Lecture Issues in economics today - Chapter 29

In this chapter, the following content will be discussed: The graph of the monopolist, how monopolist’s profits are calculated, the monopolist in the short run and long run, barriers to entry, limits to monopoly power, economies of scale and natural monopoly, what makes bigness bad?

Chapter 29

Race and Affirmative Action

Chapter Outline

• MEASURES OF INEQUALITY, AND

DEFINITIONS AND DETECTION OF DISCRIMINATION

• DISCRIMINATION IN LABOR,

CONSUMPTION AND LENDING

• AFFIRMATIVE ACTION

Measures of Social and Economic Conditions

• African-American family income is rising

• The relative position of African-American

family income to white family income has risen slowly

• Rates of poverty and unemployment are

much higher for African-Americans than whites

• More African-American men are in prison

than in college

0

10000

20000

30000

40000

50000

60000

1940 1950 1960 1970 1980 1990 2000

Year

white black

White and Black Median Family Income

0.5

0.52

0.54

0.56

0.58

0.6

0.62

0.64

1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999

Year

Black/White Median Family Income

What is Discrimination

• Disparate Treatment Discrimination

treating two otherwise equal people differently

on the basis of race

• Adverse Impact Discrimination

doing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others

• Rational or Statistical Discrimination

discrimination that is based on sound statistical evidence and is consistent with profit maximization

Measuring and Detecting

Discrimination

• Regression techniques

– Statistical methods which seek to determine if the differences in treatment for whites and blacks

could have happened by random chance.

• Auditing techniques

– Sending paid actors into a situation to determine if people with identical economic characteristics are treated differently based on race.

Labor Market Discrimination in

the Past

Chicago Tribune 1/3/1960 DOORMAN­WHITE age 30 to 45 married Neat in appearance and at least 5'11" or taller in height

New York Times 1/3/1960 COOK, housekeeper, Negro preferred, experience essential, prominent family, permanent position, high salary

Modeling Labor Market

Discrimination

Labor market for jobs only whites are allowed  do.

ND

D

wND

Labor market for jobs that  blacks who work must do.

ND

D

SD

SD

wwhite

wblack

Why Competition Would Eliminate Discriminatory Pay

• Businesses that hired only whites at the

higher wage would have higher costs than businesses that did not discriminate

• Businesses that did not discriminate could

lower their prices and take the market share

of those firms that did discriminate

• As this happened firms would see that

discrimination was not consistent with maximizing profits and would stop

discriminating

Why Competition Would Not

Necessarily Eliminate

Discrimination

• In industries where there is economic profit,

firm owners may continue to discriminate and consider it a price they are willing to pay so

as to not employ blacks

• In industries in which the customer chooses

which business to patronize based on race, firms may be willing to discriminate because their profit maximizing interest and

discrimination are consistent

Consumption Market

Discrimination

• Blacks pay more for cars.

• Blacks are shown fewer homes and

those homes are in already integrated neighborhoods.

• Blacks are more likely to be turned

down for a mortgage loan.

Affirmative Action

taken to speed up the process of achieving equality

History of Affirmative Action But freedom is not enough You do not wipe away the scars of centuries by saying: Now you are free

to go where you want, do as you desire, and choose the leaders you please.You do not take a person who, for years, has been hobbled by

chains and liberate him, bring him up to the starting line of a race and then say, “You are free

to compete with all the others,” and still justly believe that you have been completely fair.Thus it

is not enough to just open the gates of opportunity All our citizens must have the ability to walk

through those gates.

Lyndon Johnson, 1965 at Howard University

More History

• Nixon’s Executive order 11246 mandated

affirmative action in contracts with the federal government

• Set-asides were created so that 10% of all

federal highway contracts were “set aside” for minority owned contractors

• Various Supreme Court rulings have limited

the scope with which affirmative action can be employed It must now meet a high standard

of “strict scrutiny.”

The Civil Rights Act of 1964 vs the California Civil Rights Initiative

• Civil Rights Act 1964

– The state shall not discriminate against any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of

public employment, public education, or public contracting.

• California Civil Rights Initiative

– The state shall not discriminate against, or grant

on the basis of race, sex, color, ethnicity, or national origin in the operation of public

employment, public education, or public

Gradations of Affirmative Action

• An equal opportunity to apply

– Requires employers to advertise in minority-seen outlets

• Race as a tie-breaker

– Race may break a tie between equally situated candidates.

• Acceptance of all qualified minorities

– Used most often in university admissions to selective schools A standard is set and qualified minorities are admitted and the remaining spots are filled with the best of the non-minority pool.

• Guidelines

– Targets are set for minority hiring and promotion and, if they are not met, a justification must be given.

• Quotas

– Strict percentages of minorities must be hired This is generally unconstitutional unless ordered by a court to remedy past discrimination.