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

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1.2 Key ideas

  1. Labour market disadvantage can be manifested in a number of differences between the labour market experiences of different groups: differences of pay, of likelihood of unemployment, and differences due to occupational segregation.

  2. Labour market disadvantage and discrimination are not the same thing. Discrimination refers only to those differences between groups of workers that do not correspond to objective characteristics that affect the productivity of these workers or the work they are doing.

  3. If there is discrimination we need an explanation of why it occurs, since competition should eliminate it.

  4. Even if there is no discrimination, we still need to explain why particular groups suffer labour market disadvantage. This might be due to discrimination somewhere else in society, e.g. in education, training opportunities or responsibilities for children.

  5. Institutional theories tend to focus more on explaining why there are some jobs in which workers suffer labour market disadvantage. These workers will have low productivity so will not necessarily be facing pay discrimination. Rather, the labour market disadvantages that these workers face are institutional barriers to moving into better jobs. However, there may other forms of discrimination that explain why members of particular groups face such institutional barriers and so are concentrated in these poor productivity jobs.

  6. Neoclassical theories explain labour market disadvantage by the characteristics of the individuals filling the jobs, and why, for example, such individuals may not have invested in their own human capital. They therefore focus on the supply side of the labour market to explain any labour market disadvantage that is not due to discrimination. They also have theories to explain why some employers may discriminate in their employment practices, for example through lack of information about individuals or a distaste for employing members of certain groups.

  7. Both approaches focus on productivity differences. However, the neoclassical approach sees these as a result of differences between individuals, in inherent abilities or in tastes that lead individuals to invest differently in human capital. The segmented labour market approach, however, emphasises institutional structure as creating jobs of different productivity. Workers adapt to the jobs they can get rather than the other way round.