Econ 144: Poverty and Discrimination Assignment 3

1. Explain how “the theory of self-confirming expectations” model generates wage

differentials between blacks and whites?
a. In the self-confirming expectations model, employers have equal difficulty
observing the productivity of blacks and whites. However, they have very different
expectations about whites and blacks. They think it is less likely that blacks invest
in themselves than that whites do so. Therefore, they require a higher signal of
investment in order to believe that a black has invested. Given that a higher
signal is required, blacks are less likely to invest. Therefore, employers’
expectations are correct. This leads to whites being paid more than blacks.
2. What policies would be effective in reducing black-white wage differentials under “the
theory of self-confirming expectations” model?
a. One policy that would work in the previous example is to subsidize
training.Another solution is to try to force employers to act as if they had the
same beliefs about black workers as they have about white workers. Because we
cannot observe their beliefs or the signals they observe, we can force them to act
similarly only in a very simple way. We can require them to hire whites and blacks
into skilled jobs in the same proportions and pay them the same wage in each
job. This is referred to as affirmative action
3. What is the spatial mismatch hypothesis, and why is it difficult to test?
a. The spatial mismatch hypothesis is housing segregation hurt blacks because it
forced them to live farther from employment centers. As jobs leave the central
city for the suburbs, some people will relocate to the suburbs, and it is likely to be
people who have the most resources and fit in socially. In particular, if African
Americans find it more difficult to obtain suitable housing in suburban
neighborhoods and if subsidized housing is less readily available in the suburbs,
the poor and African Americans will be less likely to follow the jobs to the
suburbs. The spatial mismatch hypothesis is unusually difficult to test, in part
because it is very difficult to determine causality.
4. Much of the black-white earnings differential can be explained by the differences in the
skills that blacks and whites bring to the labor market. Do you agree or disagree?
Explain your position.
a. While I definitely do believe that difference in skill does help explain black-white
earnings differential,I lean more towards the disagreement for this argument.
Even when age and education held constant, blacks still made less when
compared to their white peers, but the wage differential substantially affects
those that have less education compared to those that do have a college degree.
I believe this does show that the employers beliefs/prejudice are more of a cause
to the black-white earning differential.
5. Go to https://soot.binghamton.edu/ and complete the student opinion teaching survey.
Once completed, reply “Yes” to this question.
a. Yes