Statistical Discrimination

David L. Dickinson

Appalachian State University

April 2006: GATE.

“Statistical Discrimination in Labor Markets: An ExperimentalAnalysis.” David L. Dickinson and Ronald L. Oaxacaworking paper, 2005.

Motivation of paper is to look at second-moment distributional discrimination.

Productivity distributions have same mean, butvariance or other ‘risk’ characteristic may differ.

Distributional variable

Support of distribution

Probability of less-than-average payoffs

Note: these measures of ‘risk’ should not matterto risk-neutral decision-makers

Motivation

Statistical discrimination is accepted/legal ininsurance and credit markets, but it isillegal/controversial in labor markets or withracial profiling.

Existence of any type of statisticaldiscrimination will bias attempts to measureprejudiced-based discrimination.

This research, in general, examines decision-making under uncertainty.

Experimental Design

Double-sided oral auction design similar to Smith (1965)

DOA has strong convergence to equilibrium, in general

Productivity draw is independent of physical worker subject

We use labor market context, a trade-off for clarity.

Treatments

Results

Employers pay lower wages in all uncertainty treatments(primarily the males) (Table 2)

Note from Table 1 that treatments do not control for singlevariable changes

Table 3 shows more controlled regression analysis. LossProb matters most (for males)

Females actually pay higher wages the larger is the distributionsupport (?)

Female aversion to competitive negotiations does not seem toexplain this (though there is evidence that single-gendercontracts occur more frequently than mixed-gender contract.

Summary

Evidence is found that distributional risk affectsexperimental wage contracts

Effect is largely due to male employer sub-sample.

Most significant, in terms of magnitude, variable is less-than-expected profits…consistent with loss-aversion

For full sample, evidence of discrimination based ondistributional risk is significant

Ignoring second-moment statistical discrimination willbias estimates of prejudice-based and other statistically-based discrimination