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

7 Policy issues

There are several issues we need to address concerning anti-discrimination policy. The first involves the different policy prescriptions that can be derived from the theories we have considered. The various theoretical approaches provide different explanations for why discrimination occurs and it follows that these will produce different types of policies to deal with discrimination. Second, the empirical work that has been carried out to explain gender and racial earnings differences also provide significant insights into policy issues. Finally, we can examine the actual policies that have been introduced to deal with discrimination and the impact they have had.

The neoclassical analysis of discrimination points to two main issues that need to be addressed by anti-discrimination policy: the need to promote competition in product and labour markets, and the need to break down informational barriers that act against particular groups of workers. There are, however, divergent views as to how both can be achieved and not all neoclassical economists accept the efficacy of direct intervention in wage and employment determination. According to this approach, the aim would be to promote a ‘market solution’ for dealing with labour market discrimination and propose policies which enhance competition and reduce the restrictive practices of employers and trade unions. Such policies, they argue, will promote greater choice in education and housing markets, improve occupational mobility and provide the right environment for the elimination of discrimination through market forces.

Other commentators, however, stress the prevalence of market failure and the need for government intervention. Such intervention need not be direct, such as fixing wage levels, but could take place through compensatory public expenditure and legislation which offsets the disadvantages faced by particular groups in society. For example, we have already noted that the earnings of married women are depressed by intermittent work patterns due to family responsibilities. In part, this can be addressed by the extension of job protected maternity leave. Although Britain has had maternity leave legislation since 1976, it is far from universal. In addition, although it was traditional for women not to return to work when their children were young, this trend is declining. In 1979, 24 per cent of young mothers with children under the age of nine months were in employment. By 1989 this had increased to around 46 per cent (Joshi et al., 1985). In part this reflects changes in social norms about women with young children working. Increased financial pressures on families and a change in employers’ attitudes have also contributed. The evidence indicates that women with job protected maternity leave have significantly higher earnings than women who do not, other things equal. Significant improvements in the earnings of women have also been found for policies aimed at improving childcare provision. These increase participation, enable women to work full-time rather than part-time and thus increase women's earnings: empirical analysis indicates that these effects are especially significant for lone parents. Other policy measures include retraining schemes which enable women returning to the labour market to come back to jobs similar to the ones they left and restructuring jobs to ensure that they can be done by people who also have domestic responsibilities.

Segmentation theory, in contrast, emphasises occupational segregation and the inability of women and minority ethnic groups to gain access to favourable jobs. This does not reflect a lack of ability on their part but, rather, barriers to entry to favourable employment. The most commonly advocated policies are those involving positive discrimination, such as job quotas for more favourable jobs or the disproportionate provision of more resources for education and training, and affirmative action policies which encourage the recruitment and promotion of disadvantaged workers.

Direct intervention in wage determination in Britain has primarily been achieved through the use of equal pay legislation. The efficacy of direct wage adjustment as a policy to overcome discrimination depends, in part, upon the impact it has on employment. Some economists argue that the relationship between wage increases and employment is such that the resulting job losses would be small. In addition, it is possible that increasing wage levels in secondary segment jobs would break the link which is seen to exist in a segmented labour market between low pay, job instability and the lack of access to better paid jobs. Paying higher wages in secondary jobs may encourage commitment on the part of secondary workers.

In Britain, the Equal Pay Act was passed in 1970 to ensure that people doing broadly similar work should be paid the same. The Act provided for a gradual move towards full implementation by 1975. In 1975, the Sex Discrimination Act, last amended in 1999, was also passed which made it illegal to discriminate on the basis of gender and marital status in aspects of employment other than pay. The Sex Discrimination Act was supposed to check any tendency that the Equal Pay Act might have to make it harder for women to get jobs. In so far as women did different work from men – and there was evidence that some employers altered job content to ensure that dissimilar work was done (see Snell et al., 1981) – then the Equal Pay Act would not impact on the gender wage differential. In 1983 an amendment to the Act was introduced that both consolidated the original legislation and extended it to cover equal pay for equal work within a firm. This extension of the law came from the EU and, among other things, sought to address the practice of re-defining jobs in order to pay women less than men. Whether the introduction of equal pay legislation has had a positive effect on the relative earnings of women has been and will continue to be subject to empirical scrutiny (Zabalza and Tzannatos, 1985). It is certainly the case that the male-female differential narrowed during the five year implementation period, though some commentators attribute this to the impact of incomes policies which were also in effect during this period. However, the research indicates that the increase in relative female pay was only marginally affected by the operation of incomes policies at that time and it did not reflect a movement of female employment to higher paying sectors. Rather, the narrowing differential can be attributed to female earnings increasing in some jobs for which they had been previously underpaid. Moreover, what limited evidence is available does indicate that these changes had little negative impact on the employment of women.

The beginning of the twenty-first century has nevertheless witnessed several acts being approved to ban discrimination of several types in the UK: age, homosexuality, transsexuality, religion, disability, gender; the role of institutions is playing a larger role in the labour market to correct or prevent discrimination.

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