Instructions for Short Paper Assignment

Instructions for Short Paper Assignment
Write a research paper, three to five pages in length. The paper should be submitted
online in Canvas and contain at least 4 references other than the textbook that you can
reference within the article. For example:
According to the July 5th article in the New York Times entitled “Cunningham is right
about the Microsoft,” blah… blah… blah… (Yeah, I just made that up.)
The idea is that you are writing a short opinion piece or editorial letter to a leading
newspaper, arguing about some microeconomic issue. This might be something like:
● It’s time to break up the Microsoft monopoly…
● Amazon proves the benefits of market concentration.
● Equal Pay is about more than wage discrimination against women!
● Wage discrimination is largely a myth!
● How retail selling has changed–the outlook for holiday spending this year.
● Is it possible to avoid market concentration in the internet age?
● etc.
Most important in evaluating your paper will be to demonstrate and apply your
understanding of microeconomics and market structure. I’m really not interested in your
political views or pet peeves. Although they may appear, they should not dominate the
paper. Make economic arguments.
Short/brief is good. You’ll find getting this down to 3-5 pages more difficult than just
writing long. But the painful truth is that editors are more likely to publish you if you are
brief and to the point. They like ideas and not just “I just like higher/lower taxes” or “my
life is tough.” They want “Maine has a net outflow of working age population of 2% per
year, and a reduction of the state income tax to 5% would reverse this trend, leading to
substantial migration of firms to Maine over the next 5 years.” (I just made that whole
thing up. You shouldn’t make stuff up!)
This should be a relatively fun assignment and gives you an opportunity to use some of
what you have learned. As we move forward over the next couple of weeks, we’ll be
covering a lot of material that should be useful to you in doing this assignment. Who
knows? Maybe you’ll write something that can be published!
Textbook Chapter outline regarding the topic bolded above
Textbook: principles of economics by N. Gregory Mankiw 9th edition
Chapter 19: Earnings and Discrimination
Determinants of Equilibrium Wages
● Compensating differentials
○ Difference in wages that arises to offset the nonmonetary characteristics
of different jobs
○ Higher supply of labor for “good” jobs
■ Lower equilibrium wage
○ Lower supply of labor for “bad” jobs
■ Higher equilibrium wage
Human Capital
● Human Capital
○ Accumulation of investments in people
■ Education
■ On-the-job training
○ Higher productivity
○ Workers with more human capital earn more
● Firms – demanders of labor
○ Willing to pay more for highly educated workers
■ Higher marginal products
● Workers – suppliers of labor
○ Willing to pay the cost of becoming educated
■ Only if there is a reward for doing so
● Wage differentials
○ Highly educated workers earn higher wages
○ Less educated workers earn lower wages
○ Compensating differential
■ Cost of becoming educated
The Increasing Value of Skills
● Earnings gap between skilled & unskilled workers increased over the past two
○ Man with a college degree
■ 1974, 42% higher earnings than without a college degree
■ 2014, 81% higher earnings
○ Woman with a college degree
■ 1974, 35% higher earnings than without a college degree
■ 2014, 71% higher earnings
Table 1: Average Annual Earnings by Educational Attainment
– College graduates have always earned more than workers who did not attend
college, but the gap has grown even larger over the past few decades.
The Increasing Value of Skills
● Widened earnings gap
○ Increasing demand for skilled labor relative to unskilled labor
■ Higher wages for skilled labor
■ Greater inequality
○ Two possible causes:
■ Increase in international trade
■ Changes in technology
● Increase in international trade
○ Domestic demand for skilled labor rises
○ Domestic demand for unskilled labor falls
● Skill-biased technological change; changes in technology
○ Raise the demand for skilled workers who can use the new machines
○ Reduced the demand for the unskilled workers whose jobs are replaced
by the computers
Ability, Effort, and Change
● Natural ability
○ Workers with greater natural ability earn more
● Effort
○ People who work hard are more productive & earn more
● Chance
○ Can influence wage
The Benefits of Beauty
● How prevalent are the economic benefits of beauty?
○ Labor economists Daniel Hamermesh & Jeff Biddle
○ More attractive people
■ Earn 5% more than people of average looks
○ People of average looks
■ Earn 5 to 10% more than people considered less attractive than
What explains these differences in wages?
