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Why Markets Don't Stop Discrimination

  • Cass R. Sunstein (a1)


Markets, it is sometimes said, are hard on discrimination. An employer who finds himself refusing to hire qualified blacks and women will, in the long run, lose out to those who are willing to draw from a broader labor pool. Employer discrimination amounts to a self-destructive “taste” – self-destructive because employers who indulge that taste add to the costs of doing business. Added costs can only hurt. To put it simply, bigots are weak competitors. The market will drive them out.

On this account, the persistence of employment discrimination on the basis of race and sex presents something of a puzzle. And if markets are an ally of equality and a foe of employment discrimination, perhaps discrimination persists because of something other than markets. Perhaps labor unions are to blame; perhaps the real culprit is the extensive federal regulation of the employment market, including minimum-wage and maximum-hour laws and unemployment compensation. If competitive markets drive out discrimination, the problem for current federal policy lies not in the absence of aggressive anti-discrimination law, but instead in the absence of truly competitive markets.

If this account is correct, the prescription for the future of anti-discrimination law is to seek ways to free up employers from the wide range of governmental disabilities – including, in fact, anti-discrimination law itself. The argument seems to be bolstered by the fact that some groups subject to past and present prejudice – most notably, Jews and Asian-Americans – have made substantial progress in employment at least in part because of the operation of competitive markets.



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1 See generally Bolick, Clint, Changing Course: Civil Rights at the Crossroads (New Brunswick: Transaction, 1988). At the moment I will not define the protean term “discrimination” precisely; instead, I will rely on commonsense intuitions to the effect that the term prohibits differential treatment of one person because of his or her group membership. I deal here with discrimination, thus understood, on the basis of race, sex, and disability. Other bases for discrimination – age, sexual orientation, religious belief – raise overlapping questions, but they also call up considerations that would complicate the analysis here if they were to be discussed in detail.

2 Even if this is so, the argument for anti-discrimination measures is not complete. It would be possible to acknowledge that markets will perpetuate discrimination and also to argue that governmental controls do not solve the problem, or impose large ancillary causes, or are inefficient, or are unjust. I do not accept these arguments, but will not deal with them here. Instead, I focus on the more narrow claim that markets are an effective anti-discrimination policy.

3 Consider also the fact that nonmarket societies quite frequently reflect pervasive discrimination. Discriminatory attitudes can be comfortably accommodated in both market and nonmarket economies.

4 See, e.g., Donohue, & Heckman, , “Continuous Versus Episodic Change: The Impact of Affirmative Action and Civil Rights Policy on the Economic Status of Blacks,” forthcoming in Journal of Economic Perspectives (1989), and sources cited therein; Heckman, & Paynor, , “The Impact of Federal Antidiscrimination Policy on the Economic Status of Blacks: A Study of South Carolina,” American Economic Review, vol. 79 (1989), p. 138; Freeman, , “Black Economic Progress After 1964: Who Has Gained And Why?”, in Studies in Labor Markets, ed. Sherwin, Rosen (Chicago: University of Chicago, 1981). But see Posner, , “An Economic Analysis of Sex Discrimination Laws,” University of Chicago Law Review, vol. 56 (1989), p. 1311.

5 See, e.g., Dipboye, , Arvey, , & Terpstra, , “Sex and Physical Attractiveness of Raters and Applicants as Determinants of Resume Evaluations,” Journal of Applied Psychology, vol. 62 (1977), p. 288; Mischel, , “Sex Bias in the Evaluation of Professional Achievements,” Journal of Educational Psychology, vol. 66 (1974); p. 157; Etaugh, & Kasley, , “Evaluating Competence: Effects of Sex, Marital Status, and Parental Status,” Psychology of Women Quarterly, vol. 6 (1981), p. 196. The reasons for this may range from hostility to statistical discrimination, discussed below.

6 See Fishback, , “Can Competition Among Employers Reduce Governmental Discrimination?”, Journal of Late and Economics, vol. 32 (1989), p. 311.

