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Discrimination Economics

We know that discrimination is something that happens to many people in life. You may have heard about social discrimination, where certain people of social standing are not allowed to mingle with others from a different social background. For instance, being a female head of household or belonging to the racial minority group may increase one's chances of being pushed to the lower side of the income distribution, and worse, being poor. Women and members of the minority racial groups in the real world receive different wages from white males workers even where they have a similar qualification. They can be charged different prices when buying certain goods, and perhaps denied employment opportunities based on who they are. In this chapter, we shall be looking at the meaning of discrimination, its types and sources, as well as how it is addressed.

What is the economy of discrimination?

Economic discrimination can be defined as discrimination based on economic factors, which include access to job opportunities, wages, prices, and availability of goods and services. It also touches the amount of capital funding given for minorities to run their business. This can touch areas like discrimination against workers, consumers, and businesses owned by a member of the minority groups. Note that this discrimination is different from price discrimination, which is the practice of monopolies charging buyers different prices based on consumers' willingness to buy.

Discrimination is seen when people who have a similar economic characteristic, and perhaps knowledge about certain areas, are exposed to different economic outcomes based on their race, sex, or other factors. For instance, black workers with similar or even better skills as white workers may receive lower wages and become victims of discrimination. We have seen a lot of women denied job opportunities where they qualify simply because of their sex. Discrimination could be so widespread in an economy that a country fails to allocate resources efficiently, in which case the economy will be operating inside its production possibilities curve.

There has been a lot of literature on this topic from various scholars, who tried to resolve its threats. Earlier works from Gary S. Becker, a Nobel Peace Prize winner in economies in 1992 and an economist from the University of Chicago, have been major cited. His thought about discrimination is that it occurs because of what people prefer and their attitudes towards others and certain things. And it's very easy to agree with Gary on this matter. He says that if there are enough people to prejudice against a certain racial group, or women, or other people based on selected characteristics, the market will respond based on these preferences. Note that markets are places where firms seek to make profits from the goods they produce, and they do so by offering consumers what they want. Therefore, they will go to any extent to achieve their goals no matter what other people may be feeling or going through.

According to Becker's theory, these preferences determine wedges between the outcomes seen by different groups. Discrimination can harm people and the entire economy. For example, if a good salesperson is discriminated, they may lack the willingness to sell to one group, or encourage consumers not to buy from one group. They can also make one labor provider from one race, sex, or ethnic group less willing to work or give in their maximum effort than others from another group.

Becker's model can be examined even better by looking at the discrimination against the black labor force. In this, the first assumption is that there is not discriminatory preference in the labor market or attitudes that may otherwise be negative against the black. Hence, the supply curve or white and black workers are identical. If we continue further and say that all the workers have the same marginal product, they have equal production abilities. The demand for both workers would be at the same point. If things change and there is discrimination or attitudes towards black workers, causing firms to believe black workers are less productive than similarly skilled white workers, there will be a curve change. The employers will have lower demand for black workers than they would for white ones. Another effect would be that black workers are paid lower wages than they would have received if there were no discrimination.

Sources of discrimination

As we have seen above, discrimination is not a new thing in the modern world as it has been around for a long. As Gary states, it comes from people's attitudes towards others or individual characteristics in society. When employers have racial prejudice, it produces discrimination against other people, as seen in the black above case, leading to lower wages and a lack of proper motivation. Discrimination can come from many other sources within the economy, all based on how people relate. Think about the economic theory, Kantian theory, and the Deontology theory. They all have one thing in common: advocating for good relationships between different groups of an economy. When people start using different factors to judge others, other than their abilities, social prejudice will exist, leading to economic discrimination.

Hence, one good source of discrimination comes from fellow workers. Consider, for instance, a situation where white workers refuse to work with black workers and ask for a wage premium. If they must, the firm may be forced to react by demanding less of black employees. In reaction, black consumers may refuse to use this firm's products, which also lowers the revenue of the said firm. Humans are social beings, and the way we interact with each other determines how well we exist within a certain economic atmosphere. Besides, we have already determined that markets exist because of the relationships between consumers and producers in the previous course. Discrimination kills the spirit of working together, which leads to people losing focus on what they do best. When black workers are discriminated against, they lack the incentives to work efficiently, causing many of them to lose focus.

