ECONOMICS OF DISCRIMINATION by Prof Chaudhury

In this Economics Society meeting Professor Chaudhury* gave a talk on “How economists analyse discrimination”.

Prof Chaudhury outlined at the beginning of her talk that in any social group men always earn more than women – gender differences far outweigh racial differences – from this starting point, Prof Chaudhury went on to give an account of how economists analyse pay discrimination.

The table below gives a flavour of the gross pay gaps across Europe – the chart shows that for every £1 a man earns in the UK, women are paid 21p less.  The smallest gender pay gap is in Italy.  Prof Chaudhury explained this is because in Italy “women only work if they have a good job, whereas in the UK lots of women work”

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Prof Chaudhury then gave an explanation of the wage decomposition technique.  This involves using a mathematical formula to analyse factors that influence the wages.

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The basic formula is then used to estimate separate wage equations for men and women.

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Prof Chaudhury then gave an account of the summary of her research and presented the society with a list of the primary drivers of wage differentials between men and women.

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Prof Chaudhury outlined that women tend to have lower experience accumulation throughout their careers than men.  This is related to career breaks and childbirth.  However, this is not the only factor explaining the gender pay gap.  Prof Chaudhury outlined that one of the primary drivers is often first job choice – further research suggest that this may be linked with ambition or the fact that a future career break is expected hence careers are chosen accordingly.  Furthermore, research suggests this may be linked with pre-labour market choice such as degree course choice.  The research also suggested that women possibly chose to invest less in their human capital because they expect a lower return on their investment over their working life.

Prof Chaudhury concluded that “even though women in the UK are more likely to finish a university degree they are often paid less”.  The society then discussed whether or not this was a form of market failure and if there was a role for government intervention in the labour market to reduce the gender pay gap.

This included a review of the hard (eg laws etc) and soft (eg changing attitudes) methods of intervention in the labour market.  For instance, the use of role models has been found to be beneficial in USA and more needs to be done to encourage women to choose future careers in sectors that are typically seen as male.  One area of particular concern is the fact that women tend to opt out of the STEM subjects at A level – which can limit future degree options.

Prof Chaudhury then present the final slide to give her views on where government policy should focus, concluding that “whilst there is a role for discrimination law in the workplace it may not be very useful if issues relating to pre-labour market choices are not resolved.”

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The meeting ended with the society thanking Prof Chaudhury for her time and for giving such an interesting and engaging talk.

*Professor Chaudhury is a lecturer at University College London. Her research interests include labour economics, specifically inequality and technological change. Prior to UCL, Prof Chaudhury taught at the University of Oxford, and in the US at Dartmouth College and Yale.

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