Why Discrimination Persists

Becker’s 1957 work on discrimination in labor markets generated an optimistic prediction. Firms that discriminate pay a cost because they forgo productive workers that non-discriminating competitors will hire instead. Over time, competitive pressure should therefore eliminate discrimination. History has thoroughly falsified this prediction. Discrimination has not been competed away in any labor market where economists have looked carefully. The gap between Becker’s prediction and the observed reality reveals that rational economics misidentifies what discrimination is and how it works. Economists distinguish taste-based discrimination, in which employers simply prefer not to hire members of certain groups regardless of productivity, from statistical discrimination, in which employers use group membership as a proxy for characteristics they cannot directly observe. An employer who uses race or gender as a proxy for something like reliability is drawing inferences from population-level…