In labor economics classes students are taught that in a capitalist economy illegal discrimination is unsustainable.
According to labor economists, firms try to minimize costs since price control is not possible in a competitive capitalist system. Discrimination against certain individuals drives down their wage. This, in turn, gives other firms in their industry a source of cheaper labor allowing them to lower their product price and capture a larger share of the market.
The increased demand for these “discriminated against” individuals drives up their wage bringing their income levels up to those who were initially given preferential treatment. In the end, market competition will force firms to abandon discrimination since a failure to do so will drive them out the market due too higher labor costs and prices.
The problem with the theory is that it doesn’t hold up to any empirical test. It’s more than obvious that discrimination is alive and well in the U.S. economy. Given the overwhelming evidence of multiple forms of market discrimination, one must conclude that the firms in a significant portion of the U.S. economy have a preference for discrimination. They do it because they want to.
Fixing our “discrimination” problem requires that we understand not only that it exists but the extent to which it exists.
It’s well known that women suffer from wage discrimination even though they have higher levels of education. But what is not well known is that not all women suffer the same degree of wage discrimination.
According to Professor Helena Maria Viramontes, at Cornell University, Asian women will achieve equal pay with white males in only four years, for white women it will take 34 years, while for Black women achieving equity will take 112 years, and for Hispanic women it will take almost two centuries, 199 years to achieve equality.
It’s because of this discrimination factor, that we see critical race theory asserting that race is a cultural concept used to exploit certain people. Critical race theorists hold that racism is pervasive in our institutions and that they, the institutions, have functioned to create and maintain economic and political inequalities between whites and people of color.
Critics object to this concept (even though it is discussed only in graduate school programs) because the criticism they say it is not valid, and that it will leave our children a negative view of our nation. For starters critics can’t have it both ways. Either it’s not valid and thus cannot harm our children, or it is valid, but we don’t want our children to know the truth and be uncomfortable with it.
Since knowledge of a problem is a prerequisite for fixing it, it becomes obvious that economic policy will benefit from an understanding of the degree to which discrimination is and has been present in society – because you can’t fix what you don’t understand or know existed. While an understanding of history, among individuals, can differ, my own knowledge of historical events as they relate to discrimination can highlight the need for a better understanding of history.
I knew of the Chinese Exclusion Act of 1812, an act which barred Chinese immigration to the U.S., but I was unaware the Alien Land Acts of the early 1920s that prohibited Japanese from owning land in the Western states.
In the last couple of years I learned of the Tulsa Race Riot of 1920, but it was only this year that I learned about the Elaine Massacre of Black share croppers in 1919 in Elaine, Arkansas. Likewise I had heard of the 1838 Trail of Tears but what I did not know what that the expulsion of the native Americans involved five tribes (not just the Cherokee) where 25 percent perished.
I learned about race based real estate red lining in graduate school, but I didn’t learn until this year that the Social Security Act excluded farm and domestic workers from coverage, workers that were overwhelming Black.
In the 1930s the FHA refused to insure Black homes or white homes to near to black communities as a way of enforcing racial segregation. Even the World War II-era GI Bill served to discriminate since the law allowed the program to be administered by state governments instead of the federal government, where state governments in the South applied Jim Crow policies to determine home loan assistance.
The point of all of this is to point out the need to fully understand our history, especially the not so nice parts. In accepting our past errors we can construct legislation that not only corrects past injustices but serves to insure that the policies that discriminate and impoverished people today is eliminated, thus allowing all to share equally in the nation’s economic prosperity.
Gary Latanich, Ph.D., an emeritus professor of economics at Arkansas State University, can be contacted by email at firstname.lastname@example.org.