Principles of Microeconomics / Unit 13 MIC 1225 worked example, 60 to 90 seconds
Is It Discrimination?
The idea
Given two groups' earnings, work in three steps. First, list the productivity characteristics that should be equal before a gap counts: education, experience, hours, occupation and tenure. Second, ask what remains after those are held equal; that residual, not the raw gap, is the candidate. Third, name evidence that shows discrimination directly: an audit that sends identical applications differing only in a name, or same-credential workers whose pay diverges over a career.
In practice
Worked example: one group earns eighty percent of another's pay. Part of the gap is hours and occupation; holding those equal it narrows to ninety percent. Part of the rest is experience interrupted by care work; holding that equal it narrows again. What survives all the controls is the residual that discrimination could explain, though an unmeasured characteristic could too. The direct evidence is different: an audit that sent identical résumés under different names found that names associated with White applicants received about fifty percent more callbacks, which no productivity difference can explain. That study is Bertrand and Mullainathan, two thousand four.
Where people slip
A raw gap overstates discrimination and a fully controlled residual can understate it, since controls such as occupation may themselves be shaped by it. And the audit method shows discrimination at the hiring door, not how much of a pay gap it explains.
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