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Economic discrimination is discrimination based on economic factors. These factors can include job availability, wages, the prices and/or availability of goods and services, and the amount of capital investment funding available to minorities for business. This can include discrimination against workers, consumers, and minority-owned businesses.
It is not the same as price discrimination, the practice by which monopolists (and to a lesser extent oligopolists and monopolistic competitors) charge different buyers different prices based on their willingness to pay.
- 1 History
- 2 Causes
- 3 Forms of economic discrimination
- 4 Global economic discrimination
- 5 See also
- 6 References
- 7 External links
A recognition of economic discrimination began in the British Railway Clauses Consolidation Act of 1845, which prohibited a common carrier from charging one person more for carrying freight than was charged to another customer for the same service. In nineteenth-century English and American common law, discrimination was characterized as improper distinctions in economic transactions; in addition to the above issue in the British Railway Clauses, a hotelier capriciously refusing to give rooms to a particular patron would constitute economic discrimination. These early laws were designed to protect discrimination from Protestants who might discriminate against Catholics or Christians who might discriminate against Jews.
By the early twentieth century, economic discrimination was broadened to include biased or unequal terms against other companies or competing companies. The Robinson-Patman Act (1936), which prevents sellers of commodities in interstate commerce from discriminating in price between purchasers of goods of like grade and quality, was designed to prevent vertically integrated trusts from driving smaller competitors out of the market through economies of scale.
It was not until 1941, when President Franklin D. Roosevelt issued an executive order forbidding discrimination in employment by a company working under a government defense contract, that economic discrimination took on the overtones it has today, which is discrimination against minorities. By 1960, anti-trust laws and interstate commerce laws had effectively regulated inter-corporate discrimination so problematic in the late nineteenth and early twentieth centuries, but the problem of discrimination on an economic basis against minorities had become widespread.
There is a wide range of theory concerned with the root causes of economic discrimination. Economic discrimination is unique from most other kinds of discrimination because only a small portion of it is due to racism, but rather is due to what has been called a "cynical realization that minorities are not always your best customers".1 There are three main causes that most economic theorists agree are likely root causes.
Most discrimination in the US and Europe is claimed to be in terms of racial and ethnic discrimination—mostly blacks and Hispanics in the USA, Muslims in Europe. In most parts of the world, women are held to lower positions, lower pay, and restricted opportunities of land ownership or economic incentive to enter businesses or start them.2
This form of economic discrimination is usually leveled at whatever groups are held to be "in power" at the time. For example, in America, discrimination is often considered to be the province of Caucasians, while in Saudi Arabia, it's men who are considered discriminatory. One study suggests that the increase in equal opportunity lawsuits has reduced this kind of discrimination in America by a large amount.3
There is a certain opportunity cost in dealing with some minorities, particularly in highly divided nations or nations where discrimination is tolerated. In fundamentalist Islamic societies, some adherents of sharia law feel it's inappropriate for women to work. Companies that employ them might lose the business of offended men, or might suffer boycotts or even violence from extremists.
A second common reason for this kind of discrimination is when the worker or consumer is not cost-efficient. For example, some stores in the US Northwest do not stock ethnic foods, despite requests for such, since they feel the cost is too high for too low a return.
Additionally, the illegal immigration debate in the US has resulted in some businesses refusing to hire such workers based on the likelihood that they would be fined and litigated against.
In some cases, minorities are discriminated against simply because it is inefficient to make a concerted effort at a fair allocation. For example, in countries where minorities make up a very small part of the population, or are on average less educated than the population average, there is rarely an attempt to focus on employment of minorities.
There are several forms of economic discrimination. The most common form of discrimination is wage inequality, followed by unequal hiring practices. But there is also discrimination against minority consumers and minority businesses in a number of areas, and religious or ethnic discrimination in countries outside of the United States.7
Most forms of discrimination against minorities involve lower wages and unequal hiring practices.
Several studies8 have shown that, in the United States, several minority groups, including black men and women, Hispanic men and women, and white women, suffer from decreased wage earning for the same job with the same performance levels and responsibilities as white males. Numbers vary wildly from study to study, but most indicate a gap from 5 to 15% lower earnings on average, between a white male worker and a black or Hispanic man or a woman of any race with equivalent educational background and qualifications.
