Discrimination

Question 1

When is discrimination in the labour market?

Answer 1

Occurs when employers make decisions on wages and employment based on prejudices, such as race, sex, religion, etc. it can lead to variations in wages for the same job and different employment rates

Question 2

What are some of the problems of discrimination?

Answer 2

• leads to a deadweight welfare loss- certain groups of workers may be out of work or have a wage less than their marginal revenue product
• if firms have monopsony power, discrimination enables firms to cut costs and receive more profits (at the expense of workers)
• yet in competitive markets, firms will tend to experience higher costs as a result of discrimination, leading to higher prices for consumers (as higher wages for the employees they want)
• it causes a sense of alienation, frustration and injustice. It can lead to social disorder with those discriminated on going on strike for better conditions

Question 3

How can market forces work against discrimination?

Answer 3

• if a company wanted to employ only white workers, it would push up the wages for white workers and increase cost of production for those firms
• yet, this company would then be vulnerable to another firm entering the market and employing ethnic minorities. If ethnic minorities have been discriminated against, their average wages would be lower. The new company could then pay lower wages than the discriminatory firm and undercut its rival.
• the firm who discriminates against ethnic minorities is, therefore, penalising itself. Market forces would put pressure on the discriminatory employers to cut wages and employ all workers.
• this should put downwards pressure on wages for ‘preferred’ groups of white workers and lead to equalising pressures

Question 4

How can the market fail to end discrimination?

Answer 4

• if gov legislation enforces discrimination (e.g. apartheid laws)
• if discrimination occurs amongst consumers too
• if firms have monopsony power - despite higher costs of discrimination, barriers to entry prevent new, non-discriminatory firms from entering the market
• its not discrimination by employers, but different life chances and education of entering the labour market. If they have fewer qualifications than average, it would be predicted that even with non-discriminatory employers, average wage rates would be lower for certain groups

Question 5

How can dual discrimination be a problem (from both employers and consumers)?

Answer 5

For a firm who didnt discriminate, there would be an opportunity to gain lower costs by employing (for example) female maths tutors. There is a profit incentive to avoid discrimination. However, suppose the prejudice against female maths tutors was also prevalent amongst customers. In this case, a firm employing female math tutors may have difficulty selling their services - so the cost benefits of lower wages are lost.
—> in this case, the market fails to end discrimination because the racism/sexism isn’t just amongst employers but also consumers

Question 6

What’s some legislation on discrimination?

Answer 6

• in 1970, the UK passed the Equal Pay Act, which outlawed paying different wages for the same job on the grounds of sex
• the Equality Act brought together different acts outlawing different types of discrimination (Age, race, sex, disability, religion, pregnancy, marriage, etc)