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The Economics of Antipathy and Stereotyping

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Hazel Meade Nov 18 2019 at 2:13pm I’m more in the “wishful thinking” category of thought on this. First, the incentives that employers may be responding to might be the discriminatory preferences of their customers, who wish to avoid being served by people from the disfavored group. So whether it’s profitable to hire the lower-paid group doesn’t depend on a simple calculation of the profits from cheaper labor. It’s what the cheaper labor gains you minus what it costs you in the form of lost customers. If your customers are all really prejudiced, you might be better off forgoing the cheaper labor. Sure, some other business may be able to offer a lower price, but

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Hazel Meade
Nov 18 2019 at 2:13pm

I’m more in the “wishful thinking” category of thought on this.

First, the incentives that employers may be responding to might be the discriminatory preferences of their customers, who wish to avoid being served by people from the disfavored group. So whether it’s profitable to hire the lower-paid group doesn’t depend on a simple calculation of the profits from cheaper labor. It’s what the cheaper labor gains you minus what it costs you in the form of lost customers. If your customers are all really prejudiced, you might be better off forgoing the cheaper labor. Sure, some other business may be able to offer a lower price, but you may end up with that being a niche market that caters to the disfavored group itself. (i.e. a permanent underclass that hires from and caters to members of the same underclass.)

Second, people are seldom purely rational. If there are enough irrationally prejudiced people, then you could wind up with a static bias in the wages of the disfavored group. Indeed the market will probably settle on some static equilibrium in which the lower wages of the disfavored group exactly offset the losses caused prejudiced customers. It limits the wage lowering effects of discrimination, but not enough to completely eliminate them – it has to remain *slightly* profitable to hire the disfavored group , or else there would not be an incentive to hire them anymore! The wage gap can only converge to zero when the group prejudice is actually eliminated from society.

Bryan Caplan
Bryan Caplan is Professor of Economics at George Mason University and Senior Scholar at the Mercatus Center. He has published in the New York Times, the Washington Post, the Wall Street Journal, the American Economic Review, the Economic Journal, the Journal of Law and Economics, and Intelligence, and has appeared on 20/20, FoxNews, and C-SPAN. Bryan Caplan blogs on EconLog.

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