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Economic discrimination

Economic rationale for labour market discrimination against women than people

of different race and ethnicity.

Economic discrimination generally refers to discrimination that is based on economic
factors which include wages, prices, amount of capital investment finances available for
minorities in a given country, availability of jobs in a given market etc. Economic discrimination
could be against funding of minority owned businesses, workers, employment opportunities
available for certain groups, wages paid to certain workers, consumers in a given market etc.
Discrimination in early days referred to distinctions in economic transactions such as charging
different people different prices for the same services or goods (KONRAD, YANG and
CANNINGS, 2012). Economic discrimination in many countries touches on all activities
applying unequal terms in employment, business transactions etc. Economic discrimination is
caused by a wide range of factors which include animosity such mistrust or dislike of certain
groups of people such as it may seem Hispanics in USA, blacks and Muslims in Europe etc
(Jomo, 1998) It is also caused by cost/revenue and efficiency factors which include
cost/revenue considerations in dealing with minorities and women and levels of education of
minorities or women. There are many forms of economic discrimination which include wage

Economic Rationale for Labour Market Discrimination Against Women 2

discrimination, hiring discrimination, services discrimination, price discrimination etc
(WALZER, 2007).
Labour Market discrimination
Despite major advancements made in the world in all spheres of economic life in this
century and even in the preceding one, discrimination against people based on ethnicity, gender
and race still persists even though in a remarkably reduced scale which is quite a positive sign.
Women even though cutting across ethnicity and race are discriminated against in the labour
market in virtually all countries of the world. According to ZWIECH (2009) there are many
forms of discrimination in the labour market. Discrimination against women can still be isolated
in several spheres of their professional careers. Women are still subjected to employment
discrimination in that they still encounter limited employment opportunities than their male
counterparts even when all qualification, professional and demographic features are comparable.
In these situations women still post a larger percentage of the unemployment statistics. In this
type of discrimination women face a higher chance of losing their jobs when they find one and
also encounter difficulties in finding gainful employment especially in developing countries
Women who have been trained in professional careers such as law, medicine,
engineering, and architecture also face professional discrimination. Professional bodies which
formulate ethical standards and supervise these professions, put arbitrary and somewhat
subjective limitations that limit the number of women who can access these professions. These
professional bodies tend to put conditions for membership which tend to favour men and
discriminate against women and more so in developing countries (GUSCINSKIENE, 2010).
Women are jammed in lesser paying professional careers such as nursing and early child hood

Economic Rationale for Labour Market Discrimination Against Women 3

development instead. For those women who are lucky to find jobs, they encounter position
discrimination. In this case women are deliberately locked out of managerial positions which
involve making decisions. This mainly relates to segregation on a vertical plane and is evidenced
by the ratio of men to women in decision making or managerial positions in an organization or a
country. In almost all the countries of the world the ratio is heavily tilting in favor of men. These
practices were more prevalent in past centuries but are still prevalent is few developing countries
and in minute levels in developed countries (PRENTICE, 2010).
Women also face discrimination in accessing important training opportunities. This and
also many of the various forms of discrimination cut across ethnicity and race. Women have
limited access to education and other forms of professional training which could enhance their
chances of clinching high flying jobs (NEUMARK and STOCK, 2006). The last form of
discrimination against women is pay discrimination. Due to professional segregation, ill
judgement and subjective appraisal systems, differences in pay between men and women in
many organizations is notably high. It also occurs in environments where efficiency is not
considered as an important factor in determining pay scales (MURRAY, 2009).
The Theory of wage determination in Economics
In perfect market that are very competitive the market wages and the rates of payments are
determined and paid in accordance with the marginal revenue product of the employee or
worker. (MRP)
Where MRP = MPP * MR
Marginal Revenue (MR) = the change in revenue received from goods or products sold due to
extra labour input.

Economic Rationale for Labour Market Discrimination Against Women 4

Marginal Product (MP) = the change in the output per unit of the labour input. The public sector
doesn’t apply the MRP economic theory as there will be no marginal revenue. They also face to
some extent the effects of monophony due to their employment by government agencies.

