During the last two decades the issue of equality according to sex and race has become one of increasing importance to economists. An extant literature on the economics of discrimination began with the pioneering work of Becker (1957). This paper is an attempt to shed further light on the extent of employer discrimination by sex and race by comparing the earnings of self-employed workers to their wage and salary counterparts. In short, if employer discrimination is a principal source of discrimination against blacks and women, then we would expect the black/white and female/male earnings ratios to be higher for the self-employed compared to their wage and salary counterparts. No discrimination of this type is applicable to self-employed workers. In addition, blacks and women should be relatively overrepresented among the self-employed compared to wage and salary workers in the economy. Section II of this paper further elaborates on this indirect method to estimate the extent of employer discrimination in the labor market for blacks and women. In section III, the results of this method are presented using the 1978 Current Population Survey as the data source. Results indicate the black/white and female/ male earnings ratios are no larger for the self-employed compared to their wage and salary counterparts, even after making various attempts to adjust for differences in other variables that affect earnings, and to limit the influence of consumer discrimination on the results.

The relationship between age-earnings profiles and worker incentives is examined by contrasting wage and salary workers with the self-employed. It is argued that the steepness of wage and salary workers' age-earnings profiles reflects the desire to provide work incentives to those workers. Since self-employed workers do not face this agency problem, they are used as a benchmark to gauge productivity. Empirical support of the proposition is provided, and the effects of human capital accumulation are separated empirically from incentive effects. The most important conclusion is that under some strong assumptions, most of the slope in age-earnings profiles is accounted for by the desire to provide incentives, rather than by on-the-job training.

Regional Workshops to Improve the Teaching Skills of Economics Faculty by Rae Jean B. Goodman, Mark Maier and Robert L. Moore. Published in volume 93, issue 2, pages 460-462 of American Economic Review, May 2003