Three theories of economic discrimination Essay
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Dec 14th, 2019

Three theories of economic discrimination Essay

As early as Ancient Greeks distinguished between ‘superiors’ and ‘inferiors’ and the latter were regarded as slaves who were happy to work under the supervision and for the benefit of the former (1, 2005).

            Still discrimination remains an issue of the day and gives rise to numerable disputes. Though terms have changed  (for example, John E. Farley uses ‘majority’ and ‘minority’), one cannot reject the existence of inequality between different racial, ethnic and other groups of society in US and abroad (2, 2005).

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            However, the approach became more humane and it has grown into food for scientists’ thoughts.

            From the economic point of view the first attempt to formulate the theory of discrimination is attributed to Gary Becker, a professor of Chicago University and the Nobel Prize winner in Economic Sciences of 1992.  He was the pioneer in addressing the previously solely sociological issues and among them was racial discrimination.  His work revolves around four major points, namely: investments in human capital, behavior of the family, crime and punishment, and the last but not the least discrimination on the markets for labor and goods (3, 2005).

At the heart of the Becker’s theory lies the idea that the behavior of a human as an individual can be described in the form of some principles that are common to a number of different from economy spheres.

A vivid example of application of such theory is Becker’s study of discrimination regarding race, sex, etc that ids expounded in his Book under title The Economics of Discrimination, 1957. According to Becker discrimination is “a situation where an economic agent is prepared to incur a cost in order to refrain from an economic transaction, or from entering into an economic contract, with someone who is characterized by traits other than his/her own with respect to race or sex” (3, 2005).  In other words, it seems to the ‘discriminating agent’ that he overpays the so-called ‘discriminated agent’ for the goods and services he receives reasoning from the fact that the latter belongs to a different race or sex and consequently his labor should be paid less.

   However, in reality the worker receives less than he should be and consequently both parts are dissatisfied. In a word, such discrimination is unprofitable not only to those who are the object of discrimination but also to those who act as a subject. Furthermore, the scientist dwells on the fact that some people promote discrimination by following some personal preferences when making their choice about who will fill in a good high-paid position

. As in the previous cases he concludes that such discrimination is detrimental for both the employer and for the society. The only part that profits by such situation is white workers charged with better jobs and receiving higher pay  (2, 2005). Nevertheless, if race but not the productivity serves as a criterion for engagement the employer   will obviously gain lower profit.

            Summing up, Becker disputes discrimination and demonstrates its inefficiency and inapplicability to business.

            Another theory known as the split labor market theory (a conflict theory) proves that discrimination is a product of by no means a society but of individual preferences and competing interest groups (for instance, the abovementioned white workers)  (2, 2005). In the frameworks of this theory market is divided and representatives of definite ethnic groups are restricted to obtain jobs with higher pay. The process may take place when other ethnic groups (white workers) have enough power to demand the exclusion of minority workers from the most profitable jobs (2, 2005). However, such behavior can be easily explained as the majority labor costs more and they would be discriminated unless they strive for their rights (though to the prejudice of minority).

According to Bonacich, there are three key groups in a capitalist market: businesspeople (employers), higher-paid labor, and cheap labor, and each group receive the appropriate wage level (4, 2005). Influx of immigrants puts at risks jobs and earnings of local workers and they become “the force behind hostile and exclusionary movements aimed at curtailing the source of cheap labor” (4, 2005). In addition, discrimination is not limited to working places only but also includes education chances and even place of residence.             Nevertheless, whereas in the short term such approach still works, but in the long term it may lead to some sudden turns.

            The same Farley states that Marxist theory like the split labor theory is conflict-situated (2, 2005). Yet, it differs from the split labor theory in definition of the part that benefits from discrimination. It claims that not white laborers but capitalists profit. As the labor force is itself partitioned the racial discrimination only undermines the labor movements. Thus, by mutual hostility between the white and black working classes they do not see their common enemy (the capitalists) and cannot protect their own interests.

Marx’s model has a form of social classes: the ruling class (those having access to stocks of materials and capital equipment and possessing power) and the working class who sell their labor in exchange for material goods. Marx contends that capitalism is the only evil and by obtaining the “factors of production”, the capitalist considers the “labor market” as a component part of the general market for commodities (by his definition ‘goods for sale’) (4, 2005). While the advantage of his theory is that he does not make racial and ethnic differences, the disadvantage is that he aggravates the conflict between employers and employees.

            To cut the long story short, each of the described three theories dwell on economic relationships between people of different races, sex, etc. Though they admit existence of discrimination they explain it as, for instance, the result of some personal preferences of those who hire  (Becker’s theory) and admit it detrimental impact on business.

Another theory referred to as the split labor theory rejects he ‘taste of discrimination’ and explains its existence by conflict between interest groups, the so-called minority and majority with the aim of gaining (or retaining) better-paid working places. Furthermore, this theory goes beyond just labor market and touches upon education and residence matters as well.  In fact, it does not disapprove discrimination but foresees some its negative long-term consequences.

            As to the third theory, which belongs to Marx, its common with the previous one feature is that it is conflict-situated. However, it focuses not on racial discrepancies but on the social and offers division of the society into two classes: the ruling and the working. And according to this theory both black and white working people have to unite to fight against their common enemy – the capitalist.


  1. Theories of Discrimination. Retrieved on September 4, 2005 from
  2. John E. Farley. Majority-Minority relations, 5th edition, 2005.
  3. Gary S. Becker. Retrieved on September 4, 2005 from

Competition and split labor market theories.  Retrieved on September 4, 2005 from

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