Does Discrimination Exist in Today’s Labor Market and How Large Is the Problem?
INTRODUCTION
In the economic progress of a country, the labor market plays a cardinal role. In fact, in classical and neo-classical economic theories and models, it is labor that truly affects the quality and the size of the economy. For instance, when the labor market is competitive and marginal product of labor is high, the demand for labor shifts to the right, which affects national output and nominal wages (short-run). The increase in the level of employment directly and positively affects the size of consumption, which is considered the engine of growth of an economy. The increase in consumption intensifies economic activities, which allow governments and central banks to realize their political-economic and socioeconomic objectives respectively.
From the study of different labor markets around the world, of developed and developing countries, it is evident that these markets have inherent flaws and the challenges these flaws yield adversely affect labor markets. For instance, it is very apparent that in labor markets, different kinds of discrimination prevail. These various kinds of discriminations affect not only the economy, but also political and social systems. One of the consequences of discrimination, which prevails in the labor market, is that both labor markets and economies become less competitive (Ashenfelter and Rees).
Labor market discrimination occurs when there are different wage and hiring opportunities for individuals that have identical skills OR Different earning and employment opportunities across the equally skilled labor constitute discrimination.
We also learn, from the methodical study of this subject, that in both developed and developing countries various kinds of discrimination prevail in labor markets. However, the nature and size of these labor market’s discriminations are different. For instance, in a developed economy, such as the United Kingdom, the wage difference between men and women is apparent, which is caused by prejudice against marginalized gender. In conservative societies, the hiring of marginalized gender is an issue. Both these issues pertain to the labor market, and they are a consequence of different kinds of discrimination. Some gender-related discriminations are based on studies, which suggest that there are numerous factors, which constitute discrimination (Bertrand and Mullainathan).
An employer’s discrimination is directly associated with perceived utility; however, the customer’s discrimination could be a result of different factors. Therefore, it is essential to differentiate between different kinds of discriminations that prevail in labor and consumer markets. It is also imperative to acknowledge that discrimination is the consumer market affects labor market hiring and wages. Therefore, these two different types of discriminations must be studied in a single context to have a better understanding of the subject.
n this academic exercise, we will identify various kinds of discriminations, 2) will focus on sub-group (s) that are affected by different types of discriminations and 3) we will analyze the impact of this type of discrimination on the economy. We will select three different countries, which structure, size, and quality of economies are different.
TYPES OF DISCRIMINATION
There are various kinds of discriminations, which exist in the labor market. Almost all of these labor market discriminations affect the economy adversely, both in short and long-term, which is why labor market discrimination is a serious socioeconomic and political-economic concern. In this section of the study, we will briefly discuss the types of discriminations which are prevalent in different labor markets of the world.
Gender
Gender discrimination is very evident and prevalent in labor markets around the world. Discrimination about gender is of various types, and it affects the hiring of marginalized gender, say female, in numerous manners. For instance, if an employer is prejudiced against women, it turns the utility function of the employer into disutility. If it costs an employer get dollars per hour to hire a woman for a particular job, his/her perception would be that it costs him/her get (1+d) dollars (d is the coefficient of discrimination, and it is apparent that it is positive). This perception, which is not based on any fact, will affect his/her decision regarding hiring that will affect the overall labor market.
The bases of discrimination are several, which include faulty perception regarding capacity to work, loyalty, consistency, workplace behavior and others. In some cases, the findings of the behavior of gender have also played a part in increasing gender-based discrimination in labor markets. For instance, some studies assert that women are less likely to demand an increase in wages in comparison to men after the same period.
It is evident that discrimination based on gender, in labor markets, varies from economy to economy. For instance, in the United States, the causes of gender discrimination, which occurs in the labor market, would be different from the causes of gender discrimination in Saudi Arabia’s labor market (Mays, Coleman and Jackson).
Race
Like gender discrimination, racial discrimination also occurs very frequently in a labor market. This issue or challenge is more prominent in developed countries, rather than in developing countries. However, it is a fact that racial discrimination occurs in both developed and developing countries. In the United States, for instance, certain perceptions regarding the racial groups exist, which frequently affect United States’ labor market. It is a fact that because of effective legislation and corporate policies, racial discrimination in the labor market has decreased; however, various subtle forms of this type of discrimination exist in labor markets around the world. One of the consequences of racial discrimination is Nepotism, which could be positive for an employee of a favored racial group or negative for an employee of that racial group, against which there is racial bias (employer will facilitate the racial group he/she views favorably).