Differential Monospony
This concept is a potential or cause of non-intentional discrimination. Under Monopsony
especially in the absence of union representation, the workers will mostly be exploited (where
w<MRP) by profit maximization enterprises or firms. The rate at which the firms exploit
workers depends on the slope of the function of the labour supply. If two groups exist in similar
employment status or conditions with different slopes of the labour supply function then their
wages will be calculated differently and the wages will paid will be different despite all other
factors or conditions being equal. The following example of a Barber Shop helps to illustrate the
Monopsony concept in economic labour discrimination.
Hair Barber Shop
workers New wage




  new workers of

of labour product
1 10 10   70
2 20 40 30 60
3 30 90 50 50
4 40 160 70 40
5 50 250 90 30

Economic Rationale for Labour Market Discrimination Against Women 5

6 60 360 110 20
7 70 490 130 10
8 80 640 150 0

The Monopsonist’s marginal Cost of Labour and Supply Curve.

Source: www.economicsonline.co.uk
The monopsonists exploit workers by paying less than the MRP which is ₤30 an hour and the
MRP is ₤50 an hour which means that he gains ₤20. The monopsonist achieves this because he is
not compelled to pay the full value of the MRP. Women will be paid less as their productivity is
less than average men.

Economic Rationale for Labour Market Discrimination Against Women 6

Assuming that the monopsonists wants to maximize profits, labour will be demanded up to
where the MCL=MRP. The point will be where 3 barbers are hired and also where the
MCL=MRP and both are ₤50 an hour as it has been illustrated below.

Source: www.economicsonline.co.uk
The competitive rate of wage payments would be ₤40 and where wage to attract the new workers
equals to the MRP curve and where 4 barbers are employed. (Smith, 2003)
Social Distance
Gary Becker’s concept of social distance concludes that an individual will pay a certain amount
say‘d’ to be kept away or stay away from some other individual who interfere with their utility
or cause them disutility. This social distance could be a) from a co-worker, subordinates or even

Economic Rationale for Labour Market Discrimination Against Women 7

bosses. b) Customer who is apparently being served by a member or employee from the disliked
group. c) Employer who pay low enough wages for the disliked group which compensates the
firm for employing them.
Impact of the Marginal Productivity Theory
The social distance as explained by Becker is basically a taste model and it explains
discrimination on the basis that other people are effectively part of the potential consumption of
the individual where compensation is paid to them for the negative effects. To maintain a
reasonable distance from the disliked group, employers will be willing to sacrifice even some
profits. (Jomo, 1998)
Separating Equilibria
The possibility of discrimination as a result of open segregation in employment opportunities
does not qualify the workers from the disliked groups to be compensated for working with them.
It follows that equilibrium will exist where industries, plants or occupation are skewed in terms
of distribution of the characteristics of the workers. In medical practice for example, women are
most likely to be nurses while doctors would be men than the other way round.
Statistical Theory of Discrimination
This concept is based on the application of the basic decision making under the conditions of risk
or portfolio evaluation of the process of labor hiring in a firm’s decision making process which
has led to the use of characteristic as a cheap screen to defend or eliminate the mistake in the
evaluation of the discounted long term productivity of workers. The following example shows
the means and the variances of a sample.
    Variance of
  Mean of the mean

Economic Rationale for Labour Market Discrimination Against Women 8

M 10 1
F 8 4
The mean (M) is a bit higher but the distribution overlaps as
F Scores higher than some of M.

The 95% C.I
M 8.04 11.96
F 4.08 11.92
To put the F in the 95% confidence level would require only
slight changes above the M but the SD model would
assume that a person of F character would never be picked
as long there are sufficient persons of character M to fill the
the position. Other models supporting the same arguments
are the Queuing model, the assignment and the segmented
Labour markets models.
Factors that contribute to discrimination of women in the labour market
It’s also a fact that the differences in labour rates may also differ to other factors like capital,
market conditions and the differences in labour skills.
There are a variety of factors that contribute to discrimination of women in the labour market.
Women at times lack adequate skills set to enable them deliver on the job. Employers tend to
offer more training opportunities to men than their women colleagues. The skills and knowledge
acquired in these trainings empowers the male workers to attain higher marginal revenue product

