Statistical Discrimination in Labor Markets: An Experimental Analysis

30 Pages Posted: 27 Sep 2006

See all articles by Ronald L. Oaxaca

Ronald L. Oaxaca

University of Arizona - Department of Economics; IZA Institute of Labor Economics

David L. Dickinson

Appalachian State University

Date Written: September 2006

Abstract

Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). "First-moment" statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. "Second-moment" discrimination would occur when risk-averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. This paper reports results from controlled laboratory experiments designed to study second-moment statistical discrimination in a labor market setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk-variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion.

Keywords: statistical discrimination, experiments, labor markets

JEL Classification: J31, J71, C92

Suggested Citation

Oaxaca, Ronald L. and Dickinson, David L., Statistical Discrimination in Labor Markets: An Experimental Analysis (September 2006). IZA Discussion Paper No. 2305. Available at SSRN: https://ssrn.com/abstract=933035

Ronald L. Oaxaca (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States
520-621-4135 (Phone)
520-621-8450 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

David L. Dickinson

Appalachian State University ( email )

Boone, NC 28608
United States
1-828-262-2117 (Phone)
1-828-262-6105 (Fax)

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