Discrimination by Exclusion

The most pervasive form of discrimination is to exclude certain groups from employment or housing. The’ history of black Americans illustrates how social processes depressed their wages and social status. After slavery wasabolished, the black population of the American South fell into a caste system of peonage under “Jim Crow” legislation. Even though legally free and subject to the laws of supply and demand, black workers had earnings far below those of whites. Why? Because they had inferior schooling and were excluded from the best jobs by trade unions, local laws, and customs. They were consequently shunted into menial, low-skilled occupations that were effectively noncompeting groups. Employment segregation allowed discrimination to persist for decades.

Supply and demand can illustrate how exclusion lowers the incomes of groups that are targets of discrimination. Under discrimination, certain jobs are reserved for the privileged group, as is depicted in Figure 13-8(a). In this labor market, the supply of privileged workers is shown by SpSp, while the demand for such labor is depicted as DPD Equilibrium wages occur at the high level shown at Ep. Meanwhile, Figure 13-8(6) shows what is happening for minority workers, who, because they live in areas with poor schools and cannot afford private education, do not receive training for the high-paying jobs. With low levels of skills, they take low-skilled jobs and have low marginal revenue products, so their wages are depressed to the low-wage equilibrium at Em.

Note the difference between the two markets. Because minorities are excluded from good jobs, market forces have decreed that they earn much lower wages than the privileged workers. Someone might even argue that minorities “deserve” lower wages because their competitive marginal revenue products are lower. But this rationalization overlooks the root of the wage differential, which is that wage differences arose because certain groups were excluded from the good jobs by their inability to obtain education and training and by the force of custom, law, or collusion.

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