The nature and limits of Gary Becker’s theory of racial discrimination

Abstract

To what extent does Gary Becker’s model of discrimination capture “the essence of prejudice and discrimination”? After providing a general outline of Becker’s original model and summarizing some subsequent developments, this paper takes a critical perspective on the model to suggest that the absence of imperfect information in his approach unhelpfully limits its explanatory power. Instead, an approach that allows for the possibility of genuine error and draws on Adam Smith’s analysis of the impact of markets on one’s moral sense offers a deeper, more realistic understanding of what it means for people to express their prejudice (or not) through their choices.

This is a preview of subscription content, log in to check access.

Notes

  1. 1.

    For a sample of that literature see Ewens et al. 2014, which looks at how statistically measured discrimination might deviate from people’s underlying prejudice or “taste-based discrimination.”

  2. 2.

    Becker’s approach deduces the consequences of a taste for discrimination for the relative prices of labor, capital, and outputs. Looked at another way, you could say that it traces a persistent differential in those relative prices back to a taste for discrimination, after first eliminating other influencing factors such as differences in productivity. In that sense, it seems to conflict with the Stigler-Becker argument for not disputing tastes. In their famous article on the subject, Stigler and Becker argue that

    one does not argue over tastes for the same reason that one does not argue over the Rocky Mountains-both are there, will be there next year, too, and are the same to all men (Stigler and Becker 1977: 76).

    The gist of which is that a good economist does not resort to tastes to explain the sort of price differences he discusses in his 1957 book. Or, “the economist continues to search for differences in prices or incomes to explain any differences or changes in behavior” (Stigler and Becker 1977: 76). Is it inconsistent on Becker-Stigler grounds (20 years later) to “explain” wage differences on the basis of differences in tastes?

  3. 3.

    Cain points out that this side of racial discrimination is often ignored when you model discrimination as W(1 + di): “There are some disadvantages of the measure and some properties that may be either advantageous or disadvantageous depending on the question one is asking. No attention is paid to any pain or stigma felt by the victim. A lower price for one’s services appears to capture the extent of victimization and to be on the same footing as a lower price owing to an inferior standard property of the good being sold” (Cain 1986: 719).

References

  1. Alexis, M. (1974). The political economy of labor market discrimination: Synthesis and exploration. In A. Horowitz & G. von Furstenberg (Eds.), Patterns of discrimination. Lexington: D. C. Heath-Lexington Books.

  2. Allport, G. (1955). The nature of prejudice. Cambridge: Wesley Press.

    Google Scholar 

  3. Arrow, K. (1974). The theory of discrimination. In O. Ashenfelter & A. Rees (Eds.), Discrimination in labor markets. Princeton: Princeton University Press.

  4. Becker, G. S. (1957 [1971]). The Economics of Discrimination. 2nd ed. Chicago: Univ. of Chicago Press.

  5. Becker, G. S. (1993). Nobel lecture: the economic way of looking at behavior. Journal of Political Economy, 101(3), 385–409.

    Article  Google Scholar 

  6. Cain, G. G. (1986). The economic analysis of labor market discrimination: a survey, chapter 13. In O. Ashenfelter & R. Layard (Eds.), Handbook of labor economics, Vol. 1.

  7. Chamlee-Wright, E., & Storr, V. H. (2015). Social economy as an extension of the Austrian research program. In The Oxford Handbook of Austrian Economics. Oxford: Oxford Univ. Press.

  8. Dewey, D. (1952). Negro employment in southern industry. Journal of Political Economy, 60, 279–293.

    Article  Google Scholar 

  9. Ewens, M., Tomlin, B., & Wan, L. C. (2014). Statistical discrimination or prejudice? A large sample field experiment. The Review of Economics and Statistics, 96(1), 119–134.

    Article  Google Scholar 

  10. Franklin, R. J., & Resnik, S. (1974). The political economy of racism. New York: Holt Reinhart Winston.

    Google Scholar 

  11. Friedman, M. (1966). Essays in positive economics. Chicago: Univ. of Chicago Press.

    Google Scholar 

  12. Gorman, L. (2008). Minimum wages. The Concise Encyclopedia of Economics online at http://www.econlib.org/library/Enc/MinimumWages.html

  13. Kirzner, I. M. (1973). Competition and entrepreneurship. Chicago: Univ. of Chicago Press.

    Google Scholar 

  14. Krueger, A. O. (1963). The economics of discrimination. Journal of Political Economy, 71(5), 481–486.

    Article  Google Scholar 

  15. Lewin, P. (2000). William Hutt and the economics of apartheid. Constitutional Political Economy, 11, 255–264.

    Article  Google Scholar 

  16. Marshall, R. (1974). The economics of racial discrimination: a survey. Journal of Economic Literature, 12(3), 849–871.

    Google Scholar 

  17. McCloskey, D. (2011). Bourgeois dignity: Why economists Can’t explain the modern world. Chicago: Univ. of Chicago Press.

    Google Scholar 

  18. Merriam-Webster (2016). Online Dictionary. http://www.merriam-webster.com/dictionary/choice

  19. Neumark, D. (2015). The effects of minimum wages on employment. Federal Reserve Bank of San Francisco Economic Letter, 2015–37. Also available online at http://www.frbsf.org/economic-research/publications/economic-letter/2015/december/effects-of-minimum-wage-on-employment/

  20. Pager, D. (2016). Are firms that discriminate more like to go out of business? Sociological Science, 3, 849–859.

    Article  Google Scholar 

  21. Piorre, M. (1972). Jobs & training. In S. Beer & R. Barringer (Eds.), The state and the poor. Cambridge: Winthrop.

    Google Scholar 

  22. Roberts, S. (2006). Black incomes surpass whites in queens. In The New York Times, New York/region. Also available online at http://www.nytimes.com/2006/10/01/nyregion/01census.html

  23. Samuelson, P. A. (1938). A note on the pure theory of consumer’s behaviour. Economica, New Series, 5(17), 61–71.

    Article  Google Scholar 

  24. Smith, A. (1976[1759]). The theory of moral sentiments. Indianapolis: Liberty Fund.

  25. Stigler, G. J., & Becker, G. S. (1977). De gustibus non est disputandum. American Economic Review, 67(2), 76–90.

    Google Scholar 

  26. Storr, V. H. (2016). The impartial spectator and the moral teachings of markets. Manuscript.

  27. Sullivan, L., Meschede, T., Dietrich, L., & Shapiro, T. (2015). The racial wage gap: Why policy matters. Demos, The Institute on Assets and Social Policy. Also available online at http://www.demos.org/sites/default/files/publications/RacialWealthGap_1.pdf

Download references

Acknowledgements

I wish to thank the Liberty Fund for providing me the occasion to write this paper and the comments provided by participant of the Colloquium on Market Institutions and Economics Process at New York University, the 3rd Cosmos + Taxis Conference in Milan, Italy, and the Liberty Fund Colloquium on “Revisiting the Intellectual Contributions of Gary Becker.” The usual caveat applies.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Sanford Ikeda.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Ikeda, S. The nature and limits of Gary Becker’s theory of racial discrimination. Rev Austrian Econ 31, 403–417 (2018). https://doi.org/10.1007/s11138-018-0420-9

Download citation

Keywords

  • Gary Becker
  • Discrimination
  • Prejudice
  • Imperfect knowledge
  • Choice
  • Adam smith
  • Prudence

JEL classification

  • B31
  • B41
  • D89
  • J71