Interrogating Inequality
Introduction to economic theories of
discrimination & other explanations
of racial economic inequality
4 marxist conceptions of racial inequality
1) As general working class exploitation – derivative of capitalist relations (race is ‘ultimately’ class)
2) General working class exploitation and specific working class exploitation due to racial discrimination in the
workplace (analysis remains confined to market relations)
3) Resulting from autonomous systems of general working class exploitation and national oppression
4) Resulting from general and specific working class exploitation, racial oppression and patriarchy so
intertwined they form single system of white supremacist capitalist patriarchy
full analysis requires macrostructural and microinstitutional analyses, as well as broad genealogical investigation
i) Macrostructural political economy approach including modes of overdetermined class exploitation and
political repression
ii) Microinstitutional analysis of social & psychological mechanisms that inscribe and sustain logics of white
supremacy and patriarchy in the everyday lives of women and people of color
iii) Critical historical deconstruction of discursive conditions for the rise of white supremacy and patriarchy
(genealogies of modern racism/patriarchy) – European ‘enlightenment’ discourse & modern ‘western’
science – (Sandra Harding’s ‘curious coincidence’)
INTERROGATING INEQUALITY
Questions to keep in mind when examining any economic theory/model purporting to explain racial/gender
economic inequality:
1) Does the theory assume that markets are competitive? If yes, what conception of competition is offered
(e.g., neoclassical perfect competition, classical/Marxian competition, Austrian approach, neoMarxian monopoly capital approach, etc.)? If not, what market imperfections are assumed?
2) Does the theory assume that productivity is equal across racial or gender lines?
3) Does the theory acknowledge discrimination? If yes, what conception of discrimination is offered (e.g.,
‘taste’, individual irrationality, structural factors, etc.)? If no, what explains ‘race’/gender economic
inequality?
4) Are discrimination and competition compatible in the model?
5) Is the theory a general theory of discrimination (e.g., can it be applied to gender as well as racial
inequality)?
6) Is discrimination viewed as ‘rational’ or ‘functional’ in this model?
7) Who ‘benefits’ from discrimination in this model? Who is ‘hurt’ by discrimination? How are ‘hurt’ and
‘benefit’ defined?
Theories of discrimination
Mainstream (neoclassical)
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G. Becker’s ECONOMICS OF DISCRIMINATION (perfect competition and discrimination)
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Audit Studies (experimental studies with actors or using applications or résumés)
Arrow-Phelps Statistical Discrimination (imperfect competition and discrimination)
Human Capital theory (Becker et al.): (Perfect competition and no discrimination)
Culture of poverty – Thomas Sowell et al. (perfect competition and no discrimination)
Dual economy (mainstream)
Labor market segmentation (mainstream)
Efficiency wage theories
Theories of discrimination
Alternative (heterodox)
• Domestic (or internal) colonialism – Robert L. Allen, Stokely Carmichael,
et al.
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• Dual economy (alternative)—Michael Piore, et al.
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• Labor market segmentation (alternative)—David M. Gordon, et al.
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• Divide-and-Conquer thesis (Michael Reich et al.—neo-Marxian)
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• Classical Marxian—reserve army—Darity, Williams, Mason, Botwinick:
(competition and discrimination):(wed to interdisciplinary and historical
studies of white supremacy and patriarchy)
Gary Becker – Economics of Discrimination (1957)
Becker assumes markets are perfectly competitive.
Becker assumes Black and White workers are equally productive.
Model recognizes discrimination, but it is an individual ‘taste’ or
‘preference’, not historically analyzed racism as a social
institution, etc.
Becker I (1957)
Firms that discriminate must ‘pay’ to indulge their taste for
discrimination. Willingness to hire only some members of the
working class reduces the size of the potential labor supply
pool available and drives up wages. Firms that do not
discriminate will have lower costs when they hire the
employees discriminated against. Non-discriminating firms
will tend to replace discriminating firms. Competitive markets
limit the impact of discrimination on wages. Firms that do not
discriminate will be more profitable than those that do
discriminate.
Becker I (1957)
Discrimination and competition are not compatible in the long run in
the model.
Discrimination is not rational or functional in the model.
Capitalists who do not discriminate benefit in the model; capitalists
who discriminate are hurt. White workers benefit in the short run
in the model, getting higher pay, but they are hurt in the long run
because their firms go under.
Becker I (1957)
It is not clear that it can be a general theory of
discrimination, although it has been applied to
gender differentials.
2 options facing neoclassical analysis of racial economic
inequality
Given empirical fact of over 100 years of racial wage
differentials (long run under any definition), either:
1) Abandon assumption of perfect competition;
2) Explain differentials by something other than
discrimination
Arrow-Phelps Statistical Discrimination Models
Ken Arrow and others relaxed assumption of
perfect competition, specifically the assumption
that employers have perfect information about
productivity of job applicants.