A recent study2 indicated that black wages in the US have fluctuated between 70% and 80% of white wages for the entire period from 1954–1999, and that wage increases for that period of time for blacks and white women increased at half the rate of that of white males. Other studies3 show similar patterns for Hispanics. Studies involving women found similar or even worse rates.9 See also Racial wage gap in the United States
Overseas, another study indicated that Muslims earned almost 25% less on average than whites in France, Germany, and England, while in South America, mixed-race blacks earned half of what Hispanics did in Brazil.10
Most wage discrimination is masked by the fact that it tends to occur in lower-paying positions and involves minorities who may not feel empowered to file a discrimination lawsuit or complain.
Hiring discrimination is similar to wage discrimination in its pattern. It typically consists of employers choosing to hire a white candidate over a minority candidate, or a male candidate over a female candidate, to fill a position. A study of employment patterns in the US indicated4 that the number of hiring discrimination cases has increased fivefold in the past 20 years. However, their percentage as a whole fraction of the workforce hirings has decreased almost as drastically. With the stiff laws against discrimination in hiring, companies are very careful in who they hire and do not hire.
Even so, studies4 have shown that it is easier for a white male to get a job than it is for an equally qualified man of color or woman of any race. Many positions are cycled, where a company fills a position with a worker and then lays them off and hires a new person, repeating until they find someone they feel is "suitable"—which is often not a minority.9
While hiring discrimination is the most highly visible aspect of economic discrimination, it is often the most uncommon. Increasingly strong measures against discrimination have made hiring discrimination much more difficult for employers to engage in. However this is only the case in formal hiring arrangements, with corporations or others subject to public scrutiny and overview. Private hiring, such as apprenticeships of electricians, plumbers, carpenters, and other trades is almost entirely broken down along racial lines, with almost no women in these fields and most minorities training those of their own race.
Most discrimination against consumers has been decreased due to stiffer laws against such practices, but still continues, both in the US and in Europe. The most common forms of such discrimination are price and service discrimination.
Discrimination based on price is charging different prices for goods and services to different people based on their race, ethnicity, religion, or sex. It should not be confused with the separate economic concept of price discrimination. Descrimination based on price includes, but is not limited to:
- increased costs for basic services (health care, repair, etc.)
- increased costs for per diem charges (such as charging one person $40 while charging another person $100 for exactly the same service provided)11
- not offering deals, sales, rebates, etc. to minorities
- higher rates for insurance for minorities
Most charges of discrimination based on price are difficult to verify, without significant documentation. Studies indicate that less than 10% of all discrimination based on price is actually reported to any authority or regulatory body, and much of this is through class-action lawsuits.11 Furthermore, while a number of monitoring services and consumer interest groups take an interest in this form of discrimination, there is very little they can do to change it. Most discrimination based on price occurs in situations without a standardized price list that can be compared against. In the cases of per diem charges, this is easily concealed as few consumers can exchange estimates and work rates, and even if they do the business in question can claim that the services provided had different baseline costs, conditions, etc.
Discrimination based on price in areas where special sales and deals simply are not offered can be justified by limiting them to those with strong credit ratings or those with past business with the company in question.
Although price discrimination mentions services, service discrimination is when certain services are not offered at all to minorities, or are offered only inferior versions. According to at least one study,12 most consumer discrimination falls into this category, since it is more difficult to verify and prove. Some assertions of discrimination have included:
- offering only high-cost plans for insurance or refusal to cover minorities
- refusing to offer financing to minorities
- denial of service
Minority owned businesses can also experience discrimination, both from suppliers and from banks and other sources of capital financing. In the US, there are tax benefits and even public relations benefits from having minority-owned businesses, so most instances of this occur outside of the United States.13
Women of color are starting businesses at rates three to five times faster than all other businesses, according to an article from Babson college on "State of Businesses Owned by Women of Color" (Press release). Newswise. May 9, 2008. Retrieved 2008-05-12. However, once in business, their growth lags behind all other firms, according to the results of a multi-year study conducted by the Center for Women's Business Research in partnership with Babson College exploring the impact of race and gender on the growth of businesses owned by women who are African-American, Asian, Latina and other ethnicities.
This form of discrimination covers suppliers providing substandard goods to a business, or price gouging the business on purchases and resupply orders.
