Thursday, March 12, 2009

Discrimination:The Market Always Pushes Against It

Sometimes the comments on a blog post are interesting enough to warrant a new, separate post. Here's an example.

1. A comment on yesterday's CD post "Market Forces Prevent Widespread Discrimination":

The U.S. market paid blacks far less than whites up until 50 years ago. The market clearly did not correct that inequality for many decades. The author is putting an ivory tower theory of how the market should work ahead of reality.

2. In response, Tom McMahon posted this comment:

From David Halberstam's book "October 1964":

"It was now seventeen years since Jackie Robinson had broken in with the Dodgers, and had done it so brilliantly that he had not only helped lead Brooklyn to a pennant but had also won the Rookie of the Year award. That there was a great new talent pool of black athletes was hardly a secret among the white players themselves.

The names of such great black players as Josh Gibson, Satchel Paige, and Judy Johnson had been well known to the many big league players who had often barnstormed with them after the regular season was over (and who often made more money barnstorming on the all-white major league all-star teams than their colleagues had made playing in the World Series): they knew that the Negro leagues were filled with players who could hit and pitch, and, above all, who had speed.

In the years since Robinson's historic arrival in the big leagues, certain teams had moved quickly to sign up the best black players. It was the equivalent of a bargain-basement sale at Tiffany's -- great players available at discount prices, even as the price of young, untried white players was going up very quickly."

Tom concludes: Yes, discrimination can last a long, long time. But the market is always pushing against it.

MP: Employers and businesses are often simultaneously accused of being both: a) guilty of greed and profit-seeking, and b) guilty of discrimination (gender, race, age). But you can't have it both ways.

If employers were blinded by greed and profits, they would hire only the cheapest labor group. If women or blacks make 20% less than men or whites for the same work, greedy employers would hire ONLY women and blacks, and achieve an immediate 20% labor cost savings, raising profits significantly. On the other hand, if employers are blinded by discrimination and hire only men or whites, they can't possibly be accused of being blinded by greed and profit-seeking, because they are overlooking huge labor costs savings of 20% (for example), and lowering profits significantly.

What Tom is saying (I think) is that employer greed and profit-seeking will always be a stronger force in the long-run than employer discrimination, and market forces (and greed) will work to counteract labor market discrimination.

8 Comments:

At 3/12/2009 8:54 AM, Anonymous rvturnage said...

From Thomas Sowell's Black Rednecks and White Liberals:

"Between 1940 and 1960 the percent of black families below the poverty line fell from 87 to 47 percent. Income of blacks relative to whites more than doubled between 1936 and 1959. The rise of blacks into higher-level jobs was higher preceeding 1964."

Further, discrimination in wages were possible thanks to government interference. Unions in the early 30's were given a huge amount of strength compared to the employer (via the National Recovery Act), and one of the things they did with it was price blacks (and many southerners) out of work and close unions to black membership.

Jim Powell, in reason magazine:

"The NAACP's publication The Crisis, for example, decried the monopoly powers granted to racist unions by the NRA, noting in 1934 that "union labor strategy seems to be to obtain the right to bargain with the employees as the sole representative of labor, and then close the union to black workers." Members of the black press had something of a field day attacking the NRA, rechristening it the "Negro Removal Act," "Negroes Robbed Again," "Negro Run Around," and "No Roosevelt Again."

There's also a great article at econlib.com on discrimination, with many examples of how governments create the ability to discriminate, where free markets don't want to.

 
At 3/12/2009 11:19 AM, Anonymous Anonymous said...

Discrimination: The Market Always Pushes Against It

I don't know ...

Witchdoctors buy albino body parts to make “magic” potions

Witchdoctors reportedly buy albino body parts to make "magic" potions.

Since late 2007, 45 albinos have been slaughtered in Tanzania.

Forty-four of the killings have taken place in the Lake Zone district.

Police believe the killers are selling their victims' limbs, hair, skin and genitals to traditional medicine practitioners who make potions promising to make people wealthy.

