I n t h I s c h a p t e r y o u w I l L

Discrimination
occurs
when the marketplace offers different opportunities to similar individuals who
differ only by race, ethnic group, sex, age, or other personal characteristics. Dis-
crimination reflects some people’s prejudice against certain groups in society. Al-
though discrimination is an emotionally charged topic that often generates heated
debate, economists try to study the topic objectively in order to separate myth
from reality.
M E A S U R I N G L A B O R - M A R K E T D I S C R I M I N AT I O N
How much does discrimination in labor markets affect the earnings of different
groups of workers? This question is important, but answering it is not easy.
It might seem natural to gauge the amount of discrimination in labor markets
by looking at the average wages of different groups. For instance, in recent years
the wage of the average black worker in the United States has been about 20 per-
cent less than the wage of the average white worker. The wage of the average fe-
male worker has been about 30 percent less than the wage of the average male
worker. These wage differentials are sometimes presented in political debate as ev-
idence that many employers discriminate against blacks and women.
Yet there is an obvious problem with this approach. Even in a labor market free
of discrimination, different people have different wages. People differ in the
amount of human capital they have and in the kinds of work they are able and will-
ing to do. The wage differences we observe in the economy are, to a large extent, at-
tributable to the determinants of equilibrium wages we discussed in the preceding
section. Simply observing differences in wages among broad groups—whites and
blacks, men and women—says little about the prevalence of discrimination.
Consider, for example, the role of human capital. About 80 percent of white
male workers have a high school diploma, and 25 percent have a college degree.
By contrast, only 67 percent of black male workers have a high school diploma,
and only 12 percent have a college degree. Thus, at least some of the difference be-
tween the wages of whites and the wages of blacks can be traced to differences in
educational attainment. Similarly, among white workers, 25 percent of men have a
college degree, whereas only 19 percent of women have a college degree, indicat-
ing that some of the difference between the wages of men and women is attribut-
able to educational attainment.
d i s c r i m i n a t i o n
the offering of different opportunities
to similar individuals who differ only
by race, ethnic group, sex, age, or
other personal characteristics

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C H A P T E R 1 9
E A R N I N G S A N D D I S C R I M I N AT I O N
4 2 7
In fact, human capital is probably even more important in explaining wage
differentials than the foregoing numbers suggest. For many years, public schools
in predominantly black areas have been of lower quality—as measured by expen-
diture, class size, and so on—than public schools in predominantly white areas.
Similarly, for many years, schools directed girls away from science and math
courses, even though these subjects may have had greater value in the market-
place than some of the alternatives. If we could measure the quality as well as the
quantity of education, the differences in human capital among these groups would
seem even larger.
Human capital acquired in the form of job experience can also help explain
wage differences. In particular, women tend to have less job experience on average
than men. One reason is that female labor-force participation has increased over the
past several decades. Because of this historic change, the average female worker to-
day is younger than the average male worker. In addition, women are more likely
to interrupt their careers to raise children. For both reasons, the experience of the
average female worker is less than the experience of the average male worker.
Yet another source of wage differences is compensating differentials. Some an-
alysts have suggested that women take more pleasant jobs on average than men
and that this fact explains some of the earnings differential between men and
women. For example, women are more likely to be secretaries, and men are more
likely to be truck drivers. The relative wages of secretaries and truck drivers de-
pend in part on the working conditions of each job. Because these nonmonetary as-
pects are hard to measure, it is difficult to gauge the practical importance of
compensating differentials in explaining the wage differences that we observe.
In the end, the study of wage differences among groups does not establish any
clear conclusion about the prevalence of discrimination in U.S. labor markets.
Most economists believe that some of the observed wage differentials are attribut-
able to discrimination, but there is no consensus about how much. The only con-
clusion about which economists are in consensus is a negative one: