Economics of Discrimination

1. Dec 18, 2007

Economist

Here are 2 resources that analyze the Economics of Discrimination. I would like to state that this is not the only view on the Economics of Discrimination. However, I did choose these resources because I have heard these economic arguments multiple times, and I noticed that they are fairly different from the ways in which other fields and people analyze discrimination. In fact, the first time I heard such arguments were about 1 year ago, and I thought, "How come I haven't heard discrimination analyzed from this perspective before?" Furthermore, whether or not one agrees with this analysis, one cannot have a complete understanding of discrimination in society without understanding this point of view. I am hoping that some of you will watch this video and listen to this podcast, and then respond with your opinions (what do you agree with or disagree with, what do you think they might have missed, what confused you, etc).

Lastly, discrimination can be an emotional topic, so let's keep the discussion as analytical as possible. In other words, no personal attacks or innapropriate statements.

Video:

http://www.mises.org/media.aspx?action=category&ID=102

It's the 10th video down and is titled "The Economics and Ethics of Discrimination" by Walter Block.

Podcast:

http://www.econtalk.org/archives/2006/12/caplan_on_discr.html

2. Dec 18, 2007

opus

Yes, economics does not support discrimination. It is unproductive.

But given the reality that there is discrimination, how is it something to be "solved"? That is, take France for example, where unemployment is high among the minorities because employers (i.e. the market) does not want to hire minorities, what can you do? What would economists do?

3. Dec 18, 2007

opus

It is saying that one of the biggest factors of discrimination, in terms of economics, is social capital as the market being a place of "interaction". While social network analysis is a sociology field, it is of increasing interest to business and management schools.

4. Dec 19, 2007

Economist

First of all, we don't know how much discrimination exists in labor markets. I just took a Labor Economics class and we talked about discrimination for a week, and seriously, you can't really say it does or it doesn't exist. It's way too difficult to measure. So I don't like to hear you say, "the reality is that it does exist" when you really don't know. I would rather you be up front when stating an opinion instead of acting like it was fact. Instead, say "I think there is discrimination." Just like in my opinion, I don't think there is currently a lot in economic activities.

I wish you would also watch the video, because the speaker even shows that with women and men, when they have never been married they earn identical amounts. It doesn't make sense that labor markets would discriminate against only people who have ever been married. He finds the same thing with young vs old, and it doesn't make sense that labor markets would discriminate only against women over 25, but not also discriminate against women from 18 - 25.

Lastly, even if we find some discrimination in the labor market, that doesn't mean that government intervention can solve the problem. Like so many other things, government involvement will probably just make it worse.

But seriously opus, I really hope you will watch the whole video and listen to the whole podcast.

5. Dec 19, 2007

BobG

It's hard to watch a 60 minute video, but I did read a couple of his articles:

Compromising the Uncompromisable: Discrimination

Take Our Daughters to Work Day

His articles make an interesting thought experiment, but have no more relevance to reality than the brain teaser: The Missionary and the Native Wives.

If the world operated solely on logic, then a great number of things in the world would be drastically different than they are today. Human decisions are made for irrational reasons as often (or more often) as they are by logic - especially carrying on a habit that worked for past generations. Through most of human history, identification with your own group was a huge advantage towards survival. More recently, most of the great civilizations before the industrial revolution only became great because they exploited conquered nations for cheap labor - preferably cheap labor of a different race since that lessened the conflict between guilt and economic benefit. It might be true that free markets will eventually force adaptation by humanity as a whole, but he ignores the fact that entire civilizations become so entrenched in tradition and ritual that they fail to adapt to new environments and are surpassed by some other civilization that has adapted better.

His ideas are relevant only if we're entirely apathetic as to which nation is the world's economic superpower, just so long as some nation adapts.

6. Dec 19, 2007

opus

I know what the scientific consensus is, thank you very much. I would rather cohere with the top publications in all the social sciences, than agree with a video by the Ludwig Von Mises Austrian School claiming that there is no discrimination in the market.

And since you're so stubborn about this, I shall link you to my post https://www.physicsforums.com/showpost.php?p=1546038&postcount=35 if you haven't read it, which has many articles for your perusing on "discrimination", which to you, "we don't know if it exists".
I never said anything about using the government. But since you love to make assumptions and jump the gun, it's clearly obvious that you see government as a total failure and everything should be left to the free market par usual. Such a simplistic worldview..

