Russ Roberts

Caplan on Discrimination and Labor Markets

EconTalk Episode with Bryan Caplan
Hosted by Russ Roberts
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Caplan.jpgBryan Caplan and Russ Roberts discuss the economics of discrimination and government's regulation of labor markets. They talk about the role of the profit motive in reducing or eliminating discrimination and the role of government, particularly in European labor markets. When does government regulation reduce or enforce discrimination? How do other labor market regulations affect employment and unemployment? What is the impact on the European and American standard of living? Does money buy happiness? Does it depend on whether it is earned or received as welfare? These are some of the topics that come up in this wide-ranging conversation.

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Readings and Links related to this podcast

Podcast Readings
HIDE READINGS
  • Bryan Caplan's home page
  • EconLog blog entries by Bryan Caplan
  • The Joy of Market-Clearing Wages, blog entry on happiness research by Bryan Caplan
  • Fair Play, by Steven E. Landsburg, at amazon
  • Highlights

    Time
    Podcast Highlights
    HIDE HIGHLIGHTS
    0:43Gary Becker, marketplace punishes those who discriminate. Key question: how long does it take? What percentage of discrimination is eliminated quickly?
    2:02Wage differences. Residual defined: What can be accounted for by other, non-overtly-discriminatory factors: education, age, IQ, family structure?
    4:19Narrowing of discrimination over time: What can profit motive do over time? Sports. Range of racism across society. Landsburg.
    10:52Alpaca farms. Get rich quick schemes pop up if there are any profit opportunities. "Straw man/woman". What other market forces work against discrimination?
    15:19Skeptics of market forces, pessimistic and optimistic views. Asking government for help. South African example, Walter Williams, South Africa's War Against Capitalism, apartheid. Jennifer Roback (Roback-Morse), 1984, Regulation: Jim Crow Laws limited labor mobility at the expense of blacks. E.g., recruiting employees across states was criminal; being unemployed was illegal.
    22:35Davis-Bacon Act: government required to pay union wage discriminated against blacks who were not allowed to be unionized. Minimum wage laws.
    24:45European example. Immigrants. Cross-country effects, social safety net, standard of living, cars.
    35:02Cross-country quality of life. Over time, is difference same or eroded? Purchasing power parity. U.S. vs. European success in the future? Canada. Unemployment rates vs. job security.
    41:41Happiness research defined. Measuring income, unemployment, smiling.
    Mailbag (Time mark 47:19-57:45)
      On Richard Thaler on Libertarian Paternalism. Ron Baty asks about Alfred North Whitehead (1861-1947), mathematician and philosopher who posited that civilization advances by extending the number of operations we can perform without thinking about them. Does that mean that to advance, we ultimately surrender our choices to government or employers? Russ and in-house guest Bryan Caplan go at the question with no final resolution.
    Addendum: Check out a follow-up question addressed in this Mailbag (Time Mark 1:10:00)

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    COMMENTS (8 to date)
    Lauren writes:

    Some side-discussions about this podcast:

    "Caplan on Discrimination" on Cafe Hayek with Russ Roberts
    "Podcasting, A New Experience" on EconLog with Bryan Caplan

    Max Roberts writes:

    I recently had a discussion with a couple of friends about a matter similar to what was discussed in this podcast. I was arguing for free trade, and the implicit gains for all parties involved. I pointed to NAFTA, and the prospects of CAFTA-DR, along with the emergence of China as a major exporter of goods that require low skill levels. My friends were more concerned with labour exploitation that occurs in the foreign countries where these goods are manufactured. They pointed to the discrimination of indigenous peoples, or workers accepting an appallingly low wage by U.S. standards, in S. America, C. America, & China as cause for "fair trade," not free trade. I countered with the point that this exploitation is the result of a non-competitive job market, something that could be remedied by increased foreign trade.
    If one assumes that GE, Ford, or Coca-Cola invest in these countries, open plants, and succeed in hiring enough workers where the VPMn = w, than these workers are better off. If the workers found the occupation to be undesirable, than they would be "free to choose" to leave the profession causing these foreign companies to change their production model to "incenticize" more workers to sign up. I fear that if "fair trade" was established as the accepted norm, these workers would not have the opportunity to take these jobs, and America would be deciding where the foreign worker's indifference curve should be.

    Lars Smith writes:

    One reason for larger houses in the U.S. than in Europe is subsidies for home ownership in the U.S., e.g. the home mortgage interest deduction. Another reason may be the lower cost of land because of the lower population density in the U.S.

    Andreas writes:

    Very good podcast!
    I am always fascinated, in what all different fields economic processes can solve problems.

    To europe: One strong reason for high gas-prices and car costs in general might be, that europe wants to become independent from oil, especially from its suppliers.
    High gas-taxes should provide increasing development of low-gas-needing cars, as well as an economically use of energy at all. Especially in Germany.
    Moreover the external cost (enviroment damage, climate change...) of car driving should be internalised.

    I hope my English was not too worse!

