Here are the slides for my second “basic econ for attorneys” lecture. The topic: the economics of discrimination. Or as I called it, “The Economics of Antipathy and Stereotyping.” Enjoy.
Here are the slides for my second “basic econ for attorneys” lecture. The topic: the economics of discrimination. Or as I called it, “The Economics of Antipathy and Stereotyping.” Enjoy.
Nov 19 2019
Garett Jones' new working paper on "Measuring the Sacrifice of Open Borders" has already received much attention. Before I respond to it, though, let me recount The Story So Far. 1. About a decade ago, researchers such as Michael Clemens started using standard trade models to estimate the economic effects of open ...
Nov 18 2019
I shouldn't have talked to Max Zahn. Hello Prof. Henderson, I'm a reporter at Yahoo Finance working with Editor-in-Chief Andy Serwer on a story about President Trump's economic performance so far. I would like to speak with you today on the topic. Please get back to me as soon as possible, as I'm on deadline for...
Nov 18 2019
Here are the slides for my second "basic econ for attorneys" lecture. The topic: the economics of discrimination. Or as I called it, "The Economics of Antipathy and Stereotyping." Enjoy.
READER COMMENTS
Salem
Nov 18 2019 at 11:32am
I believe your last slide has a serious typo – should be “employees.”
Mark
Nov 18 2019 at 11:34am
Anti-discrimination law should really be part of antitrust law. Antitrust law makes certain types of discrimination (such as price discrimination or refusal to deal with certain other parties) illegal, but only if the ones doing the discrimination have enough market power to create an anticompetitive effect. Racial discrimination should be treated the same way.
In a competitive market, there would be no discrimination except for isolated incidents that are as harmful to the discriminator as the victim. Systematic discrimination can only exist in a non-competitive market (which may be the case in specific professions but not across the whole economy) or where it is mandated by law, which is why there were laws mandating discrimination against blacks in Jim Crow and illegal immigrants today.
Mark
Nov 18 2019 at 11:41am
To add to this, much discrimination against blacks in the North where it wasn’t legally mandated was the result of agreements to discriminate (such as homeowners combining together to create a restrictive covenant against selling to blacks). The antitrust framework makes perfect sense for dealing with this, because it suggests that these agreements between entities that would otherwise compete should be illegal.
Unfortunately, the issue of discrimination touches an emotional nerve that prevents people from rationally balancing the interests at stake between ensuring that some people can do what they want with their property and that others aren’t excluded from the marketplace. Antitrust law strikes that balance in an area that is not emotionally charged (yet) so it is much more reasonable than current discrimination law.
nobody.really
Nov 20 2019 at 11:37am
I don’t know that restrictive convents between landowners violate antitrust laws. These covenants reflect an agreement by each landowner to limit her own discretion to sell to someone with specified characteristics. But that’s not the same as a prohibited practice such as market segmentation, where alleged competitors agree not to compete against each other in their respective segment of the market. Landowners in a restrictive covenant would still compete against each other in, for example, marketing their houses to prospective buyers.
The rationale for restrictive covenants is the rationale for home owners associations: We live in a world awash in externalities, and the value of each person’s property is affected by the neighboring properties. To address this dynamic, each landowner assumes a restriction on his use of his land, with the understanding that neighboring landowners would do likewise. The problem with these covenants is not that they harm consumers overall, but that they violate a public policy against discriminating on the basis of certain characteristics.
Then again, the practice has some similarities to Retail Price Maintenance agreements–that is, agreements that a wholesaler imposes on its retailers not to sell a give product below of given amount, often as part of a campaign to market the product as a superior good. Do we need antitrust laws to protect wholesalers from limiting their own ability to respond to price competition? Bork thought not–but court decisions have been mixed.
Phil H
Nov 19 2019 at 3:30am
“In a competitive market, there would be no discrimination except for isolated incidents that are as harmful to the discriminator as the victim.”
The maths here is wrong. If a majority employer refuses to employ a member of a 10% minority, she loses a 10% probability of hiring the best person for a job (probability only; she may suffer no actual losses). All members of the 10% minority lose the opportunity to get that job. Those marginal losses are not equal. Other examples abound, but they’re all driven by the same thing: size matters. Being one of the 90% is different from being one of the 10%.
“Systematic discrimination can only exist in a non-competitive market (which may be the case in specific professions but not across the whole economy)”
This is obviously untrue. Just looking at the standard examples gives clear examples. Say, women’s college attendance. Women were allowed to attend college for 100 years before attendance actually evened up. The market can stay irrational for longer than you can stay solvent; societies can stay discriminatory for longer than you can stay alive.
Alexander Turok
Nov 19 2019 at 12:39pm
You’re assuming that this difference was due to discrimination.
Phil H
Nov 19 2019 at 2:24pm
I am, and I’m pretty comfortable with that assumption. If you read things written by many, many people from that period, you can literally see them discriminating. They wrote things like “a woman’s place is in the home”; “women shouldn’t go to college”; “I wouldn’t send my daughter to college”; etc.