Last edited: Dec 19, 2007
7. Dec 19, 2007

Economist

In my Labor Economic textbook (Borjas 5th Edition) he says that the empirical evidence is too limited on both sides, and that we can't accurately speak about the degree to which it actually occurs (or doesn't) in the real world.

Well, it's not exactly jumping to conclusions since we've had a fair amount of discussions on this forum. Would it be jumping to conclusions if you predicted your mom's position on an issue? Probably not considering that you'd often be right.

I don't see government as a total failure, I just think there are many things they don't do as well as the private sector. Take things like police, fire departments, military, etc, I would say the government may do a better job there. However, when it comes to things like schooling, delivering mail, deciding what price something should cost (be it wages, food, etc) then I think the market does a much better job.

In terms of discrimination, government can't possibly solve the problem, because they can't possibly no if a problem exists, and if so, what's the best way to solve it. Secondly, even if they have the correct knowledge (which is rare) it's unlikely that they're incentives are great. It maybe better in terms of political strategy pursue another strategy that is less effective. Lastly, nothing the government ever does is free, and therefore tax payers are usually the ones who pay the administrative costs of such undertakings.

I plan to. But in all fairness, I bet I am much more acquainted with your view, then you are with mine. We talked about them in Social Psychology, and you tend to hear them all over the place (school, TV, radio, etc).

8. Dec 19, 2007

Economist

How do they know discrimination is taking place? It is not discrimination unless the two people are equal in ability. So if you take a bunch of female CEOs and compare them to male CEOs you haven't controlled for ability. It's pretty much impossible to control for ability which is why it's so difficult to test empirically. Usually they use things like age, experience, years of schooling, which can all be very weak proxy variables. For example, a man and women with the same age might have took different years off (as is often the case that women take time of for children). Years experience might not be comparing the same type of work experience. Years schooling does not account for grades of the prestige of the college. This is the reason so many economists say, it's do difficult to measure. So explain to me how sociologists get around these measurement errors?

Also, how do explain the fact that women and men who have never been married earn the same amount? Are you implying that employers discriminate only to women who have ever been married? Watch the video, these facts are discussed at some length. Similarly, when you compare young men and women, they earn the same amount. So again, are you implying that employers only discriminate on women over 25?

Furthermore, when economist have done various empirical estimates of discrimination using a handful of variables (like the ones mentioned in paragraph 1 plus others) they might find that men earn more than women, or that whites earn more than blacks, and some people would say, it's probably discrimination. But then you look at the other variables, and find out that when controlling for these same variables Asian-Americans earn more than whites. So if you carry the results out to their logical conclusion, you'll conclude that there also must be discrimination in favor of whites over asians, yet this doesn't make any sense (which is another reason they think that the empirical measurements must be way off). Again, are you implying that in the US, employers discriminate in favor of Asians over whites?

Lastly, even in some cases where you may see discrimination, it may be statistical discrimination.

You are assuming that minorities in France are equally as productive as non-minorities. This is a poor assumption. In fact, there is often many reasons to believe that minorities are not as productive as non-minorities.

Take the US for example. Some minorities are immigrants, and many immigrants are lower-skilled workers. Also, other minorities disproportionally live in poor areas and go to bad public schools, which again usually makes them lower-skilled. Minorities are also generally less likely to go to college, which again usually makes them lower-skilled.

France also has another problem, which is high minimum wage laws, strict labor market regulations, mandatory cushy (short) work weeks, many weeks paid vacation, etc. Many economists have pointed out that these sorts of regulations make it much more difficult for lower-skilled workers to get jobs in the first place. In other words, these regulations make unemployment rates much higher for lower-skilled workers. And if a disproportionate amount of your lower-skilled workers are minorities, then these regulations will have a disproportionate effect on minorities and non-minorities. Is it really a suprise that France has that problem given their labor market legislation?

And just for the record, I never said that discrimination is non-existent in labor markets. All I said, was that in my opinion, I don't believe there is a whole lot of it.

