16.g. The Economics of Discrimination
Earnings often differ between workers because some are more productive than others, or because
some workers have invested in more education than others or have had more on the job training. Some
workers have had the fortune of being employed by expanding firms, whereas others have had the
misfortune of the opposite. There still remains though the problem of discrimination in the job market.
Labor-market discrimination by gender, race, color, religion, and national origin has been made illegal in
the United States since the Civil Rights Act of 1964, though still prevails. Such discrimination occurs
when individual’s job opportunities are not solely based on the individual’s productivity but also are
dependent on such differences listed above. As a result of the difficulty that arises when measuring
discrimination, as well as differences in the method to which it should actually be estimated, there remains
an obvious problem. Many economists though have come up with ways to measure such discrimination
and theories of the repercussions of such actions.
One theory is presented by Gary Becker who claims that the white male has a “taste for
discrimination” Claiming that white men have a preference for associating with other white men, rather
than with people of a different race or gender. He claims that theses men are willing to pay a higher price
for their own comfort or self assurance. This theory does not explain why these tastes arise or persist but
rather asserts that they are determined by purely non-economical considerations. Becker then proceeds to
show how these tastes for discrimination affect economic decisions.
If there is no discrimination present, and all workers are equally productive in a competitive
market than the employer will hire a worker only if the workers marginal revenue product (MRP) is equal
to or greater than the worker’s wage. This said, the employer will hire until MRP=W. If there is no
discrimination against men, MRPm = Wm. If this employer then discriminates against women, he will only
hire a woman if the firm can make an extra profit to compensate for the employer’s discriminatory tastes.
Following this, the employer will hire when MRP f = Wf + df (which includes df that the employer adds to
compensate for his tastes). Since MRPf = MRPm we see that Wm – Wf = df. This means that if the
employer hires a female woman it will have to be at a lower wage than the man’s. The employer’s
premium for hiring women is df (the difference in wage rates by sex). In this case the employer will
attempt to maximize his profits and either choose not to hire any women at all, or pay them a lower wage.
There arises a problem in this theory when one considers that not all markets are discriminatory
and also all employers are not white men. Though one might find Becker’s theory comprehensible, it is
also useful to examine other explanations and theories.
An alternate theory of discrimination assumes that there are both discriminators and nondiscriminators in the market. The final result of this assumption is that the wage rates of men and women
are equal. An example can be seen in the following graphs:
Market A - Discriminators
S'
S"=S
12= W
10=W
D
Labor (total)
Market B - Nondiscriminators
Wage
S"=S
10=W
S'
8=W
D"
Labor (total)
In Market A when employers begin to discriminate against women, the initial effect shifts the supply curve
to the left (S’) (in the Market A graph). After this occurs a simultaneous rightward shift occurs in the
supply of the Market B graph (as the women who were discharged in market A migrate to Market B
without discrimination). This also creates incentives for the men in market B to shift into market A (which
then reverses the initial leftward shift in the supply of the Market A graph. Again, this theory asserts that
the wage for both women and men should be equal in the presence of both discriminatory markets and
nondiscriminatory.
This theory then would imply that the reasons for the differences in the wages of men and women
are due to other factors. One possible explanation is that married women more often tend to have the
responsibility of household chores and duty, hence they have less time to work (this is supported by studies
that show married women make less on average than single women. This is just one possible explanation
though there are many that exist. So, when trying to explain the differences in wage rates one must attempt
to compare groups who are equally capable, motivated and experienced. Factors such as education, region
and hours of work also have an obvious effect on wages and make it equally as difficult to assert when and
if discrimination is a factor in the job market. The topic itself is controversial and many theories and
applications apply.