Suppose there are two groups of workers. On average, group 1 earns $50,000 per y

Question

Suppose there are two groups of workers. On average, group 1 earns $50,000 per year and group 2 earns $30,000 per year. Suppose that groups 1 and 2 have the same levels of innate ability.

1.What are some reasons that groups 1 and 2 might earn different amounts? List four potential reasons.

2.Suppose that groups 1 and 2 enter different types of occupations. Group 1 tends to work in high-paying jobs, while group 2 tends to work in low-paying jobs. Once we take this into account, there is no earnings gap between groups 1 and 2. Does this prove that discrimination is not the reason group 1 earns more than group 2? Why or why not?

3.How might we design a study to determine if there is truly discrimination against group 2?

Explanation / Answer

1. The employers have show ability bias basing on the education levels of the workers, bacause of assumption that highlu educated workers tend to be more productibe.

Wages are paid according to the Job category, other things being equal, hard jobs with unpleasantness are paid high wages.

Discrmination: Racial, religious, gender and age discriminations lead to difference in demand and supply of labor.

Workers have limited information regarding the payscale across the industry leading to difference in wages and immobility of labor.

Immobility of labor: Workers may not change jobs easily as a result of natural or artificial barriers and geographical immobility.

2. Discrimination is not the reason as different jobs have different non monetary categorization. Jobs relative to high unpleasantness tend to offer more wages than the jobs which are easy and preferred by the workers.

3. Design the study in the order : Establish the nature of Job, accessibility to the workers to commute to the workplace, calculate the demand and supply of workers for the job, observe for any bias based on education or discrimination, estimate the ability of the workers according to the job nature, estimate the wages accordingly.

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