Discrimination in Labor Market
Discrimination can manifest itself in all aspects of life. It may be evident in the type and location of housing available to certain groups, in their access to quality education and health care or how they are treated in the labour market. This does not mean that discrimination in the labour market is a more relevant consideration than other forms of discrimination, nor should it imply that labour market discrimination is independent from other forms of discrimination. Indeed, some economists would argue that a satisfactory explanation of labour market discrimination can only be developed when it is recognised that all forms of discrimination are related.
The fact that some people do better or worse than others in the labour market does not, in itself, signify the presence of discrimination. It would be more surprising if such differences were not observed. What is harder to explain, however, is why particular groups of workers are disadvantaged in the labour market. Why do women and members of minority ethnic groups, for example, face significantly lower wages and poorer employment opportunities as a group? In this course we focus on the general observation that certain characteristics – gender, race, religion, age – actually matter in the labour market when there is no apparent reason why they should.
The post-war period has seen a significant increase in the participation of women in the labour market, with women now making up around 45 per cent of the UK workforce. Although women still undertake the major share of family responsibilities and domestic activities, an increasing number of women are entering the labour market. This increase is evident in many countries and has been associated with an improvement in the relative earnings of women.
The labour market is complex and the two observations that more women now participate in the labour market and that there has been a narrowing of relative wage differentials reflect a number of possible relationships. On the one hand, it may be the case that more women participate because female wages have increased over time. On the other hand, the stronger commitment of women to the labour market could, in itself, increase female wages and narrow the earnings differential. Thus, if higher wages and higher participation are statistically associated, there are various views on causation which the labour economist must disentangle.
Customer discrimination is a manifestation of personal prejudice of consumers such that they prefer to trade with individuals belonging to a certain group over others. A prevalent fact states that customers do not like being served by minorities or women For example, a white customer may like to be served by a white worker. This leads to two consequences
(i) There is a reduction in the demand for good that are sold by African-American workers and
(ii) If the cost of the product is P, the customer acts like he is paying P(1 + d), where Pd is the cost of discrimination The fact that customer discrimination is still prevalent in the market leads to a number of consequences, one, that it leads to seggregation of jobs such that minorities and women are segregated into jobs that do not require a high level of personal contact with customers and two, the decline in the manufacturing industry and a growth in the service sector will only aid in increasing the effects of this discrimination with a growth of jobs requiring face-to-face contact
Statistical discrimination is said to occur when an employer projects group characteristics upon an individual which leads to him or her being discriminated against in the employment market. In the process of selecting a suitable candidate for a job, the employer has access to only that information which defines the productivity of the individual such as education, training, experience, age etc. These although do play a role, are not perfect measurements of productivity. In such cases, the employer supplements such information with other information that is prominent of the group he or she belongs to, for example, one’s race and sex is easily identifiable from an interview. Thus, the employee may attach the characteristics of his/her race or sex to quantify or guess his productivity.
This, thus, is a form of discrimination that arises not because of a deep-rooted personal prejudice that an employer holds against a prospective employee.
Let us consider an example to illustrate this: Women, on an average, tend to have a shorter career life than males do and thus, even if they possess equal qualification as men, they tend to be less valuable to the company. Now, a career minded woman with equal qualifications as a man may be disadvantaged when applying for a job, because the employer may take into consideration the prevalent characteristics of the average women when comparing the two applications. Hence, the career minded woman is discriminated against.
Statistical discrimination leads to a systematic preference of a worker over other individuals with the same characteristics, and leads to a situation where women or minorities equal to their counterparts in qualifications are paid less. The manifestation of the stigma is not due to personal preference but it has the same effects as if prejudice was present.