7 This view finds its origins in Becker, Gary, The Economics of Discrimination (Chicago: University of Chicago, 1957).

8 Becker, ibid., in fact makes this point, describing the “taste” for discrimination as including fellow workers and customers as well as employers.

9 Here I follow Akerlof, , “The Economics of Caste and of the Rat Race and Other Woeful Tales,” Quarterly Journal of Economics, vol. 94 (1978), p. 599.

10 See Becker on this point.

11 The point is discussed in Akerlof, , “Discriminatory, Status-Based Wages Among Tradition-Oriented, Stochastically Trading Coconut Producers,” Journal of Political Economy, vol. 93 (1985), p. 265.

12 See Phelps, , “The Statistical Theory of Racism and Sexism,” American Economic Review, vol. 62 (1972), p. 659; in law, see Strauss, , “The Myth of Colorblindness,” 1986 The Supreme Court Review, eds. Kurland, , Casper, , and Hutchinson, (Chicago: University of Chicago, 1986), p. 99.

13 This phenomenon, of course, does not mean that differential treatment is permissible. Whether such treatment should be allowed need hardly be made to depend solely on the fact that it is economically rational.

14 Compare Lakoff, George, Women, Fire, and Dangerous Things (Chicago: University of Chicago, 1987).

15 See Aronson, Elliot, The Social Animal (New York: W. H. Freeman, 1987).

16 The points made in this paragraph can be found in Strauss, “The Myth of Colorblindness.”

17 Arrow, , “Models of Job Discrimination,” in Racial Discrimination in Economic Life, ed. Pascal, Anthony H. (Lexington: Lexington Books, 1972); Lundberg, & Startz, , “Private Discrimination and Social Intervention in Competitive Labor Markets,” American Economic Review, vol. 73 (1983), p. 340.

18 But compare Donohue, , “Is Title VII Efficient?”, University of Pennsylvania Law Review, vol. 134 (1986), p. 1411, who appears to be relying on a conception of “efficiency” not based on this criterion but instead based on a notion of social output or production. The same criterion can be found in Schwab, , “Is Statistical Discrimination Efficient?”, American Economic Review, vol. 76 (1980), p. 228.

19 But see Schwab, “Is Statistical Discrimination Efficient?”; Donohue, “Is Title VII Efficient?”

20 See Lundberg & Startz, “Private Discrimination and Social Intervention in Competitive Labor Markets.”

21 See Festinger, Leon, A Theory of Cognitive Dissonance (Evanston: Row, Peterson, 1957); in the particular context, see the notation in Arrow, “Models of Job Discrimination,” at 26. In general, see Elster, Jon, Sour Grapes (1983).

22 See Elster, Jon, Sour Grapes (Cambridge: Cambridge University Press, 1983).

23 See Elster, Sour Grapes; Lerner, Melvin J., The Belief in a Just World: A Fundamental Delusion (New York: Plenum Press, 1980).

24 See, e.g., Aronson, The Social Animal (1988); Carli, Janoff-Bulman, and Timko, , “Cognitive Biases in Blaming the Victim,” Journal of Experimental Social Psychology, vol. 21 (1985), p. 161; Gunter, & Furnham, , “Just World Beliefs and Attitudes Towards the Poor,” British Journal of Social Psychology, vol. 23 (1984), p. 265.

25 If it is to be made plausible, this is not a conspiracy theory. There has been no self-conscious decision by whites or men to do something of this sort. The phenomenon is instead a consequence of a collection of small decisions without global or world-transforming aspirations – in short, of a market.

26 See Strauss, , “Discriminatory Intent and the Taming of Brown,” University of Chicago Law Review, vol. 56 (1989), p. 936.

27 See MacKinnon, Catharine, Feminism Unmodified (Cambridge: Harvard University Press, 1987).

28 See Strauss, “Discriminatory Intent.”

29 See Rawls, John, A Theory of Justice (Cambridge: Harvard University Press, 1971), p. 102; MacKinnon, Feminism Unmodified.

30 Compare Strauss, “Discriminatory Intent,” “The Myth of Colorblindness.”

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Why Markets Don't Stop Discrimination

  • Cass R. Sunstein (a1)


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