Discrimination Becker: Economics of Discrimination 3 potential sources: 1) employers: most important source of discrimination 2) employees: who willing to work alongside? 3) customers: who willing to buy from or sit next to?

Employer Discrimination Set up discussion: –Males are majority group (M); –Females are minority group (F). –M employers discriminate against F employees. Discrimination coefficient = d = monetary equivalent of the prejudice. If actual hourly wage = w, then this discriminating employer views the wage “he” must pay as w + d. – Example: w = $5; d = $1, so employer views wage as $6, which includes monetary component plus a disutility component.

Employer Discrimination (cont.) Further details when d  0 and same for all firms: –Market will favor male employees. –F only get job if their wage (W f +d)  W m ; otherwise only men hired. But what if different employers have different d? –Employer with no prejudice has d = 0; d  for more discriminatory firms. –Then some employers will hire women. –These less discriminating employers have competitive advantage. –See Table 5.

Results of Discrimination Result of discrimination: –In equilibrium, women earn less than they would earn in absence of discrimination. LR:  competition should  d to 0. –Firms hiring women have lower labor costs then firms hiring just men, so firms with women have higher profits. –Discrimination is inconsistent with profit-maximization. So why doesn’t discrimination disappear? D  to 0 requires: –Enough potential firms with zero d. –Freedom of firm entry.

Professional Baseball as Example Until 1947, every player in Major League Baseball was white: –All owners had such high d’s that zero African Americans were hired. –Also had discrimination on part of “customers” so more complicated. Why persisted? –Industry lacked freedom of entry. Negro Baseball League created. In 1947, Major League Baseball race “color line” was broken: –Brooklyn Dodgers signed Jackie Robinson (BD exploited their low d). –Within 10 years—all teams integrated.