In the context of wage discrimination the effects of a changing population composition on wages have been analysed only when labour supplies are fixed. This note introduces variable supplies, with labour supply varying at the extensive margin. Contrary to the case of fixed labour supplies, we find that wages of the discriminated and the non-discriminated group can change in the same direction. The effects on the wage ratio however, are in the same direction as in the case of fixed supplies. The reason that wage levels can change in the same direction is that in addition to the relative labour supply effect, an aggregate labour supply effect can be of the opposite sign and dominate the relative labour supply effect.
|Published - 2011