Discrimination, Wages, and Signal: Examining Labor Market Outcomes

Observable Characteristics and Discrimination

1. Even in the simplest model, workers will differ by observable characteristics such as race/ethnicity, age and gender. True or false. Taste based discrimination cannot exist in the hypothetical world where firms have perfect information about individual worker productivity-even if workers vary across race, age and gender.

2. Tatistics is the study of a sample characteristic to form an opinion about some attribute of an entire population. True or false. Statistical discrimination cannot exist in the hypothetical world where firms have perfect information about individual worker productivity- even if workers vary across race, age and gender.

3. Analysts often compare median wages of workers by race or ethnic group. True or false. The pay gap between white and minority workers disappears when comparing individuals with the same job type, educational background, and work experience.

4. If we strictly followed neoclassical theory,

a. The wage gaps we see today represent long-run equilibrium wages and pay differences are partially attributable to taste based discrimination 

b. The wage gaps we see today imply we are not in long run equilibrium, and pay differences are partially attributable to taste based discrimination.

c. Wage gaps must not exist in the long run

d. The wage gaps we see today are purely a product of statistical discrimination

e. None of the above

5. The long-run labor market outcome of the neoclassical model with taste-based discrimination relies on

a. Economic incentives outweighing non-pecuniary benefits of discrimination for discriminatory firms.

b. Non-pecuniary benefits for discriminatory firms outweighing economic incentives 

c. The government punishing firms that conduct discriminatory hiring and pay behavior

d. The government rewarding firms for hiring people from certain racial or ethnic groups

6. When a potential employee’s true ability cannot be observed, firms will try to use observable characteristics as signals for how well someone will perform in a job. If there are costs to investing in signals, and the costs vary by each person’s true ability, what must be true for firms to offer only two possible wage contracts?

a. It must be prohibitively costly for low productivity types to obtains signals for a potential job type

b. The payoff for a high productivity type to pursue (costly) high productivity signals must be higher than what high types would receive for taking a low-wage position.

c. The observable characteristics firms use to distinguish types must clearly align with underlying, unobserved worker productivity

d. None of the above

7. The 50th percentile is also known as the median. Based on the reported wage growth for the population overall, it is likely that the mean wage growth during this time is

a. Higher than the median

b. Equal to the median

c. Lower than the median

d. Not enough information to answer

8. True or false. Within the same gender groups, the wage gap between highest and lowest earners is smaller in 2019 for women but not for men, relative to 1979.

9. True or false. With just the information above, and by studying the median, it is directly inferred that overall real wage growth from 1979 to 2019 is predominantly driven by higher female earnings.