Economics of Discrimination: Theory Determine whether each of the following statements is true or false. If you answer “false,” provide a brief explanation in detail of why the statement is incorrect. Note that you will get no marks if your explanations are incorrect. 1. Suppose black and white workers are perfect substitutes. The equilibrium racial wage gap is determined by the prejudice level of the most prejudiced employers in the labor market.2. Suppose black and white workers are perfect substitutes. If most firms in the labor market discriminate against blacks, this implies that the wage of blacks must be lower than that of whites.3. Suppose black and white workers are perfect substitutes. If whites workers dislike working alongside black workers, firms have to compensate white workers for their disutility and therefore sacrifice profits.4. A result of employers’ use of statistical discrimination against blacks or women is that it will reduce the average wage of blacks or women.5. Suppose you regress workers’ log wages on an indicator for being female (F) and a vector of observable characteristics (X) such as years of schooling and parental education levels. You find a negative and statistically significant estimate of the coefficient on F. This provides direct evidence of labor market discrimination against women.
Economics of Discrimination: Theory
Determine whether each of the following statements is true or false. If you answer “false,” provide a brief explanation in detail of why the statement is incorrect. Note that you will get no marks if your explanations are incorrect.
1. Suppose black and white workers are perfect substitutes. The equilibrium racial wage gap is determined by the prejudice level of the most prejudiced employers in the labor market.
2. Suppose black and white workers are perfect substitutes. If most firms in the labor market discriminate against blacks, this implies that the wage of blacks must be lower than that of whites.
3. Suppose black and white workers are perfect substitutes. If whites workers dislike working alongside black workers, firms have to compensate white workers for their disutility and therefore sacrifice profits.
4. A result of employers’ use of statistical discrimination against blacks or women is that it will reduce the average wage of blacks or women.
5. Suppose you regress workers’ log wages on an indicator for being female (F) and a vector of observable characteristics (X) such as years of schooling and parental education levels. You find a negative and statistically significant estimate of the coefficient on F. This provides direct evidence of labor market discrimination against women.
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