Statistical Discrimination
It is very subtly for discrimination, which exists in labor markets around the world. This type of discrimination judges or evaluates the individual basis of his/her group with which he/she is associated. The average characteristics of the group, which could be racial or ethnic, are used to evaluate an individual. It is a common practice, which is not methodical but rather non-methodical.
Customer Discrimination
It is the type of discrimination which customers practice, and it directly and strongly affects both hiring and wages. For instance, if customers do not like to be attended by people of a particular race or religion, then an employer is reluctant to hire people of that race or religion. If the of that segment of labor is large, then the labor market becomes less competitive. Let’s assume that a religious group makes up 20% of the labor market and the perception regarding that group is highly negative (for any reason). If employers hire fewer units of labor from this group, the entire labor market will get affected (adversely).
SELECTED GROUP
The group, which we have selected for this academic exercise is women. Discrimination issues, about hiring and wages, which women face in the labor market, are categorized as gender discrimination issues. Generally, the gender discrimination implies the discrimination against women and gender-neutral individuals. We have not emphasized gender-neutral people because of lack of credible statistical evidence about the discrimination issues gender-neutral people face in the labor market.
From the systematic review of the literature, it is apparent that women are not only discriminated against in hiring, but also, they are also paid less for the same employment of job. Also, the industries only have a particular type of employment for women, which implies that only very few sectors of the economy, women are employed. However, it is also a fact the more women are being employed in non-traditional sectors, which is positively affecting the economy (Weichselbaumer and Winter‐Ebmer).
In heavy industries, such as mining, quarrying, manufacturing, construction, and public utilities, the hiring of women has declined since 1993. As per World Bank Statistics, in the year 1991, almost 21.064 million were employed in heavy industries. However, in the year 2017, the total number of women employed in heavy industries came down to 15.304 million. The cause of this decline could be better opportunities for women in other sectors of economy or employer’s discretion, to hire men (may have presumed that marginal product of male laborer is higher than the marginal product of female labor) (Kauflin).
As stated earlier that gender discrimination has various forms and causes. In the case of women, it is cultural and corporate perceptions that are not based on credible evidence. The discrimination against women also discourages them from participating in the economy as per their potential. For instance, the Middle East and South Asia, where men are preferred over women as an employee, the participation rate of women in the labor force is only 26% and 35% respectively. However, where such cultural bias against women does not exist, the participation rate in the labor force is also high. For instance, in Sub-Saharan Africa and East Asia/Pacific, the participation rates are 61% and 64% respectively. It suggests that in those parts of the world, where participation rates of women, in the labor force, are high, gender discrimination is not a serious hindrance (The World Bank).
Another issue pertains to wages, which is also subtle for gender discrimination. Different studies have concluded that in many industries, women are paid less for the same job than men. The industry-to-industry breakdown makes it apparent that in some industries that pay gap is enormous, whereas in others the pay-gap is small or insignificant; however, it still exists. For instance, in the industry of Finance and Insurance, the Gender pay-gap is around 29.1%, whereas, in Public Administration, the pay-gap is 25.6% (Public Administration includes civil servants). Also, changes in wage or gender pay-gap also vary from city to city and state to state (Kauflin).
In some sectors of the economy, the gender gap is very small. For instance, in the Water Supply, Sewerage, Waste Management and Remediation sector, salary parity are the minimum; only 5.5% regarding the mean gender pay gap. Regarding the median pay gap, the Food Services have the lowest salary parity; only 1%. It reveals that gender, salary parity or gender wage-gap is influenced by the structure of industry, culture, norms and prevailing perceptions. Some studies have also suggested that women are paid more in such firms, which are dominated by men (regarding numbers).
From the discussion, it is evident that we can use gender-wage parity and women’s participation in the labor force as proxies of gender discrimination in the labor market. The data about gender wage-gap and rate of participation in the labor force will provide us with a better understanding of gender-based discrimination in different countries. In the next section, we will analyze salary parity and participation rate of three different countries. After the analysis, we will discuss how the participation rate and gender and salary parity may affect the economy of the selected countries.
