13.6: Discrimination

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Wage differences are a natural response to differences in human capital. But we frequently observe wage differences that might be discriminatory. For example, women on average earn less than men with similar qualifications; older workers may be paid less than those in their prime years; immigrants may be paid less than native-born Canadians, and ethnic minorities may be paid less than traditional white workers. The term discrimination describes an earnings differential that is attributable to a trait other than human capital.

If two individuals have the same HK, in the broadest sense of having the same capability to perform a particular task, then a wage premium paid to one represents discrimination. Correctly measured then, the discrimination premium between individuals from these various groups is the differential in earnings after correcting for HK differences. Thousands of studies have been undertaken on discrimination, and most conclude that discrimination abounds. Women, particularly those who have children, are paid less than men, and frequently face a 'glass ceiling' – a limit on their promotion possibilities within organizations.

Discrimination implies an earnings differential that is attributable to a trait other than human capital.

In contrast, women no longer face discrimination in university and college admissions, and form a much higher percentage of the student population than men in many of the higher paying professions such as medicine and law. Immigrants to Canada also suffer from a wage deficit. This is especially true for the most recent cohorts of working migrants who now come predominantly, not from Europe, as was once the case, but from China, South Asia, Africa and the Caribbean. For similarly-measured HK as Canadian-born individuals, these migrants frequently have an initial wage deficit of 30%, and require a period of more than twenty years to catch-up. How much of this differential might be due to the quality of the education or human capital received abroad is difficult to determine.