Labour Economics (Economics 3341)
1. Explain the issue of “omitted skill variables” in relation to wage discrimination. Explain
why you think this is or is not an important.
Wage discrimination has been a major challenge in many businesses. It happens when an
individual employee is given lower remuneration for a similar work done by another worker.
Omitted skill variable is a significant issue that is causing wage discrimination and it is generally
used to conceal the real reasons behind biases in an organization in the form of gender, ethnicity
or race. Omitted skill variable happens when an employer actively discriminates against some
employees through excluding some skills possessed by the workers (Dupuy, Fouarge, &
Buligescu, 2009). In this case, wage discrimination is supported through establishing the
perception of absence of a set of skills in a person where as that is not the actual case.
The concept of omitted skill variable is very important in relation to wage discrimination
as it helps us to comprehend why an employee is paid less than others on the argument of lesser
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