According to the Bureau of Labor Statistics in 2013, the unemployment rate for A

Question

According to the Bureau of Labor Statistics in 2013, the unemployment rate for African American men was 13.1% while 6.5% for White men. At the same time, African American men earned median usual weekly earnings of $1,002 and $1,359 for White men. (20 points) How would neoclassical economists explain these differences? Use marginal productivity and at least one other idea from this perspective to explain these difference. How would a political economist critique this approach to understanding the work experiences of minorities? Offer at least two specific concepts that would be raised in their alternative approach.

Explanation / Answer

An open-minded, profit-oriented, business owner would like to hire worker up to the point where the supply of labor meets the demand for them. This is the marginal productivity rule.

Consider the fact that wages for whites are high enough and blacks are underpaid and underemployed, their wages are low and thus there is a large wage inequality. If it is presumed that the business owners are greedy (care for profit) and there is no sexism or racism present, they would hire more blacks for the same job whites are conducting, simply because they could offer blacks a little bit more than their other jobs paid but less than they were currently paying whites. This would mean that they could get all the labor they need at much lower cost by hiring more blacks. Thus the business owner’s desire to make money can serve to narrow the wage gap, at least a little.

However, consider that at times it happens that the business owners are not racist in themselves and they are as open-minded and profit-oriented as they should be according to the normative approach, there are reasons why they involuntarily pursue such behavior. Profit is the ultimate force that derive managers to conduct the business operations. But if managers see that their business decreases whenever they hire more blacks or more women, they may decide to hire only whites and they will pay more to attract them. This would mean that even though the managers disfavor sexism or racism, they are compelled to do so.

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