That is, during the relevant period, there was no government coercion; there was widespread, explicit, private discrimination; and there was a major gender gap. I draw a common sense conclusion from those facts.
nobody.really
Nov 20 2019 at 11:00am
Seems like a reasonable inference to me.
But I’ll add that college education was a much scarcer thing for men AND women before the 1944 G.I. Bill of Rights. The bill was created to help veterans transition back into civilian life though home loans, unemployment benefits, and training–which, oh yeah, could include college. But before World War II, fewer than half of Americans got a high school diploma, so few people thought that there would be much interest in the college part. Yet there was–and by 1947 veterans made up roughly half of all college students.
I don’t know whether the G.I. Bill discriminated on the basis of gender, but clearly the military did when recruiting soldiers. Thus, the government’s subsidies for college education went overwhelmingly to men.
Mark Z
Nov 19 2019 at 10:32pm
“All members of the 10% minority lose the opportunity to get that job. Those marginal losses are not equal. Other examples abound, but they’re all driven by the same thing: size matters. Being one of the 90% is different from being one of the 10%.”
I’m not following your reasoning here. If that employer is .01% of the employment market, then the employer loses access to a larger fraction of the labor market than the fraction of the job market the discriminated against employees lose access to. There’s also an asymmetry that works in favor of employees: many people will refuse to work at or shop at a business that discriminates against some demographic of workers. Businesses won’t (because usually they effectively couldn’t even if they wanted to) refuse to hire workers who themselves discriminate against businesses owned by members of some demographic in where they work or shop. Customers and employees can be as discriminatory as they want without consequence.
Phil H
Nov 20 2019 at 7:17am
Mark, you’re right, that was not a clear exposition. I should back up and explain some premises: I’m assuming there is a fairly widely shared, socially negative prejudice against some group. If prejudice were evenly distributed, then there’s a much better chance that market forces could effectively eliminate them. But when you have a powerful majority (e.g. whites vs blacks) or a very widely shared prejudice (women aren’t cut out for college) then the harm to the minority heavily outweighs the harm to the majority, and the social stigma against breaking ranks can be sufficient friction to prevent the majority from pursuing the small benefit that they would gain from using the whole workforce more efficiently.
Hazel Meade
Nov 20 2019 at 5:13pm
Good amendment to your earlier comment. If the prejudice is not widely shared and is rare, then it’s much more likely to get weeded out. Even better, if there is a social norm *against* prejudice than that will help to overcome any remaining benefits to discrimination, and push market forces along. That’s largely why I think it’s important to maintain social norms that forbid prejudice. You can think of it as a means to push the market out of a local equilibrium in which the social stigma of breaking ranks outweighs the benefits of non-discrimination.
Mark Z
Nov 19 2019 at 10:42pm
I think that, in a somewhat similar vein but more Pigovian implementation (avoiding the often ad hoc nature of anti-trust law enforcement), it would make more sense to just impose a revenue neutral discrimination tax determined by the ‘discriminatory market share.’ A discriminatory business that makes up 50% of the market share – or a small business that’s one of many that make up a 50% discriminatory market fraction – would pay a sizable tax, which would healthily subsidize the nondiscriminatory 50%. A discriminatory business that has .1% of the market share while the other 99.9% are nondiscriminatory would pay a negligible tax.
David Boaz
Nov 18 2019 at 1:12pm
You left out “and whites“ in this sentence: “Conservatives see discrimination against the religious, fellow conservatives, and Asians.”
Thaomas
Nov 18 2019 at 1:51pm
This might do the trick. I’ve argued that anti-discrimination laws should have a “small bigot” exemption. We should not care if one roadside diner has a “No Muslims/Blacks/LGBT/Latinos.” policy.
nobody.really
Nov 20 2019 at 3:29am
I’m intrigued by your (and Mark’s) argument for using antitrust principles for addressing discrimination. I have long argued precisely this in my Market Power Affirmative Defense. And I’ve encountered virtually no enthusiasm for it.
Briefly: I would permit a firm to discriminate and evade liability–provided the firm gives a referral to some equivalent opportunity nearby that does NOT discriminate. (Admittedly, the paradigmatic examples are public accommodations, but in theory they could also apply to to employment or housing.) The referring firm would bear strict liability: If for any reason the referral was deemed inadequate, the referring firm could be liable; good faith error is no excuse.
In short, this affirmative defense would cause anti-discrimination laws to focus on ensuring that all people have access to equivalent benefits. But the law would NOT focus on granting people the right to demand accommodation from any specific person or firm. And the law would NOT provide a recourse for pure “dignity harms” such as the harm of being informed that a given firm is declining to serve you.
Not that this policy would not require government to discriminate among types of discrimination. The racist firm would be on the same footing as the homophobic firm.
As I say, I have encountered almost no enthusiasm for this proposal. I sense the real power of anti-discrimination laws does not arise from enforcement–because, as Caplan observes, enforcing anti-discrimination laws is difficult. Rather, the real power arises from establishing a social norm so powerful that people cringe at the idea of being declared a discriminator. Because my affirmative defense candidly acknowledges that firms may discriminate, the policy may tend to undermine that social norm.
