Economics explains discrimination in the labour market
Economics explains discrimination in the labour market

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Economics explains discrimination in the labour market

4 Forms of discrimination

We have already seen that labour market disadvantage can take various forms. Equally, discrimination in the labour market itself can manifest itself in different guises.

The most obvious form of discrimination involves women being paid less than men for doing the same or a similar job. This is what labour economists call wage discrimination (under wage discrimination an individual is paid less than another individual working at the same job), which has been addressed and formally eliminated in many countries through the introduction of equal pay legislation. Wright and Ermisch (1991) for example, report that ‘the Equal Pay Act (1970), Sex Discrimination Act (1975), and Employment Protection Act (1975), contributed significantly to reducing discrimination in the British labour market’ (p. 508).

However, the ability of such legislation to improve the relative position of those workers facing discrimination is the subject of much debate. The following case study of performance-related pay shows how discrimination can be difficult to legislate for.

Merit pay scheme ‘was discriminatory’

London Underground is changing the way its performance-related pay system is implemented after conceding a £60,000 racial discrimination case last month.

Consultants, Psychometric Research Development, will meet with London Underground in future to discuss any performance-related pay scheme as part of a settlement reached with 20 black station managers. The managers claimed that the scheme, in place for the three years between 1989 and 1992, indirectly discriminated against them.

Fatima Patwa, a solicitor for Brent Community Law Centre, which supported three of the 20 managers, told Personnel Management that the performance assessments left too much to the discretion of the senior staff carrying out the appraisals.

She said research found black managers were being awarded lower performance pay than their white colleagues. Some managers were failing to use the appraisal procedure correctly, making the same remarks on all forms while awarding different levels of pay, or ignoring the assessment entirely and simply making a judgement on salary.

In a statement agreed with the black managers, London Underground said that the indirect discrimination had been ‘wholly unintentional’. It went on to say that it ‘regrets the fact that its performance-related pay exercises for the three years from 1989 to 1992 were not carried out fully in conformity with its laid down procedures’.

The Commission for Racial Equality, which supported 17 of the managers, said the case was the biggest it had ever put to an industrial tribunal.

The case was initially supported by the Transport Workers Legal Action Committee, which was formed by black workers within London Underground to deal with discrimination.

Each of the managers will be paid £1,000 for financial loss plus £1,500 for injury to feelings and £650 for adjustment to voluntary severance payments.

Source: Personnel Management, May 1993

Discrimination can also exist even where earnings are the same for all workers in a particular job. Employment discrimination (under employment discrimination an individual has potentially the same level of productivity as those working at a job from which he or she is excluded) occurs when workers from disadvantaged groups are employed in jobs for which they are over-qualified in the sense that they have higher levels of productivity compared with other workers doing the same job, and with the overall level of ability needed to undertake the tasks involved. This will arise either because members of particular groups face discrimination in recruitment, and so cannot gain access to better paid jobs, or because opportunities for promotion and selection for training are denied.

The definition of discrimination which underlies both wage and employment discrimination is the same. It involves the unequal treatment of individuals who are equally productive (sometimes described as ‘of comparable worth’) on the basis of characteristics, such as gender, race, age, religion, etc., that are not related to productivity and so should not affect earnings.

While wage and employment discrimination have been the focus of empirical and theoretical research, this should not be taken to imply that other forms of discrimination are less important nor that their impact is of less significance. Harassment at work, for example, is a form of discrimination which, although it has not received the empirical scrutiny of labour economists, is nevertheless an increasing cause for concern. It can affect an individual's performance at work and consequently his or her earnings and employment opportunities. To give one example: in a large-scale survey of junior barristers, 40 per cent; of female respondents reported that they had faced some sort of sexual harassment at work (Equal Opportunities Review, 1995).

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