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Earnings and Discrimination

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

PowerPoint Slides prepared by:

Andreea CHIRITESCU

Eastern Illinois University

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Human Capital

  • Human capital
    • Quality and quantity of education
    • Accumulation of investments in people
      • Education
      • On-the-job training
      • Job experience
    • Higher productivity
    • Workers with more human capital earn more

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Human Capital

  • Firms – demanders of labor
    • Willing to pay more for highly educated workers
      • Higher marginal products
  • Workers - suppliers of labor
    • Willing to pay the cost of becoming educated
      • Only if there is a reward for doing so

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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The increasing value of skills

  • Earnings gap
    • Between skilled and unskilled workers increased over the past two decades
      • Man with a college degree
        • 1980, 44% higher earnings than without a college degree
        • 2008, 88% higher earnings
      • Woman with a college degree
        • 1980, 35% higher earnings than without a college degree
        • 2008, 71% higher earnings

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Table 1

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Average Annual Earnings by Educational Attainment

College graduates have always earned more than workers without the benefit of college, but the salary gap has grown even larger over the past few decades.

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The increasing value of skills

  • Widened earnings gap
    • Increased demand for skilled labor relative to unskilled labor
      • Higher wages for skilled labor
      • Greater inequality
    • International trade
    • Changes in technology

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Signaling

  • Earn a college degree
    • No real productivity benefit
    • Signal high ability to prospective employers
      • Easier for high-ability people to earn a college degree

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Economics of Discrimination

  • Discrimination
    • Offering of different opportunities to similar individuals who differ only by
      • Race
      • Ethnic group
      • Sex
      • Age
      • Other personal characteristics

​

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Table 2

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Median Annual Earnings by Race and Sex

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Discrimination by Employers

  • If one group in society receives a lower wage than another group
    • Even after controlling for human capital and job characteristics
    • Who is to blame for this differential?
      • Employers - discriminatory wage differences?
  • Competitive market economies
    • Natural antidote to employer discrimination: profit motive

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© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.