Questions: Discrimination: Becker and Statistical Models

Question 1

In Becker's taste-based discrimination model, a discriminating employer acts as if hiring a minority worker imposes an additional cost d (the discrimination coefficient). This means the employer will hire a minority worker only if...

• A. The minority worker's wage is at least d above the majority worker's wage
• B. The minority worker's wage is at least d below the majority worker's wage, compensating for the psychic cost of employing them
• C. The minority worker is at least twice as productive as the majority worker
• D. The government mandates hiring through affirmative action

Answer: (B)

The discriminating employer treats hiring a minority worker as costing w_m + d rather than just w_m, where d is the psychic cost of discrimination. To compete with a majority worker earning w_M, the minority worker must be willing to work for w_m ≤ w_M - d. The discrimination coefficient d thus functions as a tax on minority workers, reducing their market wage. Becker showed that competitive forces should erode this: non-discriminating firms face no such tax and can hire equally productive minority workers at the lower wage, earning higher profits.

Question 2

Statistical discrimination is not really discrimination because it is based on rational inference rather than prejudice.

• T. True
• F. False

Answer: False

Statistical discrimination produces real harm regardless of the employer's motives. When employers use group averages (e.g., average quit rates, average productivity) to evaluate individuals, high-performing members of disadvantaged groups are systematically underpaid or excluded based on group statistics rather than their own characteristics. Moreover, statistical discrimination can be self-reinforcing: if employers invest less in workers from groups perceived as less productive, those workers have fewer opportunities to develop skills, confirming the initial statistical generalization. The absence of animus does not mean the absence of discrimination.

Question 3

Why does Becker's model predict that competitive market forces should eventually eliminate taste-based discrimination?

Model answer: Non-discriminating firms can hire equally productive minority workers at a discount (because discriminating firms depress minority wages). This cost advantage makes non-discriminating firms more profitable. In a competitive market, these firms should expand and discriminating firms should lose market share and exit, gradually eliminating the wage gap. The persistence of wage gaps despite this competitive pressure suggests either that competition is insufficiently strong, that discrimination comes from non-employer sources (customers, coworkers), or that additional mechanisms (statistical discrimination, structural barriers) sustain the gaps.

This is one of the most famous predictions in labor economics — and its empirical failure (wage gaps persist decades after Becker's model) has driven the search for complementary explanations. Possible explanations for persistence include: (1) market power — many firms have enough market power that competitive pressure is weak; (2) customer and coworker discrimination — which cannot be arbitraged away; (3) statistical discrimination — rational but discriminatory inference that competition alone does not eliminate; and (4) structural barriers (residential segregation, school quality, network effects) that perpetuate group differences in skills and opportunities.