Measurement of labor market discrimination against women and minorities has become an increasingly intense focus for research in the past several years, although uncertainty remains as to exactly what discrimination consists of and how it may be measured in a way that people can understand. Economists have devised several methods for measuring the discrimination-based portion of earnings differences among white males and females and/or minority groups. This paper will provide as analysis of labor market discrimination using the methodology developed in economics by Oaxaca (1973)(1) and extended by Cotton (1988).(2) The paper will focus on earnings differentials between white and Hispanic sub-groups over the period from 1970/1976 through 1995, and will seek to determine how much relative earnings have changed, and whether discrimination continues to be a factor.
In section II, we will look at just what discrimination is to an economist and how it can be measured by incorporating a human capital approach, or by observing the controllable traits that an individual possesses. Section III discusses the model used in conjunction with the variables, and the results from regression equations are presented in section IV. In section V, we look at our results for data from the 1970s as well as the 1990s, followed by a summary and conclusions in section VI.
Discrimination and the Human Capital Model
It is commonplace in our society to hear that blacks, women, Hispanics, and increasingly, white males are victims of labor market discrimination. There are two main costs associated with discrimination: costs to the national economy in the form of reduced Gross National Product and costs to the group discriminated against. Labor market discrimination occurs when two equally qualified individuals are treated differently solely on the basis of their gender, race, age, disability, etc. In this section, we will discuss exactly how discrimination is measured and what it consists of using women's experience as an example.(3)
The human capital model seeks to separate earnings differentials, which may be due to differences in qualifications from differentials which might result from discrimination. In general, human capital investment consists of resources that are invested today in an individual in order to increase future productivity and earnings, including formal education, on-the-job training, job search, and geographic migration. Labor markets are dissimilar from other markets in that labor services cannot be separated from the individuals who provide them. People tend to take more into account than simply the monetary results of their personal decisions, which makes motives behind pursuing certain jobs or careers more difficult to determine.(4)
Several factors contribute to differences :in earnings among different groups of people. Earnings are assumed to increase with education due to a resulting increase in worker productivity. Another means of increasing worker productivity is through on-the-job training. However, even when these factors are taken into account, at each worker category, women continue to earn less than their male counterparts. Women are being paid less than their marginal products.
In the male-female discrimination situation, from 60 to 66% of the gender pay inequity can be explained as resulting from qualification differences, such as differences in fields of study and education levels. Earnings differentials, which cannot be explained by differences in labor market characteristics, are what economists consider to be evidence of actual discrimination. The main problem lies in the fact that we do not have information on all characteristics affecting productivity. Thus, the wage differential due to discrimination is almost surely an overstatement. How much of an overstatement is what makes discrimination still an evolving field of study.
The discrimination coefficient measures the strength of an individual's discriminatory taste or the costs of hiring the discriminated group in money terms. …