Answers to Chapter 12 pre-lecture questions 16-23

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16. Profit-maximizing employers will hire labor until the marginal revenue product of workers equals the wage rate. Why do hiring decisions by employers who discriminate based on some demographic fail to maximize profits? profits for a profit-maximizing (nondiscriminatory) employer, however, are AEG. These latter employers hire women and minorities to the point where their marginal product equals their wage, whereas the discriminators end their hiring short of that point. Discriminators thus give up (BFG) profits in order to indulge their prejudices. 17. Which employers can afford to discriminate against a demographic group? Theory suggests, then, that employer discrimination is most likely to persist when owners or managers do not have to maximize profits in order to stay in business. The opportunity to indulge in discriminatory preferences is especially strong among monopolies that face government regulation, because the costs of this wasteful practice make profits look smaller to regulatory bodies. Studies of both the banking industry and trucking industry provide evidence consistent with the greater presence of race and gender discrimination among regulated monopolies. Both industries were historically regulated in ways that limited competition, both were deregulated in recent decades, and in both cases, race and gender wage differentials were considerably narrowed by greater product market competition.45 18. Looking at Figures 12.4 and 12.5 in the text, what two developments might serve to reduce the wage disadvantage faced by women or minorities subjected to discrimination by employers? One way that employers might try to accommodate employee discrimination is to hire on a segregated basis. Although completely segregating a plant is usually not economically feasible, workers can be segregated by job title. Thus, both the employee and the customer models of discrimination can help to explain the finding of one study that employers usually hire only women or only men into any single job title—even if other employers hire members of the opposite gender into that job title. 19. In 1963, when I was in the Army stationed in Petersburg, VA, my wife and I went to a Chinese restaurant in Petersburg. It was a winter night and we noticed a black couple eating in their car in the restaurant parking lot. I asked the Chinese owner, who I noticed had hired black workers for behind-the-scenes kitchen work, why the couple had to eat in their car. She said she couldn’t serve them inside but was willing to sell them food to eat in their car. What was the most likely source of discrimination in this case?

It's a combination of losing profit and discrimination, society is so prejudiced against darker skin that other chinese customers may not want to eat at the restaurant upon seeing the black couple causing them to lose profits. But if they were her workers she is benefitting from their labor and wants to continue that w/o bearing consequences. 20. What might be the most effective remedy for discrimination based on customer prejudice? If customer preferences for white men extend to jobs requiring major responsibility, such as physician or airline pilot, then occupational segregation that works to the disadvantage of women and minorities will occur. Under this theory, if women and minorities find gaining employment in these jobs difficult, they must either accept lower wages or be more qualified than the average white man, because their marginal revenue productivity to their employers is reduced by customers’ prejudices. Strengthen and enforce existing anti-discrimination laws to ensure that businesses are held accountable for discriminatory practices. Promoting this sort of legislation almost requires employers to hire people of different backgrounds because if they discriminate they could be sued. 21. Read Example 12.2, which summarizes a study showing that baseball umpires who are white are more likely to call a close pitch unfavorably if the pitcher is black. One interesting nuance to the findings is that the race of the pitcher and umpire is irrelevant if the game is more important, the crowd is larger, or if the umpire is being monitored by a camera. What are the two possible implications of this latter finding? the race of umpires and pitchers had no role in judging how a pitch was called. In parks without these monitoring cameras, however, racial preferences among umpires was evident; that is, when the umpire and pitcher were of different races, pitches that were “close” to the strike zone were less likely to be called a “strike.” Racial discrimination in pitch calling was even more evident when crowds were small and the game situations were not critical—that is, when fewer people were watching or likely to be paying close attention. 22. Why might employers welcome laws that say they have to serve their clientele without regard to race or gender? Title VII of the Civil Rights Act of 1964 made it unlawful for any employer “to refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, condition, or privileges of employment, because of such individual’s race, color, religion, sex or national origin.” Title VII applies to all employers in interstate commerce with at least 15 employees and is enforced by the Equal Employment Opportunity Commission (EEOC

23. Read the last three paragraphs of Chapter 12. Why might employers welcome laws saying that they must hire workers without regard to race, gender, or other characteristics unrelated to Productivity? employers might welcome laws mandating non-discriminatory hiring practices because these laws, when part of a comprehensive set of federal programs, have been associated with positive outcomes such as improved education, increased earnings ratios, and the dismantling of racial segregation. The laws are seen as contributing to a more equitable and inclusive labor market, potentially benefiting both employers and workers. Education is a key factor in increasing employment for black americans because slavery unfairly put them in a disadvantage, stripping them of education, reading, and linguistics putting them close to 400 years behind (as white people in America did have access to education, reading, and schooling). There was a discontinuous jump in the Black–white earnings ratio between 1960 and 1975, coinciding with the onset of federal antidiscrimination programs. The success of federal antidiscrimination efforts is attributed to a comprehensive set of programs aimed at dismantling all forms of racial segregation, registering Black citizens to vote, and providing legal remedies for victims of discrimination. The federal efforts, including the Equal Employment Opportunity Commission and the Office of Federal Contract Compliance, challenged an entire pattern of racial exclusion. Leverage Effect on Southern Employers: Southern employers were eager to employ Black workers if given the proper excuse, creating a leverage effect for the new laws. The federal programs acted as a tipping point in breaking the back of southern employment discrimination. Market Conditions After 1980:

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