● Good looks – a type of innate ability
○ Determines productivity and wages
○ Attractive worker – more valuable to the firm
■ Acting, sales, and waiting on tables
■ Firm’s willingness to pay more to attractive workers reflects its
customers’ preference
● Reported beauty – indirect measure of other abilities
○ Dress, hairstyle, personal demeanor
■ Attributes that a person can control
■ Perhaps – more likely to be an intelligent person who succeeds at
other taks as well
● Beauty premium – type of discrimination
● Earn a college degree
○ No real productivity benefit
○ Signal high ability to prospective employers
■ Easier for high-ability people to earn a college degree
● Human-capital theory
○ Education – workers more productive
○ Policy to increase education attainment
■ Higher productivity & wages
● Signaling theory
○ Education – natural ability
○ Policy to increase education attainment
■ No increase in productivity
■ No change in wages
The Superstar Phenomenon
● Superstars in the field
○ Great public appeal & astronomical incomes
● Superstars arise in markets where
○ Every customer in the market
■ Wants the good supplied by the best producer
○ The good is produced with a technology
■ The makes it possible for the best producer to supply every
customer at low cost
Above-Equiibrium Wages
● Reasons for above-equilibrium wages
○ Minimum-wage laws
○ Market power of labor unions
○ Theory of efficiency wages
● Effects of above-equilibrium wages
○ Surplus of labor
○ Unemployment
● Union
○ Worker association – bargains with employers over wages & working
● Strike
○ Organized withdrawal of labor from a firm by a union
● Efficiency wages
○ Above-equilibrium wages paid by firms to increase worker productivity
Economics of Discrimination
● Discrimination
○ Offering of different opportunities to similar individuals who differ only by
■ Race
■ Ethnic group
■ Sex
■ Age
■ Other personal characteristics
Table 2: Median Annual Earnings by Race & Sex
● Different groups of workers earn substantially different wages
○ Discrimination?
○ Human capital
■ Quality & quantity of education
■ Job experience
○ Kinds of work able & willing to do
○ Compensating differentials
■ Working conditions
● Differences in educational attainment
○ 2017, men & women age 25 & older
■ 34% of the white population had a college degree
■ 24% of the black popultion
● Quality of public schools
○ As measured by: expenditure, class size, and so on
○ Historically: public schools in predominantly black areas have been of
lower quality than public schools in predominantly white areas
● Human capital acquired in the form of job experience
○ Women are more likely to interrupt their careers to raise children
○ Population aged 25 to 44
■ 75% of women are in the labor force
■ 90% of men
● Compensating differentials
○ Men & women do not always choose the same type of work
○ Women are more likely to be secretaries
○ Men are more likely to be truck drivers
○ Different working conditions
Is Emily more Employable than Lakisha?
● Economists Marianne Bertrand & Sendhil Mullainathan
○ Answered more than 1,300 help-wanted ads run in Boston & Chicago
○ Send in nearly 5,000 fake resumes – similar
■ Half of the resumes had names that were common in the African
American community
■ The other half had names that were more common among the
white population
● Results
○ Job applications with white names
■ Received about 50% more calls
○ Discrimination occured for all types of employers
○ Conclusion
■ “Racial discrimination is still a prominent feature of the labor
Discrimination by Employers
● If one group in society receives a lower wage than another group
○ Even after controlling for human capital & job characteristics
○ Who is to blame for this differential?
■ Employers – discriminatory wage differences?
● Competitive market economies
○ Natural antidote to employer discrimination: profit motive
● Workers differentiated by hair color
○ Blondes & brunettes
■ Same skills, experience, & work ethic
■ Discrimination: employers prefer not to hire blondes
○ Demand for blondes – lower
■ Blondes – earn a lower wage
○ New firms – hire blonde workers
■ Lower wages
■ Lower production costs
■ Higher profits
○ “Brunette” firms
■ Higher production costs
■ Diminishing profits
■ Losses
○ “Brunette” firms to go out of business
○ Eventually:
■ Demand for blonde workers – rises
■ Demand for brunette workers – falls
■ Wage differential disappears
○ Competitive markets
■ Have a natural remedy for employer discrimination
Segregated Streetcars & the Profit Motive
● Early 20th century
○ Streetcars in many southern cities were segregated by race
■ White passengers sat in the front of the streetcars
■ Black passengers sat in the back
● Why?
○ Laws required such segregation
○ Before these laws were passed, racial discrimination in seating was rare
○ Common to segregate smokers & nonsmokers
● Firms that ran the streetcars
○ Often opposed the laws requiring racial segregation
○ Separate seating for different races
■ Raised firms’ costs
■ Reduced firms’ profit
● General lesson
○ Business owners – more interested in making profit
■ Than in discriminating against a particular group
○ When firms engage in discriminatory practices
■ Ultimate source of the discrimination often lies not with the firms
themselves but elsewhere
Economics of Discrimination
● Discrimination by customers & governments
○ Limits to the profit motive corrective abilities
○ Customer preferences (discriminatory)
■ Willing to pay more to maintain the discriminatory practice
○ Government policies
■ Mandate discriminatory practices
Discrimination in Sports
● Measuring discrimination is often difficult
○ Correct for differences in the productivity
● Professional sports team
○ Can measure productivity
○ Racial discrimination is common
■ Much of the blame lies with customers
● Discriminatory wage gap can persist
● Even if team owners care only about profit
● Market prices of old baseball cars
○ Customer discrimiation

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