21 1-21 Affirmative Action • Affirmative Action : any policy that is taken to speed up the process of achieving equality McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-22 1-22 History of Affirmative Action But freedom is not enough You not wipe away the scars of centuries by saying: Now you are free to go where you want, as you desire, and choose the leaders you please.You not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, “You are free to compete with all the others,” and still justly believe that you have been completely fair.Thus it is not enough to just open the gates of opportunity All our citizens must have the ability to walk through those gates Lyndon Johnson, 1965 at Howard University McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-23 1-23 More History • Nixon’s Executive order 11246 mandated affirmative action in contracts with the federal government • Set-asides were created so that 10% of all federal highway contracts were “set aside” for minority owned contractors • Various Supreme Court rulings have limited the scope with which affirmative action can be employed It must now meet a high standard of “strict scrutiny.” McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-24 1-24 The Civil Rights Act of 1964 vs the California Civil Rights Initiative • Civil Rights Act 1964 • The state shall not discriminate against any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting • California Civil Rights Initiative • The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-25 1-25 Gradations of Affirmative Action • An equal opportunity to apply • Requires employers to advertise in minority-seen outlets • Race as a tie-breaker • Race may break a tie between equally situated candidates • Acceptance of all qualified minorities • Used most often in university admissions to selective schools A standard is set and qualified minorities are admitted and the remaining spots are filled with the best of the non-minority pool • Guidelines • Targets are set for minority hiring and promotion and, if they are not met, a justification must be given • Quotas • Strict percentages of minorities must be hired This is generally unconstitutional unless ordered by a court to remedy past discrimination McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-26 1-26 The University of Michigan Case • Undergraduate Admission System • Based on a point system that gave points for academic achievement, race, etc • Found unconstitutional • Graduate Admission System • Based on the desire to achieve a critical mass of minority students • Found constitutional McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-27 1-27 Myths of Affirmative Action Roland Fryer and Glenn Loury • Myth #1 Affirmative Action Can Involve Goals and Timetables while Avoiding Quotas • Myth #2 Color-Blind Policies Offer an Efficient Substitute for Color-Sighted Affirmative Action • Myth #3 Affirmative Action Undercuts the Incentive to Invest in Yourself • Myth #4 Equal Opportunity is Enough to Ensure Racial Equality • Myth #5 The Earlier in the Better • Myth #6 Many Nonminority Citizens are Directly Affected by Affirmative Action • Myth #7 Affirmative Action Always Helps its Beneficiaries McGraw-Hill/Irwin ©2012 The McGraw-Hill Companies, All Rights Reserved 29-28 1-28 ... Eliminate Discrimination • In industries where there is economic profit, firm owners may continue to discriminate and consider it a price they are willing to pay so as to not employ blacks • In industries... Outline • The Economic Status of Women and Minorities • Definitions and Detection of Discrimination • Discrimination in Labor, Consumption, and Lending • Affirmative Action McGraw-Hill/Irwin ©2012... Would Eliminate Discriminatory Pay • Businesses that hired only whites at the higher wage would have higher costs than businesses that did not discriminate • Businesses that did not discriminate