CSMGEP Profiles: Ronald Oaxaca:
It's Not Always Rational
Ronald Oaxaca, McClelland Professor of Economics and Affiliated Faculty Member, Economics Science Laboratory, University of Arizona
One might say that Ronald Oaxaca came to economics bent over the hot steam of a dishwasher's sink in California's Central Valley the summer of 1959. Fresno in August is a town of bleached grass and blinds drawn against the heat. The elbow-to-elbow kitchen of a downtown diner is not the place one wants to be, and certainly not for minimum wage.
Oaxaca's father, a cop who patrolled the streets and housing tracts of Fresno, would die of a heart attack when Oaxaca was only 9, and his mother would move from setting perms at the beauty salon to a better paying receptionist job to support the family. When a friend's mother, who worked as a hostess at the diner, suggested Oaxaca might fill in for a vacationing dishwasher, he couldn't turn the money down. At the time, for a high school sophomore, a week at an adult wage was nothing to sniff at.
The money may have been good, but after one week in that kitchen, Oaxaca knew he was not cut out for the life of a laborer. He went home Saturday night knowing he was college bound. "How hard can studying be compared with that," he told himself.
While the prospect of back-breaking work at the minimum wage may have steered him to college, what steered him to economics was the power of personality. "I'd barely heard of economics," he said, when a friend convinced him to take an Econ 101 course. As it turned out, a semester with Professor Clair Nelson at California State would be his second conversion. The professor's passion for the field hooked Oaxaca from day one, and he promptly switched his intended major from history to economics.
Economics also satisfied his craving for definitive answers that the hard sciences provide while speaking to his love of social sciences. "I always thought the two areas were so separate," he said. But "by wedding the two, you can say a lot of things about phenomena in a very precise way, rather than talking in generalities." It would be the perfect combination, one that would reappear over the next 30 years in his research.
One phenomenon he has said a lot about over the course of his career is the gender gap in wages. His "Oaxaca Decomposition," as his method it is now called, is today used worldwide in settling worker discrimination suits. His work in this area has led him to be called one of the "100 Most Influential Hispanics in the United States" by Hispanic Business Magazine.
Today, Oaxaca applies the practices of the hard sciences to the squishy area of human behavior in his work. For him, homo economicus does not always ring true. He firmly believes—and is showing as much in the lab—that in economic transactions, "things are motivated by more than narrow economic interests."
As Oaxaca sees it, "People's economic decisions don't seem rational because what makes them happy is more than just money. Once you realize there are other things motivating behavior, then you can't view this behavior as irrational."
His most recent experiment in the lab is testing whether the gender wage gap might stem from something as "irrational" as group profiling. In this experiment, five subjects act as employers, and ten are workers looking for a job. The workers are divided into two groups of five. Each group is assigned a different distribution of job productivity but they are equally productive on average. Workers in Group 1 might have a 20% chance and Group 2 a 40% chance of achieving less than the average productivity, for example. The group to which subjects belong is visible to potential employers.
Given there are only five employers and ten workers, competition is stiff. If one group has a greater chance that its productivity will be less than the average, will some groups be unemployed more often? Will some be paid less? And is the decision based on presumptions about the group? After all, no one in the experiment knows how the individual in that group will perform on the job until after they are hired.
The groups in this situation can be stand-ins for men and women. Employers may think women as a group are less productive, or that their productivity varies more. As a result, they may seek to offer lower positions to women. "It's discrimination," says Oaxaca, "but not discrimination based on personal taste. It's discrimination based on group characteristics."
These kinds of decisions are a puzzle that has intrigued Oaxaca for thirty years. "I've grown very sympathetic to women in the labor market," he says. "It's heightened my sensitivity about situations they face." It is a sympathy to workers' situations first sparked perhaps back in a Fresno diner filling in for a dishwasher on vacation."
-- by Barbara Ray, Hiredpen, inc.
A salon and parlor game of the 19th century, made most famous by Marcel Proust's answers, the Proust Questionnaire (adapted here) gets to the heart of things....
What is your idea of a perfect day? Outdoors enjoying nature.
What's on your nightstand? A copy of Doris Kearn Goodwin's "Team of Rivals" and several issues of Macworld.
How do you treat yourself? What's your favorite indulgence? Going out to an expensive gourmet restaurant.
What trait do you most deplore in others? Indecision.
Whom do you most admire? Abraham Lincoln.
What is your greatest regret? Not investing enough in the stock market during boom periods.
What's your favorite sport? Basketball (spectator)
What's your most annoying/bad habit? Postponing administrative chores.
What could the world do without? Violence.
What will you never forget? Neil Armstrong walking on the moon.
What's your favorite movie? High Noon.
For a vacation, beach or mountains? I am a mountain man.
What's your personal motto? Live and let live.
If you weren't in economics, what would you want to do? Be an astronomer.