Labour market discrimination and the macroeconomy

Abstract

We measure the discriminatory ethnic and gender wage gaps in Georgia. Gender wage discrimination is larger than the ethnic wage discrimination. We use the estimated gaps in a general-to-specific vector autoregression framework to test for Granger causality between discrimination and growth, and estimate the long-run effects of each variable on the other. Granger causality is found to be bidirectional, but it is only the net long-run effect of discrimination on growth that is a large and highly significant negative effect.In the long-run, a 10% increase in ethnic (gender) discrimination reduces economic growth by 3%-4% (8%-10%).Additionally, ethnic and gender wage differentials are found to be counter-cyclical.

Gender and ethnic wage differentials inhibit growth: A shred of evidence

“…For example, an increase in unemployment was found to increase the gender wage gap among white workers in the US (Biddle and Hamermes 2013). Similarly, increasing unemployment rates in Georgia were found to be associated with increases in both ethnic and gender discriminatory wage gaps (Asali and Gurashvili 2020).…”

“…where quarterly time series data from Georgia were analyzed, Asali and Gurashvili (2020) found that both ethnic wage discrimination and gender wage discrimination harm the economic growth of the country. The discrimination-induced misallocation of resources is the stated mechanism behind the negative effect of discrimination on growth.…”

vgets: A command to estimate general-to-specific VARs, Granger causality, steady-state effects, and cumulative impulse–responses

“…Moreover, Asali, Abu-Qarn, and Beenstock (2017) provided additional estimators of long-run (LR) and steady-state effects that can be calculated after the VAR or the GETS VAR. Asali and Gurashvili (Forthcoming) use this framework to study the relationship between discrimination in the labor market and the macroeconomy.…”