Do Free Markets End Discrimination?

Spoiler: no.

Writing at FEE.org, Dr Steve Horwitz has an excellent article on the gender pay gap (word of advice, always read Horwitz).  This part in particular stands out:

You’ll notice that I said “the clear majority” of the gender wage gap is explained by factors other than discrimination, but not all of it. The consensus of the economic studies is that there is still about 3 to 5 percentage points of the 20 percent, or roughly 15 to 25% of the gap, that cannot be accounted for by economic differences and that might well be due to discrimination.

So it is not a myth that there might be discrimination in labor markets. Even the economic studies that show that most of the gap is explained by other factors do not say that all of the gap can be accounted for by such things. Although the economic studies don’t test directly for discrimination, the fact that other kinds of studies suggest that it exists in labor markets is consistent with the existence of an economically unexplained portion of the gap.

The most accurate summary is something like the following:  “It’s a myth that women get paid only 80% of what men do when they have the same skills and experience and are doing the same work, but it’s also a myth to claim that economics shows there is no gender discrimination in labor markets because studies show that economic factors cannot explain all of the gender wage gap.”

The nuance of this argument stands in stark contrast to the graphic below, originally published by “Anarchyball” on their Facebook page:

17620565_1543807605646903_6214069108350802978_o

I know Anarchyball is a Facebook activist group, and thus aren’t a standard of academic integrity but rather going for pithiness, but the error they make is still important.  Note that they list the “wage gap” as part of the set of “economic impossibilities.”  But, as Steve Horwitz notes, not all of the gap is explained by economic factors.  It is possible (maybe even probable) that the unexplained portion is partly due to discrimination.

There is nothing about the free market that suggests discrimination is economically impossible.  Price theory teaches us that free markets make discrimination more costly, but nothing says that a person may not participate in discrimination (even if s/he is profit-maximizing!).  That person may feel their discrimination brings them more benefit then the cost thereof.

Discrimination is more costly, yes, but it is not impossible (just like an Jaguar is more expensive than a Honda, but people still buy both).

7 thoughts on “Do Free Markets End Discrimination?

  1. “So it is not a myth that there might be discrimination in labor markets.”

    There is always discrimination in labor markets. Employers make various subjective judgments about people, whether they know it or not, and that all gets reflected in the hiring decision as well as in advancement opportunities and compensation. Compensation is based on merit. Many times the most personable and attractive person gets the job, the advancement opportunities, and better compensation. Sometimes the better qualified and performing person is the first one fired for political reasons when the company experiences a downturn. Are women in particular discriminated against? Yes. Sometimes to their detriment and sometimes to their benefit.

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  2. “always read Horwitz”

    Sometimes. Sometimes not. Lawrence Reed is the best writer at the Foundation for Economics Education.

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      • No, thanks. I like Steve when he is libertarian. I do not like him when he is leftist. His arguments and evidence are much better than the average leftist, but they still do not hold up when he is making the leftist, not libertarian, argument.

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        • “I am mystified by people who think it’s a horrible idea for libertarians to try to work with the left on issues of common concern. The long-standing attempt by many libertarians to work with the right has brought us such loveliness as alt-right assholes calling themselves libertarians, people who don’t understand that freedom of movement and contract applies across political boundaries, people who wish to bomb innocent brown people in the name of supposed liberty, and the perception that we are all a bunch of Gordon Geckos who just like to smoke dope.

          Yeah, that work with the right has been really successful….”

          Steve Horwitz

          Here is one example why I read Horwitz sparingly. What issues do libertarians have in common with the left. I just spent 8 fabulous years getting run over by idiots on the left pushing, lying, and bullying to get more and bigger government. And, NONE OF IT MAKES ANY SENSE. The classic left argument is that business controls the government, and the left’s answer is more government. I will work with anyone advancing the cause of liberty whether they call themselves left or right. The problem is that the vast majority of the left and right want more government.

          The long-standing attempt (and yes libertarians have worked long and hard to get the left to help) to work with the left has brought us such loveliness as socialist assholes calling themselves libertarians and liberals, people who do not understand that freedom of movement and contract applies within political boundaries as well as across them, people who wish to bomb innocent brown people in the name of supported liberty (Obama, Clinton, etc), and the perception that libertarians are a bunch of fascists or monarchists trying to bring back Mussolini or the monarchy.

          Yeah, that work with the left has been really successful. . .

          If you like Horwitz, that is your choice. However, he seems much more left than libertarian, and that is every bit as controlling as the right promises they will be during Trump’s administration. Except the Trump is not right. His political views, as noted by Dan Carlin, seem to be somewhere between a centrist Democrat and centrist Republican. And, neither of those choices are very good.

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  3. Of course there is discrimination of various sorts. For example, given what I’ve seen there lately, I wouldn’t hire an undergraduate from Yale.

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