There are generally three types of discrimination (actually four) that may result in some economic actors being left shorthanded (we can define that in future post, but for now just conjure up the mental image of a worker being paid less than he/she “should”). These are:
- Employer discrimination: the owners of a firm treat individuals differently on the basis of some observable that has nothing at all to do with how productive the workers are. In this setting, you would expect to see, for example, black workers of similar quality and backgrounds as white workers, be paid less although they produce just as much as (or more) than their white counterparts.
- Employee discrimination: the owners of a firm may not be discriminatory, but may nonetheless be “forced” into paying white workers more than black workers (or vice versa) because workers of different races do not wish to work with one another. The increased wage takes the form of a “compensating differential” analogous to paying workers to incur extra risks on the job. But again each worker is equally productive on their own, although it is possible that when working together the productivity of both blacks and whites falls.
- Customer discrimination: neither the owners nor employees of a firm are particularly interested in being discriminatory, but the customers of a firm may have a preference for being served by workers of a particular background. In this case, even though firms would want to pay all blacks and whites the same amount and even though the workers may even enjoy working with one another, then it must be necessary for firms to pay them differently else they lose customers.
- Statistical discrimination: this is/should be in a different class from the above. This kind of discrimination is a result of the fact that we do not have perfect information about the productivity of various workers (unlike in the above 3 cases). When we don’t have complete information, we rely in indicators of productivity to make assessments. Now there are all kinds of interesting questions here such as in what types of jobs we might expect to see this, and how long this can persist. But ignore that for this post. The point here is that I may pay a particular worker less because he/she is a member of a particular class of workers who, on average, has lower productivity than typical workers from another class of workers. Thus, a member of a particular class may find themselves being paid less than they are really worth even though no customers, employee or firm is actually consciously discriminating against them.
It is very likely that robust competition in the goods market and in the labor market will (quickly?) erode the discrimination in 1, 2 and 4 – and the reason being is that it is very costly to exercise your “taste” for discrimination. Folks who are not discriminatory, or rather folks for whom they prefer money to discrimination can take away business by buying up the exploited workers and paying them more, and still be able to sell the goods for the same or lower prices than you. But economists have found that it is particularly difficult for competition to “compete away” the discrimination if it comes from customers. For example, what if people do not wish to buy candles produced by Catholic monks. And as a result, Catholic monk candlemakers are paid less to make candles than their lay counterparts are, because the lay candle companies can actually sell their product. Where would the profit opportunity be for an employer who wishes to pay Catholic monks more than their current wage?
Now the quick point of this post is that government regulations that aim to do something about discrimination almost exclusively focus on (1) and (2). Why? Because it’s the easiest to see and think about. I’m not here to discuss the history of desegregation or whether we’d ever expect it to happen absent new regulations and laws, but rather to ask why we don’t see greater efforts to snuff our customer discrimination?
For example, many white couples do not wish to rent apartments in inner cities from black landlords. This dramatically lowers the rents that black landlords can charge and also reduces the wages that custodians, electricians, plumbers, etc. in those buildings are able to make. Where are the statutes enforcing equality here? You would think that the law would be even more forceful here since the force of competition isn’t the safety net that it is when it comes to other cases of discrimination? It should be pretty clear to the readers why we see no such law. Not only would it be prohibitively costly to monitor and enforce, it would be a massive step toward tyrannical totalitarianism.
What would we have to do to have such a law? Create a Preference Police Force? And what would customers have to do in order to display that they gave equal shrift to businesses of all racial and other categorical stripes? Imagine the laws that might be passed! A customer equivalent of the “Rooney Rule.” For Christmas, if you wish to purchase a toy train set for your kids, you must prove that you “interviewed” at least one maker of trains that is from a different category than the majority category. Have fun with that. If you wish to go to an amusement park, are you doing so on the basis of anything OTHER than the racial composition of the customers of the park?
For those familiar with the law, you will see that the legal system tends to move toward efficient, low-cost solutions, and this surely explains why the legal system has not cracked down on customer discrimination. But, this observation says nothing about the fact that the moral arguments when it comes to discrimination that are commonly put out there are extremely weak and asymmetric. Where are all the African-American ice-hockey fans? Shouldn’t black Americans be chastised for not being more open and supportive of a sport like hockey? Or shouldn’t male Americans be condemned for not selling out WNBA arenas like they do to NBA arenas?
Of course I am not sanctioning any of that, and (at the risk of being removed from polite company) I certainly do not support the entirety of anti-discrimination statutes for a variety of reasons. First, they can and do have the unintended effect of making things worse for the intended groups. Second, they suffer brutally from a Hayekian knowledge problem. Third, they are, to me, nothing more than feel-good, “do-something”, status indicating (“showing that we care”) mechanisms that do nothing to get to the heart of the problem. Fourth, they take our attention away from the problems themselves – by having a law, folks tend to think they’ve “solved” the problem (think of the reaction to the passage of the PPACA). But another reason I do not support them is that they seem to place an undue burden on relieving discrimination on only a particular class of people (entrepreneurs, for example) while the rest of the world goes merrily on its discriminatory ways. Perhaps’s I’ll write more on this soon, but for now my take-away is that it is both morally and economically superior to whittle away at discrimination by shunning and otherwise persuading those who hold discriminatory preferences than it is to do so by force of legislation. We have, and can, continue to use the force of sound argument and reason to persuade people that their ideas and opinions are wrong-headed, and we can choose not to associate with people who hold odd views, but like any other preference, the desire for someone to be discriminatory is actually quite hard to distinguish from anything else. Are there public policies that can be instituted to support such behaviors. Sure. But they ultimately are going to reduce the power of entrenched interests, and therefore have no shot at happening. We’ll post on those shortly.