A Labor Force Competition Theory of Discrimination in the Labor Market
Abstract
The theory of labor market discrimination is concerned with how and why productively irrelevant characteristics of workers such as race influence the labor market behavior of employers and workers. The theory is an attempt to explain a wide variety of existing labor market differences between workers who differ by only productively irrelevant characteristics. Thus, the theory must offer an explanation for the residual diffeiences in occupational distributions, wages, unemploymnent rates and industry or firm distributiolls which have been observed to exist between otherwise homogeneous workers of different races, ethnic, sex or religious groups within the same labor market. In dynamic versions, discrimination models might help explain group differences in job search patterns, investment in human captial and miTration rates. Most previous theories of racial discrimination in the labor market have been based on the optimizing behavior of employers. The employers of these models are free to choose their work force from a set of potential workers of various races. If the set of potential workers is partitioned into productively homogeneous sets in the technical sense, these partitions will not correspond to a partition by race. From among these sets, the employers choose a labor force racial composition which maximizes the employer's objective function. If this racial composition differs from the comiiposition of the partitioned labor force, then the employer is ,discriminating. There are two classes of discrimination theories: the exogenous theories and the endogenous theories. In the former case, the motivation for discrimination arises from outside the labor market. In the latter case the motivation arises from within the labor market. The labor force competition model presented here is of the endogenous variety. Before we discuss the model, however, we will briefly examine the models based on employer behavior. The exogenous models all have one common feature. Their objective function is some specification of the employer's utility function. The motivation of discrimination in these models is based on a nonpecuniary variable generally designated a Taste for Discrimination. These models are also generally set in the neoclassical competitive environment which explains the necessity of postulating the independent racist taste. The classical statement of the taste theory is Gary Becker's 'Theory of Discrimination. Kenneth Arrow has further developed the analysis based on neoclassical assumptions and taste. These models however have common weaknesses; namely, they are unable to explain most labor market phenomena associated with discrimination other than wage differences and they would seem to be unstable in a neoclassical
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