The Study of Discrimination Through the Economic Approach

Thought Paper #2

The study of discrimination through the economic approach is studied in detail in The New Economics of Human Behavior. The vital component in this analysis of discrimination is the assumption that the role is played by an individual that is maximizing his or her own utility in a non conventional market by receiving benefits and paying consequences of their own actions. One misconception of Becker's model for discrimination was that it only applied to employers when it actually applies to employers, as well as, consumers, co-workers, and the government. He explains that the two ways discrimination affects the labor markets is through wage discrimination and employment segregation. Wage discrimination is the differences in wages that workers are paid for the same level of skill or productivity due to some characteristic other than performance. Employment segregation is the separation of employment of individuals of comparable productivity.

One crucial element to studying Becker's model of discrimination is the assumption that individuals have a "taste" for discrimination and that they act rationally and are willing to pay for something pleasant and to avoid something unpleasant. This "taste" for discrimination can be applied to any of the three roles that people play in the labor market: consumers, employers, and employees. Peoples' "preference" for discrimination is evident through the example of the Chinese restaurant in which people preferred being served Chinese food by Chinese waiter/waitresses rather than being served the identical meal by a non-Chinese server. As a result of this taste for discrimination, a wage differential between Chinese servers as opposed to non-Chinese servers occurs because the former adds more value to the restaurant. Because of these wage premiums, Chinese workers will migrate from low-wage to higher wage jobs that continue to raise wages in the lower wage sector and the fall in wages in the higher wage sector that would eliminate the wage differential. Although this wage differential is eliminated in the long run, employment segregation results. Becker concludes that the greatest threat to those with strong tastes for discrimination is those with weaker tastes or no such preferences and that competitive forces penalize those with strong discriminatory preferences.

During the 1980s, three major events catalyzed immigration into the U.S.: the Mariel boatlift, the 1986 Immigration Reform and Control Act (IRCA), and the 1990 Immigration Act. As a result of these events and other factors, the flow of immigrants has increased to about 600,000 people per year post 1980. Due to these factors and the decline in the fertility rate of U.S. women, immigrants have become a very important component in society. One major factor to the increased immigrant flow is the 1965 Amendments to the Immigration and Nationality Act. This shifted visas away from Western European countries that had income levels reaching parity with those in the U.S., and therefore incentives to migrate were small, to less developed countries with substantially lower income levels, and correspondingly higher emigration incentives.

Studies on immigrant performance over the past couple decades has found that typically recent immigrants tend to earn less than immigrants who have resided in the U.S. for many years. This is mainly due to the lack of valuable skills they possess upon arriving to the U.S. However, immigrants make necessary human capital investments over time so that the earnings and skills catch up with their native counterparts. However, a newer study has shown that more recent immigrant cohorts are relatively less skilled than the earlier waves of immigrants. This was mainly due to the 1965 Amendments, which led to immigration from high-income inequality regions as well as regions where skills were less transferable to the U.S.

Through Becker's analysis, he comes to conclude two opposing views on how immigrants affect the native labor market. The first approach states that immigrants have an adverse affect on earnings opportunities and employment because they believe that natives and immigrants are easily substitutable by American employers. Assuming that native and immigrant workers have the same set of skills, as more immigrants enter the labor market, more skills are available to employers and competition amongst workers supplying these skills rise. Because of the abundance of skills in the labor market, lower wages are now being paid to the native workers who then find that withdrawing from the labor force is worthwhile and the native workforce declines. The second approach assumes that workers are complements rather than substitutes for each other. An example of this approach can be seen when some immigrant groups have low skill levels, but a comparative advantage in agricultural production. The presence of immigrants increases native productivity because natives can now specialize in tasks where they too have a comparative advantage. This makes natives more valuable to firms, and increases the firm's demand for native labor. Since employers are competing for native labor native wage rates are bid up.

Becker frequently discussed discrimination and inequality in many of his columns in The Economics of Life. One point that Becker states is that affirmative action for blacks have done more harm than good. Affirmative action programs have reversed judgments about the qualifications of minority professionals as being of lower quality than their while male counterparts because it helped under qualified participants enter high level positions. To combat this, Becker