Gray Stanley Becker Discrimination

Gray Stanley Becker Discrimination

Although Becker's writings range far and wide, we can trace a logical development and a methodological consistency in his work. The signs are there in his first major publication, The Economics of Discrimination (Becker, 1957, 1971). This monograph, based on his doctoral thesis, appeared when Becker was 27. By his own account, it was 'greeted with indifference or hostility' by fellow economists. Given the intellectual atmosphere of the mid-1950s this is probably explicable. Exercises in microeconomic reasoning of this kind may have seemed unattractive to an economics profession still heady with enthusiasm for the apparent achievements of Keynesianism, particularly since the work hints at some of those characteristically Chicagoan reserv­ations about the benignity of government action.

The book starts from the position that economic inequality between two groups - blacks and whites, women and men or whatever -is not of itself evidence of discrimination in a market economy. In such an economy, variations in earnings, for instance, can be expected to occur between individuals or groups on a systematic basis, reflecting variations in marginal produc­tivity and hours worked. What is needed is to separate out differentials due to variations in such factors as education, skills and job experience, in order to leave a residual due to 'pure' discrimination, Becker's primary concern.1 To this end, Becker defines a 'market discrimination coefficient',2 which in principle would measure the extent of this residual. What Becker is attempting to show is that 'pure' discrimination is simply a special kind of taste which, like the taste for apples or (Becker's pre-Women's Lib example) Hollywood actresses, can be analysed in economic terms. As with these other commodities, 'pure' discrimination's consumption is conditional upon variables such as income and price.

The - highly controversial - point that Becker is making is that discrimination in this sense is not, as is usually assumed, a means of raising the discriminator's money income, but actually imposes costs on the discriminator as well as the party discriminated against. Where discrimination exists, then, the discriminator is evidently willing to pay these costs in exchange for the benefit of indulging a taste.

The argument rests on a clever analogy with international trade. Suppose there are two economies, Whiteland and Blackland, which initially do not engage in trade. Within each country, however, perfect competition is the rule. This means, as the neoclassical textbooks tell us, that the incomes of owners of factors of production will reflect relative factor scarcities. Thus in Whiteland, where labour is assumed to be scarce and capital abundant, wages will be relatively high and rates of profit will be relatively low. By contrast, Blackland (where labour is abundant and capital scarce) is characterised by low wages and high rates of profit.

If trade and factor mobility are now permitted, theory predicts that labour and capital movements will occur, so that the long-run result is that profit rates and wage rates will each be equalised in the two economies. As a result of resources moving from areas where their marginal productivity is low to those where it is high, total 'world' output is increased.

The analogy is obvious, and the conclusion important: just as both of these 'countries' can in principle gain from trade and mobility, so can (for example) both blacks and whites in an economy gain from the absence of discrimination, which in this context seems equivalent to some form of trade barrier;3 or, to put it differently, both blacks and whites can lose from discrimination.

Lack of space precludes the detailed examination of the implications of Becker's argument, and indeed of the many objections which have been raised to it. Most of these objections have centred on the assumption of perfect competition in his model: if such a condition is dropped, optimal tariff theory suggests that in some cases discrimination (while reducing total output) could increase the income of the discriminating group, which would undermine Becker's whole analysis. Becker, however, is clearly aware of this criticism, and it is instructive to see why he must reject it. He believes that so pervasive a phenomenon as discrimination cannot be adequately explained by market imperfections - for market imperfections, most Chicago economists agree, disappear in the long run.

We already see, then, in Becker's first important publication, two central features of his work: the insistence on using given preferences, costs and incomes to define a situation where in­dividuals make decisions, and the concern with long-run equilibrium.