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Determining the residual approach

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1. A study used "residual approach" to measure wage discrimination and concluded that 30 percent of the wage gap between men and women was due to labor market discrimination. First, discuss the residual approach. Second, why the residual approach might not provide "true" amount of discrimination.  For example, wage differences between men and women do not reflect discrimination, but rather differences in rational decisions with respect to demand for education, supply of funds, societal factors, etc.  Show and explain

2. An economist stated: "Discrimination against women? Now you are not talking like an economist.  There can't be systematic labor market discrimination against anybody, for if anybody was being paid less than their marginal product; the profit-maximizing employers would substitute workers.  The resultant shift in the relative demand curve would put an end to any wage differences that are not due to quality factors." What do you think the theories of discrimination say to support or refute this economist?

Reference no: EM131398640

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