Hazel Meade
Nov 18 2019 at 2:13pm
I’m more in the “wishful thinking” category of thought on this.
First, the incentives that employers may be responding to might be the discriminatory preferences of their customers, who wish to avoid being served by people from the disfavored group. So whether it’s profitable to hire the lower-paid group doesn’t depend on a simple calculation of the profits from cheaper labor. It’s what the cheaper labor gains you minus what it costs you in the form of lost customers. If your customers are all really prejudiced, you might be better off forgoing the cheaper labor. Sure, some other business may be able to offer a lower price, but you may end up with that being a niche market that caters to the disfavored group itself. (i.e. a permanent underclass that hires from and caters to members of the same underclass.)
Second, people are seldom purely rational. If there are enough irrationally prejudiced people, then you could wind up with a static bias in the wages of the disfavored group. Indeed the market will probably settle on some static equilibrium in which the lower wages of the disfavored group exactly offset the losses caused prejudiced customers. It limits the wage lowering effects of discrimination, but not enough to completely eliminate them – it has to remain *slightly* profitable to hire the disfavored group , or else there would not be an incentive to hire them anymore! The wage gap can only converge to zero when the group prejudice is actually eliminated from society.
Matthias Görgens
Nov 19 2019 at 1:42am
Your example is good.
In this case, it’s customers who pay for their discriminatory preferences.
In practice, I expect employers to figure out how to put on a show in the public front, and hire whoever is best for the backend of things regardless of outer characteristics.
Nick R
Nov 19 2019 at 9:20am
Thanks Bryan. Is your first “Economics for Attorneys” available? I couldn’t find it when I did a search on the econlib site.
Phil H
Nov 19 2019 at 10:07am
I think the wrong way to argue with Caplan’s position is to say – sure you’re right in theory, if the market were perfectly free, but actually it’s an imperfect world… That critique may be true. But it’s not very powerful. And it misses a much bigger point. Caplan’s argument doesn’t even work in theory.
If we posit a simple model with two groups, one of which is superior, and discriminates against the other, then there are many many many equilibrium points where no one in the majority group is willing to start dealing with the minority for fear of losing standing in the majority community. It is not even true under ideal conditions that market forces would necessarily end the discrimination.
It would be fair to say, I think, that market forces are in general a factor that pushes against discrimination. That’s another reason to be pro-market. But it’s both theoretically and historically/empirically untrue to claim that markets will always eliminate discrimination. Patently they haven’t and they can’t.
Hazel Meade
Nov 19 2019 at 1:11pm
I completely agree with this. Markets do work against discrimination, but discriminatory systems can still last hundreds of years before the market eventually works things out. There’s not really a simple equation in which discriminating just costs businesses money. There are benefits to discriminating which have to be weighed against the losses. Often those benefits involve “social capital” within the dominant group. For instance it took around 80 years for baseball teams to break the “color line”.
https://en.wikipedia.org/wiki/Baseball_color_line
“The color line, also known as the color barrier, in American baseball excluded players of black African descent from Major League Baseball and its affiliated Minor Leagues until 1947 (with a few notable exceptions in the 19th century before the line was firmly established). Racial segregation in professional baseball was sometimes called a gentlemen’s agreement, meaning a tacit understanding, as there was no written policy at the highest level of organized baseball, the major leagues. But a high minor league’s vote in 1887 against allowing new contracts with black players within its league sent a powerful signal that eventually led to the disappearance of blacks from the sport’s other minor leagues later that century, including the low minors.”
The absence of black players from Major League Baseball until Jackie Robinson in 1947 was not due to a lack of qualified black ball players. Indeed many baseball team managers and owners tried to break the color line over the ensuing decades but were prevented by this “gentlemen’s agreement”. The baseball commissioner Happy Chandler wrote that he risked losing his job over approving Robinson signing with the Dodgers. After Robinson signed, he endured epithets and death threats from fans who did not want to see black baseball players.
Knut P. Heen
Nov 19 2019 at 12:40pm
Discrimination arguments are arguments from ignorance. The typical argument goes like this: I do not understand why there is a difference in average between group A and group B, hence there must be discrimination. The conclusion does not follow from the premise because there is a large number of omitted variables that may explain the difference in the two averages. The econometric model must be a correct description of the world in order to prove discrimination. No one has seen that model yet. It is not enough to compare apples and apples. The apples in my garden are crummier than the apples I get at the market.
nobody.really
Nov 20 2019 at 2:44am
I share your understanding of employment discrimination. So to deal with the “omitted variable” problem in Title VII discrimination cases, courts have adopted a practice of burden-shifting.
First, the employee claiming discrimination must make a prima facie claim of discrimination. If the employee is able to prove each element of a discrimination claim, the burden of proof shifts to the employer to justify the challenged action. If the employer is able to provide a legitimate, non-discriminatory reason for its actions, the employee is then given another chance to demonstrate that the employer’s stated reason is merely a pretext for discrimination.
In short, we don’t rely on some hypothetical “perfect” model. Instead, simply ask the employer to justify his apparently discriminatory behavior.
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