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

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5 Neoclassical models of discrimination

5.1 Introduction

Our earlier discussion suggested that to understand labour market discrimination we need to answer two principal questions. First, to what extent does the observation that, on average, some groups in society fare worse than others in the labour market actually reflect differences in productivity arising from differences in such things as education and training, and how much represents the unequal treatment of equally productive workers (i.e. discrimination)? Secondly, if discrimination in the labour market exists, what explanations are proposed to explain why it takes place? These two questions are, of course, not unrelated. The educational and training opportunities available to some groups in society may themselves reflect discrimination. As a result, labour market outcomes, which may or may not be discriminatory, may arise from discrimination that exists outside the labour market. In this section we consider those explanations usually grouped under the neoclassical label, which build upon human capital theory. No attempt is made here to provide an exhaustive coverage of all the neoclassical models and their variations, rather, we present two examples of neoclassically-based explanations. The first, Becker's ‘employer taste’ model, is based on the standard utility maximising model and emphasises the importance of market forces and competition; the second focuses on how imperfect information in the labour market can give rise to wage differentials even among comparable workers.