Superstitious miners and fishermen in the region hoping to get rich quick have been accused of fuelling the demand.

Link

 
At 3/12/2009 12:57 PM, Anonymous Anonymous said...

rvturnage stole my thunder. It is one of the many examples of how the free market will do more good than the supposed do-good programs of government.

To provide another example I learned from Sowell, a group of Southern businessmen during the Jim Crowe era agreed amonst themselves to only hire white workers. By reducing the labor market, businessmen were forced to pay higher wages to white workers. Many of the businessmen started hiring blacks in contravention of their agreement. Eventually, those who were adhering to the agreement broke it in order to compete.

That damned profit motive again.

 
At 3/12/2009 4:02 PM, Blogger misterjosh said...

Professor...
I admire your naivete, but the validity of this post hinges upon humans being rational beings, as does most of market economic theory.

In my experience, humans are not, by and large, rational beings.

Mind you, I'm not saying that Socialism's any better, but the market isn't some magic glowing hand that just makes everything right.

I think it nudges us towards equality, but I think that the overarching fear of "that which is different" resists much of this nudging.

 
At 3/13/2009 12:30 AM, Blogger DaveinHackensack said...

This post, and the comment above by misterjosh, remind me of the Marge Schott scandal in the 1990s. She allegedly used racist epithets to describe her black players -- and yet paid them millions of dollars per year. She may have been a bigot, but she was apparently rational enough to realize that, if she wanted her team to win, she had to hire the best players, whatever their races.

 
At 3/13/2009 7:59 AM, Anonymous W Chris B said...

I like the way Sowell dispells the myth of the altruistic government and non-profit in Economic Facts and Fallacies, but I think interventionists could make the argument that corporate executives are ruthlessly greedy and at the same time argue that capitalism still needs government intervention to limit discrimination in the markets. While the market might push against discrimination with competitive wages, it could still be more profitable to limit the number of "minorities" for the sake of a more harmonic work environment. If many of the other employees already have a negative disposition towards them, then it might not be worth it to hire equally qualified "minorities" that could do the job just as well, but who would unintentionally upset the work environment. So even though the employees would be at fault instead of the greedy profit-seeking employers, we would supposedly still need government mandated quotas, etc. to balance the discrimination.

Though I don't think the numbers support the idea that government interventions (or universities, non-profits) work against discrimination as well as the marketplace, I could still imagining interventionists making this argument.

 
At 3/13/2009 11:41 AM, Anonymous Anonymous said...

... we would supposedly still need government mandated quotas, etc. to balance the discrimination.

You mean something like THIS?

 
At 3/14/2009 9:50 AM, Blogger OBloodyHell said...

> By reducing the labor market, businessmen were forced to pay higher wages to white workers. Many of the businessmen started hiring blacks in contravention of their agreement. Eventually, those who were adhering to the agreement broke it in order to compete.

Essentially, like any "monopoly" agreement in a consortium, there's too much value in cheating the attempt to limit the market -- in this case, a perverse, discriminatory one in labor.

> the market isn't some magic glowing hand that just makes everything right.
> I think it nudges us towards equality, but I think that the overarching fear of "that which is different" resists much of this nudging.

No, the market works exactly as it is claimed to. The forces you speak of aren't the market, but a limited set of actors in it. The market will punish them, and severely, if they continue putting useless discrimination over profit, by handing that profit to the one(s) who fail to support such actions.

> So even though the employees would be at fault instead of the greedy profit-seeking employers, we would supposedly still need government mandated quotas, etc. to balance the discrimination.

Not at all. The goverenment -- especially the modern behemoth we call "government" -- could easily reesolve this without any laws at all, just by giving a preference in hiring firms which don't practice such discrimination. In very short order any firm which practiced discrimination would be losing out on contracts while its non-discriminatory competition scored such contracts and gained a substantial business edge on them.

In short, they can make the argumeent, but it's a stupid one and easily demonstrated as inherently faulty.

 

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