Last edited: Dec 19, 2007
9. Dec 19, 2007

opus

This is the extent of your rebuttal against all the peer-reviewed articles I linked to?
Um, yes, it would be, because you're making an ecological fallacy.
Yes, it's a neoliberal position, that government should provide the most basic of needs. Usually neoliberals emphasize the importance of negative freedoms, such as antitrust laws, rule of law, freedom of speech, contract enforcement, security, etc.
Let's leave the public policy debate aside, because I haven't even mentioned government in this thread once but you've done it twice.
I beg to differ. Western culture and society is heavily influenced by liberalism (and that is an understatement). Everything is always regarded as an individual matter and seen through the lens of individuals. I am talking about classical liberalism, by the way. Our entire judicial system is based on the notion of the individual - property rights, contract rights, etc.. The second thing is that liberalism shares a very strong affinity with the free market. It is much easier to see the world through the lens of homo economicus than homo sociologicus (lol). We are all taught that we are "unique" and "special" like a snowflake.

That of course, means self-interest and believing that your ideas are yours - none of this culture fluff, or things like socialization. The success of the free market shares with this notion of individualism: consumerism, brand identity, marketing, advertisements..

That is, if people saw themselves as social before individuals, there'd be socialism instead.

10. Dec 19, 2007

Economist

Buy the book and read the chapter. He (obviously) reviews all the economics literature on the topic. He goes over numerous empirical studies on both sides of the debate.

11. Dec 19, 2007

opus

I am not going to buy a textbook just to validate a claim you made. That's obviously going too far. I will, however, send Borjas an email asking for his opinion.

12. Dec 19, 2007

Economist

What about the data on women vs men, ever married vs never married? That's not simply a thought experiment or brain teaser but rather data. That data is hardly consistent with the discrimination view.

13. Dec 19, 2007

Economist

Would you prefer for me to find the quote? I feel like that will be more credible than an email, especially considering that we won't know whether he actually wrote it. A quote from a textbook will be much more valid, because it is easy for someone to check.

By the way, don't forget to read my other posts above. I get the feeling you may have missed one, since they were posted right next to each other.

14. Dec 20, 2007

BobG

I have more of a problem with Block himself than any particular piece of data he cites.

However, how about the data on single parents? Both should face the same problems in balancing work and children, yet a male single parent with children under 18 averages about $587 a week while female single parents with children under 18 averages about$476 a week. That's a pretty serious discrepancy in spite of both sexes facing similar challenges. (Highlights of Womens Earnings in 2003 (Table 8, page 24)

One reason for the discrepancy could be that there aren't many single fathers. With so few single fathers, they're compared to male employees in general while employers expect to have problems with single mothers. In fact, there's at least 3.3 times more female single mother employees than there are male single employees (I've also seen numbers where the ratio is up to 6:1, but one thing is definite - the percentage of male single parents is increasing a lot faster than the percentage of female single parents; and a lot faster than employers can begin to prejudge single fathers). That certainly supports the idea that the wage discrepancy is based more on perception than the actual impact single parent-hood has on the workplace doesn't it?

Well, not really. That's looking at a couple statistics, coming to a conclusion, and cherry picking evidence to support that idea. I think the statistics in these tables suggests that the conclusion is at least reasonable and it shouldn't be tossed out. In other words, as you narrow possibilities, this is one possibility you'd want to investigate further. But it's certainly not an analysis of why male single parents make so much more than female single parents.

I also don't see anything wrong with citing those two stats (wage difference and ratio of women to men single parents) when you're posting on a forum. I'm not necessarily looking to be persuaded or dissuaded or to become an expert on discrimination. I'm an orbital analyst, I take classes in the evening, and any spare time is more likely to be spent outdoors in the mountains than becoming an expert in economics. Still, I'm eventually going to have to vote for someone who claims to be an expert and I'd like to be able to tell the difference between intelligence and total bs.

In other words, if you said the things Block said, you'd probably have better luck convincing me than Block. The fact of the matter is is that you're probably as qualified as Block, if not more so.

15. Dec 20, 2007

Economist

Well, one issue with the data is that maybe a lot of single parents were married at one point. The data seems to discriminate between ever married and never married (not against single and currently married, but rather whether one has been touched by the institution of marriage ever). The hypothesis is that marriage effects the earnings of men and women differently (marriage increases men's earnings while it decreases women's earnings). Another issue with that data is that women are usually favored by the court to get custody, so maybe in the cases were the men get the kid, the men are much more likely to have their stuff really together. In other words, if you have two similar parents the child will go to the mom, and even if the men is more qualified the women will still get custody. And the only chance the dad really has getting custody is if he can provide much better for the children (which would really distort what you're trying to measure with the data). In other words, the dads' that get custody are not a random sample of the population of single fathers, but rather highly educated, good job, etc.

