Microeconomic Decision‑Makers – Workers
What Determines Workers’ Wages?
- Human Capital: Education, skills, and experience.
- Productivity: How much output a worker can produce.
- Market Demand: Number of firms needing the worker’s skill.
- Supply of Workers: How many people are available for the job.
- Discrimination: Biases that affect hiring and pay.
Discrimination & Wages: Male vs Female
Imagine two workers, 👨💼 John and 👩💼 Maria, both with the same degree and experience. In a perfectly fair market, they should earn the same wage, say \$w\$. But discrimination can shift the equation:
Male wage: \$wm = w - dm\$
Female wage: \$wf = w - df\$
where \$dm\$ and \$df\$ are the discrimination penalties. Often \$df > dm\$, leading to a wage gap \$wm - wf\$.
Theories Behind Wage Discrimination
- Statistical Discrimination: Employers use group averages (e.g., average productivity of women) to estimate individual productivity. If the average is lower, they pay less.
- Taste‑Based Discrimination: Employers simply dislike hiring certain groups and are willing to pay a premium to avoid them.
- Institutional Factors: Laws, unions, and social norms can either reduce or reinforce discrimination.
Example: The “Wage Gap” in Tech Industry
In many tech companies, the average 👨💻 male engineer earns \$wm = \\$90,000\$ while the average 👩💻 female engineer earns \$wf = \\$80,000\$. The gap can be illustrated in the table below.
| Group | Average Wage ($) | Gap ($) |
|---|
| Male Engineers | 90,000 | — |
| Female Engineers | 80,000 | -10,000 |
Why the gap? Statistical discrimination (average productivity bias) and taste‑based discrimination (preference for male teams) both play roles.
Exam Tips
- Define statistical and taste‑based discrimination clearly.
- Use the wage gap formula: \$wm - wf = (w - dm) - (w - df) = df - dm\$.
- Give real‑world examples (tech, finance, teaching) to show how discrimination manifests.
- Remember to explain how discrimination affects the labor market equilibrium (shifts in supply/demand curves).
- Use diagrams if allowed: a simple supply/demand graph with two curves for male and female wages.