Abstract (jel Classification Code(s): J 31, J 71)

JEL Classification Code(s): J 31, J 71) "Perceptions of Discrimination, Effort to Obtain Psychological Balance, and Relative Wages: Can We Infer a Happiness Gradient?" There is a substantial literature that finds a linkage between happiness and relative economic well being as measured by earnings or wages. There is also a well documented racial gap in wages. One explanation for this is disparate treatment or discrimination. Many black workers report perceiving that they face workplace discrimination in general and with respect to specific events such as hiring and promotion. This paper explores how such workers respond to these feelings, under the assumption that perceived exposure to discrimination cause psychological discomfort that workers seek to eliminate. We identify three alternative strategies for attaining psychological equilibrium when facing discrimination--waiting, shirking, and notification--each of which generates different predictions for intra-racial and inter-racial wage differences. Using data drawn from the Multi City Study of Urban Inequality, which contains information on perceptions of discrimination, we derive estimates of the relative wage effects of perceived discrimination to shed light on the which hypotheses is consistent with the data. We find evidence of a wage hierarchy with whites workers who believe they are treated fairly at the top and all other workers falling behind by an equivalent amount. Our evidence suggest that when confronted with hiring discrimination black workers appear to give greater effort to overcome this hurdle, as predicted by the notification hypothesis. However, when black workers sense that they face promotion or workplace discrimination, the evidence is consistent with their reducing effort to bring their output level down, and hence in line with their pay level. A number of questions remain to be explored including; are there systematic differences in the characteristics of those who report believing they face discrimination and those who believe they are treated fairly? does the skin shade of blacks who believe they are subject to discrimination, or the amount of time these individuals have spent with their current employer, influence the strategy they adopt to reach psychological balance? Arthur H. Goldsmith* Department of Economics Washington and Lee University Lexington, VA 24450 Office: (540) 463-8970 Fax: (540) 463-8639 e-mail: [email protected] Darrick Hamilton Milano – The New School of Management and Urban Policy The New School 72 Fifth Avenue New York, NY 10011 Office: (212) 229-5400, ext. 1514 Fax: (212) 229-5335 e-mail: [email protected] William Darity, Jr. Department of Economics University of North Carolina at Chapel Hill Chapel Hill, NC 27514 Office: (919) 966-2156 Fax: (919) 966-4986 e-mail: [email protected] * Prepared for New Directions in the Study of Happiness Conference, University of Notre Dame, October 22-24, 2006-10-17 Please do not quote without permission of authors.