A more significant source of perceived discrimination is in capital investment markets. Banks are often accused of not providing loans and other financial instruments for inner-city minority owned businesses.13 Most research indicates that the banking industry as a whole is systemic in its abuse of the legal system in avoidance of "high risk" loans to minorities, pointing out that banks cannot provide facts backing up their assertions that they deny such loans to a high failure rate.1
On the other hand, most financial institutions and some economists feel that all too often, banks are accused unfairly of discrimination against minority owned businesses when said business is simply not worth such a credit risk, and that no one would find such a decision discriminatory if the business were not minority owned. These charges of reverse racism or prejudicial analysis are a longstanding source of controversy in the study of economic discrimination.14
An increasing number of economists and international commerce theorists have suggested that economic discrimination goes far beyond the bounds of individuals or businesses. The largest scale forms of economic discrimination, and the widest ranging, affect entire nations or global regions. Many consider that an open world economic system (globalization), which includes world bodies such as the International Monetary Fund (IMF), World Bank, and International Bank for Reconstruction and Development (IBRD), places countries at risk by practicing explicitly discriminatory techniques such as bilateral and regional bargaining, as well as asymmetrical trade balances and the maintaining of cheap force labor. Trade policies like the North American Free Trade Agreement (NAFTA) and General Agreement on Tariffs and Trade (GATT) are often regarded as financial measures serving to economically oppress third world nations.15
This could include:
- Unfavorable terms for monetary support from world banking institutions
- Coercive diplomacy to supplant local, regional or national leaders in favor of those who will act as demanded by foreign investors16
- Increased prices for suppling basic medical supplies to nations based on ethnic or religious basis
- Refusal of trade agreements
- Restrictive trade agreements
- Siegelman, P. (1994). Shaky grounds: The case against the case against anti-discrimination laws. Law and Social Inquiry, 19, 725-751.
- Donohue, J. J. III, & Siegelman, P. (1991). The changing nature of employment discrimination litigation. Stanford Law Review, 43, 983-1033.
- Donohue, J. J. III, & Siegelman. P. (1993). Law and macroeconomics: Employment discrimination litigation over the business cycle. Southern California Law Review, 66, 709-765.
- Donohue, J. J. III, & Heckman, J. (1991). Continuous versus episodic change: The impact of civil rights policy on the economic status of blacks. Journal of Economic Literature, 29, 1603–1643.
- GARY S. BECKER, THE ECONOMICS OF DISCRIMINATION (Milton Friedman ed., 2nd ed. 1971).
- Glen G. Cain, The Economic Analysis of Labor Market Discrimination: A Survey, in 1 HANDBOOK OF LABOR ECONOMICS 693, 774 (Orley Ashenfelter & Richard Layard eds., 1986).
- A seminal microeconomic analysis of the subject is Gary Becker's book The Economics of Discrimination (1957, 1971, 2nd ed.). Chicago, University of Chicago Press, ISBN 0-226-04115-8 UCP descr
- Cain, G. G. (1986). The economic analysis of labor market discrimination: A survey. In O. Ashenfelter & R. Layard (Eds.), Handbook of Labor Economics, Volume I (pp. 693-709). Elsevier Science Publishers. Pp. 731-771
- Nelson, R. L., & Bridges, W. P. (1999). Legalizing gender inequality: Courts, markets, and unequal pay for women in the United States. New York: Cambridge University Press. Chapter 2
- Arnsperger, Christian. Poverty and human rights: The issue of systemic economic discrimination and some concrete proposals for reform. International Social Science Journal 56 (180), 289-299.
- Ayres, I. (1991). Fair driving: Gender and race discrimination in retail car negotiations. Harvard Law Review , 104, 817-872.
- Ayres, I. (1993). Not on the menu: studies in consumer discrimination and recent law. Harvard Law Review , 122, 419-442.
- Posner, R. A. (1995). Economic analysis of law. Boston: Little, Brown and Company. Pp. 336-340
- Donohue, J. J. III. (1992). Advocacy of economic instruments versus analysis in favor of 'fair-use' financing in discrimination law. Stanford Law Review, 41, 1235. Pp. 153-214
- Kenneth A. Oye. Economic Discrimination and Political Exchange:World Political Economy. ISBN 0-691-00083-2
- Robert Tolleson, Thomas Willet. An Economic Theory of Issue Linkages in International Negotiations. International Organization 34, pgs 44-50
- State of Businesses Owned by Women of Color
- US State Department report on Philippine ED
- ED in Britain against Turks
- Examples of ED