Economic Rationale for Labour Market Discrimination Against Women 9

per worker thus leading to higher pay than women (KONRAD, YANG and CANNINGS, 2012).
In the public sector, employees face the challenge of monopsony. In such an environment
marginal revenue product per worker does not apply as these entities focus on giving social
benefits rather than maximizing shareholder wealth through profit maximization. Some entities
may use subjective appraisal standards to award salary increments which may discriminate
against women causing wage discrimination (EMMENEGGER, 2010).
Women tend to self-select jobs that conform to their assigned gender roles and
stereotypes according to the socialization perspective. Most of these jobs tend to pay lower
wages than the ones that men lean towards. Some researchers argue that women relatively fewer
working hours than men contribute to low wages (COK, DOMADENIK, REDEK and VERBIC,
2009). Another type of discrimination from an economic point of view is explained by separate
equilibria model. In this model workers are segregated from undesired workers. In some divided
societies, workers with same ethnic or racial backgrounds are segregated and tend to dominate
certain low paying jobs. This causes discrimination in that some professions are dominated by
certain genders. In this type of discrimination individuals are segregated based on their personal
characteristics (ZWIECH, 2010).
Job preferences according to gender stereotypes also cause labour market discrimination.
Women tend to lean towards low paying jobs such as nursing and teaching. These jobs have
lower expectations and are deemed to enhance the feminine nature. In some developing
countries minorities find jobs in lowly paying professions such as mining industry in South
Africa. These “bad job” causes labour discrimination in blacks. (Jomo, 1998) In political
positions men dominate as many societies discourage women from participating in political jobs
even though they are the most highly paying. This is mainly because in some developing

Economic Rationale for Labour Market Discrimination Against Women
countries politicking involves a lot of unethical behavior and violence which may not favor
women. Assignment model is yet another cause of discrimination in that wages are determined
not by margin revenue product per worker but by the position or job title. In this type of
discrimination the higher a job is in the organizational hierarchy the more pay it attracts. In this
case those high paying jobs are allocated to individuals arbitrarily mainly based on political
correctness and corruption (ZWIECH, 2010; THÉVENON, 2009).
Another type of discrimination is what was espoused by Gary Becker’s social distance
model. In this model individuals are paid a sum of money “d” to tolerate undesired workers in
the work place. (FINKEL, 2007) In this case marginal revenue product per worker does not
apply. Employers could employ the disliked workers and pay them low wages in which case
their wages will be low than their marginal revenue product per worker (BHORAT and GOGA,
2012). Employers may retain such workers and use the money saved to pay the desired workers
to tolerate the undesired workers in the work environment. This model thus does not only
encourage discrimination on the basis of gender, race and ethnicity but motivates employers to
use it as the basis for justifying discriminatory practices. This model normally operates in
monopolies as in a perfect competitive market the competing firms will easily employ the
workers who are discriminated against (THÉVENON, 2009).
Like all other capital investments, investment in boys and girls is measured in their
relative rate of return on the money invested in their schooling. According to LENAERS (2010)
human capital theory provides a methodology that can be used to determine the rate of return on
investment spent on schooling the girl and boy child through the simple Mincer-type earnings
function. In most cases women suffer substantially lower economic returns to education than
men according to simple Mincer-type earnings function that have been calculated by many

Economic Rationale for Labour Market Discrimination Against Women

economists all over the world (BHORAT and GOGA, 2012). Because of these lower economic
returns on education parents have a lower incentive to invest in girl child education. This
therefore ushers into the labour market half-baked women professionals who are prone to labour
discrimination (LI and MILLER, 2012).
Labour market discrimination against people of different race and ethnicity cannot be
easily justified using logical economic rationale unlike discrimination against women.
Discrimination based on ethnicity is manly influenced by existence of a dual +labour market as a
result of ethnic stratification in many countries. In many countries this stratification is made up
of one strata comprising indigenous population or natives, the second strata is for foreign
indigenous citizens and another is made up of immigrants (Jomo,1998) Most immigrants face
hostile social environments which inhibit their ability to attain higher education standards. In fact
their movement is limited and they cannot access high paying formal jobs because they lack
citizenship status (JONES and URASAWA, 2011). These workers normally undertake manual
jobs that pay lowly and demean the human being. Foreign indigenized citizens also enjoy better
employment terms in many companies because they tend to have globally recognized
qualifications. Native populations in many countries form the bulk of the entire population and
enjoy political power. However there is a lot of discrimination based on clans and tribes. The
tribe or clan in power enjoys the lion share of government jobs at any one given time. This
practice is more prevalent in developing countries (Jomo, 1998)

Economic Rationale for Labour Market Discrimination Against Women


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