Maybe. I think my explanations above are more likely, but I could be wrong.

I don't know if Block cherry picked that data. I could be wrong, but I am under the impression that there is actually a "marriage asymetry hypothesis" that he was already aware of which is why he looked at the data on ever married vs never married men and women. I mean don't get me wrong, as I am not saying he was trying to lay out both sides of the case. What I'm saying is that he had a good idea of how the data would come out given he was previously aware of the marriage assymetry hpothesis.

LOL. Fair enough. I think that's a good attitude.

That's understandable. I just learned of Block from watching that video. In my own personal opinion, I think he's a smart guy, but I don't know that he's the best speaker. I think there are others who could have gave pretty much the same presentation, but better.

Also, I was never trying to say there is only one side of the story on the economics of discrimination (in fact, I think it's like the second sentence in my original post). I just wanted to present a side that less people are aware of. Namely, that there may be much less discrimination in the real world than previously thought due to economic factors that few understand and most people rarely consider.

Last edited: Dec 20, 2007
16. Dec 20, 2007

BobG

Another perfect example of irrational thought trumping logical thought. Women usually get custody because women usually get custody. The father usually feels like he'd be an idiot to throw money at an effort that's unlikely to succeed.

And it's an example that you're right that reality eventually trumps decisions based on unsupported biases. As more men get custody, the option of trying for custody seems more realistic and even more men try for custody, hence the rising rates.

When it comes to discrimination, the issue is how long could discrimination last if nothing were actively done to stop it. I think discrimination is less of a problem than it was in the 60's or 70's, and I think we should be thinking about transitioning from affirmative action plans. You don't have to completely fix the problem - you only need to make equal opportunity a realistic option in order for the problem to correct itself. But it only dropped as fast as it did because active steps were taken to end it. Discrimination would take a lot longer to drop on its own with no guarantee it even would drop within a particular region or country.

I think Block disagrees with the whole idea of government trying to influence social norms. Like I said in my first post, that idea is true if you don't care who wins. If you have a favorite team (like your own city or state or country), you'd like to take active steps to ensure your team is more educated and more productive than the other guys.

At least in theory. Getting a lot of people to commit to a single goal winds up being kind of a tough job (kind of an ironic blessing in a way, since if government policies changed as fast as current ideological fads we'd have constant chaos). Government winds up being capable of solving only the few problems where the solution is fairly obvious - they do a lot better job of focusing efforts than creating exciting new ideas.

17. Dec 20, 2007

Staff: Mentor

Actually it is a question of which parent the court deems more fit, education & "good job" are not the deciding factors.

My ex boss is gay and he won sole custody of his 3 children because he was able to convince the court that his ex-wife was unfit. He was openly gay for years, so it was known to the court. Luckily the court ruled to award custody to the parent that would provide the most nurturing, emotionally healthy environment for the children. I worked for him for 8 years and watched the kids grow up, they were among the happiest, most well adjusted children I've known. He and his partner were great parents.

18. Dec 20, 2007

BoomBoom

I would assume your boss has a good job, does he not? I believe it to be somewhat naive to believe custody is distributed equally. For a woman to lose custody to a man, generally speaking, she really has to be a total "screw-up"....OR the man has a good lawyer, job, and .

19. Dec 20, 2007

Staff: Mentor

I didn't say custody was distributed equally, I said custody wasn't granted based on job or education.

Last edited: Dec 20, 2007
20. Dec 20, 2007

Economist

Why are you assuming this is irrational? Maybe it is rational (in other words the best strategy) for judges to generally give custody to the mom (instead of the dad)?

True. But I would say the women generally gets the overwhelming benefit of the doubt. Besides, what I was really trying to say, is that the situation which men/dads are deemed more fit, is probably not uncorrelated with income, education, etc. I am not saying it is casual (in other words, I am not saying the income and education necessarily causes them to get custody) just that these various important variables are correlated with one another.