Theories of Discrimination

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Sessions 19 and 20 Theories of discrimination Reading: Borjas Ch 9 p 365382, p 402-404

Introduction
Discrimination occurs when the marketplace takes into account factors such as race and gender when making economic exchanges Four main types of discrimination: wage, employment, occupational (job) and human capital

Race and Gender in the Labour Market
• Men earn more than women, and whites usually earn more than nonwhites. • Differences in educational attainment between whites and nonwhites account for a portion of the wage differential.

The Discrimination Coefficient
• Taste discrimination (Becker 1957) translates the notion of racial prejudice into an economic concept. – Racial prejudice causes employers to blindly perceive the costs of hiring blacks as being higher than the true cost.

– Even though it costs wb dollars to hire one person-hour of black labour, the employer acts as if it costs wb(1+d) dollars, where d, d>0, is the discrimination coefficient. – The discrimination coefficient gives the percentage ‘markup’ in the cost of hiring a black worker attributable to the employer’s prejudice.

Sources of Discrimination
• Fall within Becker’s theory of labour market discrimination, based on the concept of taste for discrimination: - Employer discrimination - Employee discrimination - Customer discrimination - Statistical discrimination

Employer Discrimination
• Assume: - Only two types of workers (B and W) who are perfect substitutes in production (role of capital is ignored) - Firms are competitive - Production function: q = f ( E W + E B ) - Assume also, that: w B < wW • A non-discriminatory firm would therefore hire only black workers

The Employment Decision for a Firm That Does Not Discriminate Dollars

wB

VMPE E*B

If the marketdetermined black wage is less than the white wage, a firm that does not discriminate will hire only blacks. It hires black workers up to the point where the black wage equals the value of...
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