1)   True/False Questions.  Circle the appropriate letter (1 point each)

a)   One reason that black workers’ wages increased relative to white workers’ wages during the 1960s and 1970s is that black workers were leaving the labor force.

T          F

b)   If employers discriminate because customers are prejudiced then employers are not maximizing their profits.

T          F

c)   According to the theory of statistical discrimination, the process of competition should put discriminating employers at a disadvantage.

T          F

d)   If black workers are discriminated against in the labor market because employers are prejudiced

against blacks then an increase in the supply of blacks will reduce their wage relative to whites.

T          F

e)   If men in occupation A earn $20/hr and women in occupation B earn $20/hr then there is no discrimination.

T          F

f)   Estimates of the degree of discrimination may be upwardly biased if certain variables that have a positive effect on productivity are not controlled.

T          F

g)   The Civil Rights Act of 1964 established quotas for hiring minority workers.

T          F

h)   Cases of disparate impact can be won if there is evidence of employment imbalances across

groups, even if there is no evidence that the employer is intending to discriminate.

T          F

i)    One piece of evidence that the convergence between black and white wages that occurred during  the 1960s and early 1970s was driven by something other than a reduction in whites’ prejudice, is that wages converged the most in the South

T          F

2)  Compare and contrast the “taste for discrimination” model based on employer prejudice, and the statistical discrimination model. What are the implications of each in terms of the persistence of discrimination? What are the policy implications of each? (4pnts)

3)  Suppose that there are two groups of potential workers: group Y and group Z.  On average, members of group Y have higher skill levels than members of group Z.  Employers give all potential employees an unbiased test in order to determine their skill level.  The test  provides a noisy assessment of an individual’s actual skill level, and the test is equally noisy for members of group Y and members of group Z.

Wages are determined using information on an individual’s test score (T), and using information on the average skill level (a) of the group to which the individual belongs.

The diagram below shows the relationship between wages and the test score for group Y. The dotted line is a 45 degree line.

a)   On the diagram above, draw the relationship between wages and the test score for group

Z relative to group Y. Make sure that you label the relationship for each group. (2 pnts)

b)  Provide some intuition about why the two lines have the relationship to each other that

they have. Do the lines cross?  Why or why not? Are the intercepts the same or different? Explain. (4 pnts)

5. Suppose years of schooling, S, is the only variable that affects earnings.  The equations for the weekly salaries of male and female workers are given by

wm  = 500 + 100S

wf  = 300 + 100S

On average men have 13 years of schooling and women have 10 years of schooling.

a)  What is the average male-female wage difference in this labor market? (2 pnts)

b)  Is there discrimination in this labor market?  Why or why not? (3 pnts)