Customers may also be a good source of discrimination. Some customers may demand not to deal with black employees, a case that will force the firm to respond by employing fewer of them. If the firm does not agree to their demands, they risk losing these white customers. On the other hand, prejudice on consumers' part may mean the firm is not getting as many revenues as they would if all people were treated equally. A company that is looking to make maximum profit needs to look beyond the boundaries of racial prejudice; it is one thing that affects markets and should not be encouraged,

Factors like race and sex affect hiring and wages to a large extend. But they are not the only characteristics that employers consider. A number of studies have shown that short, overweight, and other people who lack proper physical attraction are discriminated against. This begins right from the society level, no wonder people living with disabilities and other sexual orientations have been voicing their concerns against discrimination. Employers, workers, or customers may have discriminatory preferences, which leads to discrimination. The effects of these preferences have been felt across all markets and economies and should be shared widely.

Types of discrimination

There are four main types of discrimination, direct, indirect, harassment, and victimization.

Direct discrimination

Direct discrimination is the most popular form, and perhaps one that you already know. And there are three major ways in which direct discrimination may occur. The first one is where one is treated less favorably because of a characteristic they possess. This is the ordinary form, which can be lawful, where it's 'objectively justifiable.'

The second way direct discrimination can occur is where some are treated less than others because of a protected characteristic possessed by someone they are in a relationship with. A good example is where white consumers refuse to deal with a certain firm because they have black employees. This is called direct discrimination by association.

The third way in which direct discrimination occurs is when one is treated less favorably due to a protected characteristic they are perceived to have, regardless of whether the thought is correct or wrong – direct discrimination by perception. It is also another common form that affects a large number of people.

There are certain deliberate actions or exclusion that define direct discrimination. However, it does not always have to be assumed intentional. Nevertheless, claims can still succeed even if there was no intention in this discrimination.

Indirect Discrimination

As the name suggests, this is a less obvious form of discrimination. It is normally done without intention, like an accident. In general, such discrimination will exist when a rule or plan of some sort put into place to apply to all people and which has no discriminatory feature, puts those with certain protected features to a disadvantage.

Consider the law that involves a 'provision, criterion, or practice' (PCP). Four major things come out clear in the laws. One that the 'PCP' is applied equally to a group of people, only if they share certain protected features. Two that have (or will) an effect of placing those with shared protected characteristics to a disadvantage point, as compared to others who may not have the same characteristics. Three, that it places the person at a point where they are disadvantaged. And four, when the employer cannot objectively justify the policy.

The Equality Act issues have been presented many times, but it does not explain PCP very well. According to Acas, this term does not always involve employers' policies, procedures, requirements, rules, and other factors. For a claim to exists, all the four elements above must apply. However, the employee or claimant faces the burden to prove that element 2 and three affects them.


Harassment is a common term that is used by many people in their daily life. It can be defined as 'unwanted contact' relating to a protected characteristic of another person. Harassment must demonstrate the purpose or effect of violating a person's dignity and character, or creating an intimidating, hostile, degrading, humiliating or offensive environment for the person affected. Some of the examples of harassment include bullying, nicknames, gossip, intrusive or inappropriate questions, and comments. Also, they can harass someone by excluding them from a meeting or event.

With this type of discrimination, how the victim perceives the action is more vital than how the actor sees it. If an action has a negative impact on a worker's dignity who witnesses, they can claim harassment. And this can happen even if they don't share the characteristic with the person who was harassed.


Consider a situation where one employee faces a 'detriment' due to something they have done, or what they are perceived to have done. In this case, the person can make and allegation discrimination, support a complaint of such nature, and offer evidence that someone has been discriminated against or raised concerns on equality. They can also do anything else they think is right to ensure the discriminated person does not face harsh judgment from society and those around them. These things are usually done in good faith on behalf of the victim.

How Discrimination is Handled

Before you think about how discrimination is resolved, it is good to understand that discrimination can be lawful. If the employer can objectively justify a policy, then it becomes a lawful direct or indirect discrimination. They must show that the person treated less favorably received a fair judgment, and it was appropriate/necessary.

Even though discrimination is rampant, certain market pressures can lessen it. For instance, where one group of employees has discriminatory preferences, and others don't, those who do not discriminate can take advantage of the discriminated group's labor force. Moreover, because workers from these groups are paid fewer wages, they will benefit from the extra revenues. In fairly competitive markets, companies that continue to discriminate may run out of business. Besides these market pressuresDiscrimination Economics, governments intervene in labor markets by providing equal rights and treatment policies and guidelines.

Author: James Hamilton

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