The purpose of this paper is to examine the causes, consequences and remedies of racial discrimination in the labor market. Understanding racial discrimination in the labor market is of critical importance because of the sever wage differentials between different races in the market. Most of the economic research on racial discrimination focuses on black and white males. Hence this paper will also be focusing on wage and employment differentials between black and white males. I will start by discussing the research that has been done on the causes of labor discrimination, then, I will explain the consequences and finally the possible remedies.
Causes of Labor Market Discrimination
One of the most widely accepted reasons for racial discrimination in the labor market is Gary Becker’s taste model. Put simply, this is the school of thought that racial prejudice is responsible for discrimination in the labor market; that is, people prefer to work with others of the same race. Becker’s analysis of racial prejudice is divided into 3 categories: employers, employees and consumers. For this paper I will spend more time on the employers analysis
Becker’s model explains that minority workers have to be more productive that white workers at any given wage or be willing to accept a lower wage for the same level of productivity (Becker 1971). In his model, Becker makes the assumption that black and white males are of equal productivity and he assumes operation in a perfectly competitive market. His economic approach diverges from the widely accepted Marxian view that individuals act solely in selfish interest. Becker explains, “behavior is driven by a much richer sense of values and preferences” (Becker 1992).
According to Becker, racial prejudice in the labor market also occurs among employees (i.e co-workers). To illustrate this, take a male employee that is prejudiced against blacks, he will act as if there were “non-pecuniary” costs of working with blacks (Becker 1971). This cost or discrimination implies that he will require a higher premium to work with blacks. A possible solution to this problem would be for an employer to hire a racially segregated workforce (in which case he would be able to pay them the same wage). The chances of this happening are rather slim. Much more common is white needing a higher premium to work with blacks and blacks suffering a wage cut to compensate for the higher premium.(Becker 1971).
A discriminatory customer will behave in a similar way. He/she will act as though there are “non pecuniary” costs from purchasing goods and services from a black person. Hence at the same market price and equal productivity with whites, blacks will sell less and appear less productive. Consequently, they will receive a lower wage, which widens the wage differential gap (Becker 1981).
Becker’s model concludes that racially prejudiced employers, employees and customers, all result in racial discrimination in the labor...