DISCRIMINATION SELECTED GROUP FACE IN LABOR MARKET OF SELECTED COUNTRIES
Countries, which we have selected for the analysis, are the United Kingdom, the United States, and India. We have selected these countries because these are large economies. Two of these three selected countries, the United States and the United Kingdom, are developed countries with mature industrial and corporate systems, whereas India is a developing economy with an expanding industrial and corporate base. Structurally, the economic systems of each country are different, and culturally all these countries are unique, which will make gathered information more valid.
United States
Participation Rate in Labor Force
Since 1990, the women participating in the labor force of the United States have not changed much. In the year 1990, it was 56.206%, and in the year 2017, it was 55.735%. The participation rate of women is not dismal, but rather it is impressive. The data suggest that almost half of the women do not actively participate in the economy and there could be several reasons for it. One of the reasons could be fewer opportunities in selected industries. Studies suggest that in very few industries offer equal opportunities to women, which might be the cause of 55.735% participation rate. Also, women are generally preferred for administrative roles, which further reduce corporate or economic opportunities for women (World Bank).
Gender Pay-gap
As per a study by Pew Research, the gender pay gap has narrowed significantly, in the United States, since 1980. However, in the last 15 years, it has stayed quite stable. We learn that in some of the industries, the gender pay gap is higher than the other industries. The pay-gap in a few industries, such as manufacturing and mining, is understandable; however, the pay gap in the public administration sector is quite baffling. It suggests that the pay gap is not just a consequence of economic factors, as some studies suggest, but rather cultural factors also play a major role in keeping a gender pay – gap a relevant subject. For instance, in the year 2017 women earned 82% of what men earned for the same job or employment. In terms of time, women would require working for another 47 days to earn as much as men, for the same amount of work.
This gender pay-gap, in the United States, clearly suggests that gender-based discrimination exists in the United States’ labor market. However, this form of discrimination is very subtle and there are numerous factors that cause it (Graf, Brown and Patten).
United Kingdom
Women Participation in Labor Force
In the United Kingdom, women’s participation in the national labor force has increased evidently; however, the increase is gradual and small in size, For instance, women’s participation rate in 1990 was 51.933%, which has grown to almost 57% by the year 2017. It suggests that the work environment has improved and as the discrimination has decreased, the participation rate has increased. However, there are other factors too of increase in workforce participation, which include the 2007 economic recession, which officially ended in the year 2010.
Gender Pay-gap
The statistics about the gender pay – gap, in the United Kingdom, are quite interesting. For instance, three out of four companies in the United Kingdom pay less to female in comparison to male staff. At least in nine sectors of the United Kingdom’s economy, women are paid less than men for the same amount of work or men earn at least 10% more on average in comparison to women. Some studies suggest that gender pay-gap in the United Kingdom is more than what is usually reported. It is because the process of collecting data and the authenticity of data are highly questionable. The anomalies in the system designed by the government to learn about the gender pay-gap understand the size of the gender pay – gap. Studies also reveal that despite knowing that the company pays women less in comparison to men, women still work for that company. Despite strong legislation and policies regarding gender discrimination based on the difference in wages, there has been little change in the gender pay – gap, suggesting corporate practices have not changed much in recent years (Wisniewska, Shannon and Gordon).
India
Labor Force Participation Rate
Labor Force Participation rate, in India, has decreased dramatically since 1990/. As per statistics of the World Bank, in the year 1990, women’s participation rate in the economy, as labor, was 35.107%, however, in the year 2017, the participation rate in the labor force dwindled to 27.209%. This dramatic decline is caused by multiple factors, which include evident gender-based discrimination in the labor market. There is enormous statistical evidence that suggests that gender-based discrimination in India is enormous. Also, gender-based discrimination, which exists in the labor market, has several forms, which include wage parity between men and women.
Gender Pay-gap
As per recent studies, which are comprehensive and based on valid data, the wage parity with India is around 20%. Indian women, who are employed in different sectors of Indian economy, earn 20% less than men. Some studies have suggested that gap is greater than what is reported by state institutions. Monster Salary Index has asserted that gender pay-gap is around 25% wide, which is strongly affecting the Indian economy that already has a very women participation rate in the national labor force (The Economic Times).