If employers do not know how productive an
applicant will be, it may be costly to find out that
information, and so race or gender may be used
as a screening device. Applicants are assumed to
have the average productivity of their racial or
gender group.
Statistical Discrimination
The strengths of the statistical discrimination
model are that:
1) it appears to be able to explain long run
discrimination, and;
2) there is a sense in which discrimination can
be seen as rational or functional in the model.
Rationality of statistical discrimination
Rather than discrimination being rooted in the
‘exogenous’ preferences of whites to associate
with other whites, even in the face of
economic loss, statistical discrimination occurs
because of the profit motivated behavior of
risk-averse employers.
Arrow-Phelps Statistical Discrimination Models
But, the perception of racial differences in average
productivity would only persist if the cost of
determining an individual’s productivity exceeds the
benefit of doing so. Probationary periods, work
histories, sophisticated personnel departments, etc.,
make this implausible.
Also, if employers differ in their risk aversion, that is, some
are willing to take a chance in hiring those who it is
believed come from a group with lower average
productivity, then erroneous beliefs about a group
should be shattered.
Becker II – Human Capital
In the attempt to salvage perfect competition,
Becker himself and others abandoned
discrimination, giving up the assumption that
black and white workers are equally
productive and rooting wage differentials in
differences in ‘human capital’. This preserves
marginal productivity theory.
Human Capital
human capital - set of acquired and innate traits
that determine productivity, e.g., education,
training, experience, ‘home-life’ (i.e.,
socialization).
Three schools - Jensen (biogenetic differences),
Chicago (education), and Moynihan-Elkins
(culture, socialization)
human capital
‘investment’ model - atomistic individuals
maximizing consumption over time invest in
future
—assumes rational actors who know the average
rate of return to investing in more school, etc.
But in a world where the future is uncertain, we
don’t have that information. Technically, this
means econometric equations are misspecified.
Intuitively, we are leaving out a lot of the
determinants of the demand for education, or
the complex determinants of other life choices.
human capital
—assumes individuals choose careers and their job history
follows a career pattern—this not supported by
evidence—most take first job that comes along,
sequence of jobs do not follow career pattern;
importance of ‘inside contacts’ in getting jobs, jobs held
do not have clear connection to skills.
—if experience determines human capital, what
determines entry level? If discrimination at entry level,
then this sets the future paths and possibilities.
human capital
Link between education and productivity not clear.
Considerable evidence to the contrary. Some studies
show primary determinant of earnings is luck (Jencks),
or who you know.
Rate of time preference argument – Lots of evidence that
Blacks save more than whites, so do Blacks really tend
to resist deferring gratification? Is it impatience of lack
of money that results in lower years of schooling? Same
with argument about single-parent families, i.e., would
children from single-parent families with same
economic resources fair differently in labor markets?
human capital
• methodological individualism misses important
structural features - causes of different quality of
schools, changing nature of workplace
• deskilling hypothesis - control of workplace & workers
more important than ‘skill’- hierarchies of pay are used
to divide and control workers
• these considerations are not conceivable in the
neoclassical human capital framework
Lester Thurow critique
Human capital wrongly treated like any other
investment. H.C. not like machinery.
• 1) HC embodied in one, cannot be separated
from the owner like a machine can. One must be
‘with it’ to obtain one’s rate of return
• 2) disinvestment not possible
• 3) cannot be discarded when obsolete
• 4) can’t be transferred at death
Human capital – empirical record
50 years of econometric testing, millions of $ in
resources, demonstrate that equalizing for
human capital does not eliminate racial wage
and employment differentials.
“unexplained residual” remains, equation after
equation, year after year.
Human capital – general theory?
1) white and blacks go to different schools, do
males and females?
2) whites and blacks grow up in different
families, do males and females?
Human capital—missing variable?
For many, the unexplained residual is
discrimination.
But others have put forward notion that the
unexplained residual represents another
missing explanatory variable—”culture”!
Culture of Poverty
Some racial, ethnic groups have values,
attitudes, behaviors constituting a culture of
market success.
Others have attitudes and behaviors constituting
a culture of failure in markets, a “culture of
poverty”—the “underclass”
Culture of Poverty
Includes Black neoconservatives such as Thomas
Sowell, Walter Williams, etc.
Some ‘liberals’ as well, e.g., Glen Loury, and
even some white radicals.
Dinesh D’Souza’s The End of Racism - “rational
discrimination” (combination of statistical
discrimination and culture of poverty)