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Discrimination or Unobserved Differences in Characteristics?-An Empirical Study on Wage Inequality

Author

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  • Fang, Zheng
  • Sakellariou, Chris
Abstract
We apply the discrimination search model with wage-tenure contracts to NLSY79 data to study race/gender wage inequality with a focus on distinguishing unobserved productivity differences from discrimination in the labor market and also simulating the pattern of wage dynamics. Our findings suggest that the productivity differential between black and white workers is 3% of white worker productivity while productivity differences between men and women are estimated to be 3% of male productivity. 91 % of firms are prejudiced towards black workers and 93% towards female workers. The distaste they hold towards black workers is about 70% of white worker productivity and towards women, 95% of male productivity. Compared to estimates in Bowlus and Eckstein (2002) and Flabbi (2010), we derive similar results on productivity differences, but much higher estimates on discrimination. In addition, our model predicts similar patterns of wage increases as observed from the data: First, the wage increases faster for men than women; second, the wage increases faster at low wages than high wages.

Suggested Citation

  • Fang, Zheng & Sakellariou, Chris, 2015. "Discrimination or Unobserved Differences in Characteristics?-An Empirical Study on Wage Inequality," MPRA Paper 68568, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:68568
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    References listed on IDEAS

    as
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    2. Luca Flabbi, 2010. "Gender Discrimination Estimation In A Search Model With Matching And Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 745-783, August.
    3. Zheng Fang & Chris Sakellariou, 2013. "Discrimination in the Equilibrium Search Model with Wage-Tenure Contracts," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 451-480, November.
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    More about this item

    Keywords

    Discrimination search model; unobserved difference; wage inequality;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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