Labor Force Participation (US/UK/India) Graph
Source: https://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS?locations=US-GB-IN
IMPACT ON THE ECONOMY
Gender Discrimination in the labor market, especially in the form of pay-gaps, strongly affects economies. According to the report, by the World Bank, published in 2018, globally economies lose around $160 trillion in wealth because of wage different or earning gaps that exist between men and women. Gender discrimination in the labor market keeps women from fully participating in an economy, which has serious consequences. One of the consequences is that GDP per capita remains stagnant, as a large segment of the population is either not working or if working, that segment of the population is being paid fully.
The low participation rate in the labor market or labor force affects both consumption and savings of an average household, which may yield poverty. It is also essential to acknowledge that savings eventually translate into investment, which keeps the employment rate at full and consumption level high.
Almost all countries recognize that it is imperative to increase women’s participation in the labor force so that 1) consumption level remains high, 2) wages may remain competitive and 3) average household income remains high. In fact, in many developed and developing countries, legislation and policies ensure that firms or employers pay, equal pay to both men and women for an equal amount of work they do.
Statistics about gender pay-gap are apocryphal, which makes it difficult to construct a true picture regarding the income or wage parity between men and women.
CONCLUSION
From the methodical study of the subject, it is concluded that discrimination of various sorts exists in the labor markets of different countries. For this exercise, the sub-group we selected was women. We studied two types of discrimination, hiring, and wages, which affect women in labor markets. We learned that women earning less than men in all selected countries. However, in some countries, the pay-parity of wage differentials is greater than others. We have also learned that in developed or matured economies that participation rate higher; however, all most half of the women decide not to participate in economy fully. The reason could be the work environment for women or fewer lucrative opportunities. In the case of India, the participation rate has declined evidently and sharply, which suggests that economic and corporate systems are not yielding lucrative opportunities for women.
The hiring of employees on merit and just wage would have a strong and positive impact on the economy. It will increase the average income of a household, and it will ensure a higher GDP per capita. The labor market and wages will become more competitive, which will ensure the optimal allocation of resources. We conclude that discrimination exists in the labor market and women face these discriminations in the form of wage disparity and hiring for a particular job in certain industries.
Work Cited
Ashenfelter, Orley and Albert Rees. Discrimination in labor markets. Princeton University Press, 2015.
Bertrand, Marianne and Sendhil Mullainathan. “Are Emily and Greg more employable than Lakisha and Jamal? A field experiment on labor market discrimination.” The American Economic Review 94.4 (2004): 991-1013.
Graf, Nikki, Anna Brown and Eileen Patten. The narrowing, but persistent, gender gap in pay. 9 April 2018. Web. 7 August 2018. http://www.pewresearch.org/fact-tank/2018/04/09/gender-pay-gap-facts/.
Kauflin, Jeff. The 10 Industries With The Biggest Gender Pay Gaps. 6 December 2016. Web. 7 August 2018. https://www.forbes.com/sites/jeffkauflin/2016/12/06/the-10-industries-with-the-biggest-gender-pay-gaps/#2338fc8d51d4.
Mays, Vickie M, Lerita M Coleman and James S Jackson. “”Perceived race-based discrimination, employment status, and job stress in a national sample of Black women: Implications for health outcomes.” Journal of Occupational Health Psychology 1.3 (1996): 319-329.
The Economic Times. Gender pay gap scenario daunting in India, women get paid 20% less than men. 7 March 2018. Web. 8 August 2018. https://economictimes.indiatimes.com/magazines/panache/gender-pay-gap-scenario-daunting-in-india-women-get-paid-20-less-than-men/articleshow/63204351.cms.
The World Bank. World Development report 2012: Gender Equality and Development. 2012. Web. 8 August 2018. https://siteresources.worldbank.org/INTWDR2012/Resources/7778105-1299699968583/7786210-1315936222006/Complete-Report.pdf.
Weichselbaumer, Doris and Rudolf Winter‐Ebmer. “A meta‐analysis of the international gender wage gap.” Journal of Economic Surveys 19.3 (2005): 479-511.
Wisniewska, Aleksandra, Billy Ehrenberg Shannon and Sarah Gordon. Gender pay gap: how women are short-changed in the UK. 5 April 2018. Web. 7 August 2018. https://ig.ft.com/gender-pay-gap-UK/.
World Bank. Woment Participation Rate in labor Force USA. 1 Jaunary 2018. Web. 7 August 2018. https://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS?locations=US.
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