    Greetings
    Andreas, a German economics student

    Marco da Vinha writes:

    Yet another great podcast. I'm an American citizen currently living in Europe, Portugal to be more precise, and let me tell you that here at least there is a great mistrust of free markets and their workings (perhaps due to ignorance, I take it). The idea of a profession (or anything else, for that matter) NOT being regulated is equivalent to it being a breeding ground for corrupt practices and a threat to consumers. When I engage friends on alternatives to handling with certain government created problems and offer a market-based solution, their answer is always regulation - more and more regulation. It's a cultural thing, I guess. From what I've seen, most Latins like having a fatherly figure leading them by the hand (both my parents are portuguese, so no, I'm not biased against Latins).

    Before signing off, I was wondering what reports Mr. Caplan was refering to when he said that it has now been shown that minimum wage laws don't create unemployment for unskilled workers. I've always been under the impression that it did. How is it possible that it doesn't? Perhaps Mr. Roberts can dedicate one of the up-coming podcasts to this specific topic?

    That's all for now. Keep up the great work!

    Tomi writes:

    I liked the podcast, too. A few general remarks, though.

    I often wonder what is this "Europe" you talk about over there in the USA. The concept seems to be a bit vague but I guess it means France + Germany. Great Britain is sometimes added as an example of a "more American-style system" and Sweden as a "socialistic society". In reality Europe is, of course, something else, much more diverse, more diverse than the States. Just compare, say, Finland and Estonia, two neighboring countries with astoundingly different systems.

    Likewise, I often wonder how Americans manage to talk about the high taxes on gasoline and cars in Europe without apparently realising the reason behind them - well, at least the reason many politicians give. No, it's not a question of taste but of the greenhouse gas emissions and pollution in general the cars generate, micro particles and such,. Just check the EU goals on reducing pollution.

    That, by the way, explains partly the relatively cramped living conditions even in the Scandinavian countries where there should be room enough for "American-style" suburbs (they do exist, of course, but to a much lesser degree than over there). When people have just one car - or no car at all - they want to live close to public-transport lines. That again raises housing costs along railroads and main roads. City planning, too, tends to concentrate people in rather small pockets of houses partly because of the same reason.

    (Then again, I'd say that many people here in Finland, where I live, don't buy a second car because the insurance costs rather than taxes ... but because that notion pretty much ruins my argument I won't go into it ;-)

    That said, it's true that an average American simply has more money to spend on housing, cars, and what not. But we haven't given up hope ;-) On average Finland has done better than the USA in terms of the growth rates during the past 40-50 years or so (even though we had ten years ago about the worst depression in any western country in the past hundred years or so). Taking into account that Finland is in many ways far from the laissez-faire ideals, I will not buy off-hand mr Caplan's argument that the freer the system the more rapid the economic growth. Apparently it is possible to "manage" a country the same way as a firm, so to speak. Sure, certain incentives are lost, but others are gained. Sure, certain advantages of free markets are not present, but then again market failures - externalities in particular - can be better fought against.

    Anyway, thanks for the podcasts. I'm going to listen them all.

    Isaac Crawford writes:

    In general, I really enjoy these podcasts and I was very excited to see Mr. Caplan as a guest. This particular one disappointed me though, it was too rambling and didn't seem to have much focus. I think that 3 or 4 podcasts could be made about the topics discussed briefly in this one.. This is meant as constructive criticsm, I think the podcasts that have a single topic are much more engaging. One request, how about talking with some of the nobel laureats right there at Mason? That includes Tullock, who should have one... Keep up the good work!

    John Henry writes:

    Hi Russ,

    Another excellent podcast, although I was a bit behind in listening to it.

    I taught compensation management (and other courses) for about 20 years and we would always devote a couple hours to comparable worth and related issues. I used to use Thomas Sowell as my backup and pretty much agree with the position you and Bryan have on comparing women's wages with men. When you compare apples to apples eg; same age, education, job, industry, location etc, the differences between men's and women's earnings disappear.

    Sowell makes the point that just comparing experience is not enough. You must compare continuous experience. Since women tend to fluctuate into and out of the workplace more than men, mostly because of motherhood, they tend to have less continuous experience than men.

    You and Bryan had been discussing the lower wages of blacks and the need to compare apples to apples. When you do so, the differences disappear.

    I had never thought about it before but now I wonder if the continuous experience criteria may explain some of the differences between white and black wages? That is, blacks move in and out of the workplace more, suffer more unemployment (for whatever reason) and may be unavilable eg; in jail more then whites.

    If continuity of experience is useful in explaining male/female wage differences, might it not also be useful in explaining black/white differences?

    Big caveat: I do not know if blacks actually do have more discontinuous experience than whites. I have also never seen this addressed anywhere. It is just a thought that occurred to me as I was driving around listening to the podcast.

    I look forward to all of your podcasts. I like both your style of easygoing, relaxed discussion and the topics and people you pick to interview.

    As a liberal (if you absolutely must, a libertarian) I share pretty much share your political and economics point of view. That may help also. At least I am not yelling at my mp3 player "You chowderhead!!!" as I do with some other podcasts I listen to.

    Best regards,

    John Henry

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