A Theory of Group Identity and Group Action
Research on happiness has established that, in general, human satisfaction is more strongly associated with a person’s comparative position than with the individual’s absolute position.1 The key to this view of human happiness is establishing who is in the relevant comparison group. As the old cliché would have it: Who exactly are the “Joneses” (or perhaps the Kardashians) with whom someone is trying to keep up?
Stratification economics proposes that the key relevant comparison group will be an outside racial, ethnic, gender, caste, or religious group. Individuals’ personal sense of well-being will be affected by how they feel their own social group is doing relative to another that they perceive as a rival.
In the more general case, in a world where comparative position matters, members of particular social groups will make both between- and within-group comparisons.2 Typically, both the in-group and the out-group will have their own hierarchical pattern. Individuals in the subordinate or out-group may find themselves doing poorly in comparison with the average member of the in-group but doing well in comparison with members of their own (out-) group. Thus, dissatisfaction associated with a negative between-group position may be offset by satisfaction associated with a positive within-group position. It depends upon the degree of importance an individual assigns to each comparison.
The evidence deployed to make these comparisons might vary across individuals, time, and space. Primary concerns usually will be some combination of perceived comparative economic status and political power. The importance given to each category of perceived relative position also may vary. For example, some persons, both black and white, might view the relative position of black Americans vis-à-vis white Americans as having improved dramatically in the fifty years since the passage of the Civil Rights Act.
They might hold this belief despite little or no change in the relative position of blacks on a number of economic indicators, such as unemployment, per-capita income, or the proportion of the group that can be identified as middle class. Indeed, on some indicators such as wealth or net worth, the relative position of blacks may have worsened significantly since the 1960s; it definitely worsened over the course of the past decade. Nevertheless, for some, the election of a black president in 2008 might have trumped all other evidence in an assessment of relative group progress.
The phenomenon of last place aversion3 – the intense desire to avoid being at the bottom of a social ranking – reinforces the importance for members of dominant social groups to preserve their group’s comparative position. It also means that members of a subordinate group, a group with an “unsatisfactory social identity,” may seek to “leave their existing group and join some more positively distinct groups and/or to make their existing group more positively distinct.”4
If exiting from a particular group is feasible, given an individual’s personal characteristics, it could mean attempting to “pass” as a member of the dominant group or constructing newer social groups with a less stigmatized status. Making one’s “existing group more positively distinct” could involve the development of positive group images through group nationalism or a group pride movement, as well as efforts to reduce the gap that exists between the out-group (subordinate) and the in-group (dominant).
While placing intergroup differences front and center, stratification economics integrates insights from multiple disciplines to produce a distinctive mode of analysis of inequality across groups that are socially differentiated. It draws primarily from economics, sociology, and social psychology; it offers a frame for examining the role of relative group position and group action in determining individual life outcomes.
Stratification economics consciously rejects explanations for intergroup inequality on the grounds of collective dysfunction or self-defeating behaviors by the group experiencing comparatively negative outcomes. A substantial body of careful empirical research consistently undercuts both genetic and cultural-behavioral explanations for racial or ethnic inequality.5
In addition, stratification economics extracts the emphasis on self-interested behavior and substantive rationality from economics. It seeks the rational, material basis for group and personal identity formation, for membership in both dominant and subordinate groups. It takes the emphasis on the group, rather than the individual, as the fundamental unit of social analysis from sociology. Thus, stratification economics seeks to explore processes of identity formation, including both self and social classification with respect to group affiliation.6
At the “micro” level – that is, at the level of individual psychology – stratification economics utilizes the concepts of stereotype threat, stereotype boost, and stereotype lift from social psychology as foundational influences on individual productivity.7 Thus, stratification economics pays close attention to the impact of widely held beliefs about one’s group on an individual’s task performance, because social prejudices can alter individual productivity.
Stereotype threat refers to the adverse effect that negative beliefs about a group can have on the performance of individuals within that group – for example, the stereotype that blacks are cognitively inferior to whites.8 Socially held stereotypes affect individual productivity above and beyond an individual’s stock of human capital: when negative beliefs prevail about the ability of one’s social group, the determination not to confirm the stereotype can itself lead to reduced performance.
Steele, Spencer, and Aronson9 find that stereotype threat can lead to a 13 percent lower SAT score for a black student. This is not a trivial reduction; a black student who might otherwise have scored 1,200 on the test scores 1,040 instead because of the impact of the widely held belief that “black students don’t do well on standardized tests.” The upshot of this depressive effect is that what might appear to be a fair measure of merit, such as a standardized test score, can be distorted, when comparisons are made at the intergroup level, by the effects of prevailing stereotypes about group ability.
Stereotype boost involves the upward push on performance of an (ostensibly) positive stereotype on members of a group who are “beneficiaries” of the belief,10 such as “Asians are innately good at mathematics.”11 If an individual from such a positively stereotyped group does not have a prior history of success in that domain and lacks confidence in that domain, the existence of the “positive” stereotype might impair that person’s performance; the individual may “choke” when confronted with the task.12
Finally, stereotype lift involves the increase in performance of members of a nonstigmatized group in a domain where members of a comparison group are stigmatized negatively. For example, whites might experience enhanced performance on a test of cognitive skills simply because they know that blacks are not expected to perform well.13
The more general point is that individual productivity is not solely a matter of personal characteristics, such as education, motivation, and training. It also is affected by the social context, whether it is widely held negative attitudes about the capability of members of one’s social group or the hostility versus the receptiveness of the work environment.
Stratification economics investigates the processes that determine which group an individual sees as her own and which group (or groups) she sees as her rival.14
Significantly, it has evolved to provide a frame for understanding intergroup inequality without resort to explanations that invoke cultural differences. Instead, it emphasizes the struggle over relative position and control over real resources as the cornerstone of group formation, development, and continuity.15 In stratification economics, an individual’s group identification is necessarily a complex mix of ascription by others and personal choice. Stewart has demonstrated that this struggle is manifest even within an institution as highly regimented as the U.S. military.16
The Theory of Prejudice and Stratification Economics
Stratification economics subscribes to a variant of real conflict theory as the basis for enduring group identity. Real conflict theory17 proposes that competition over material resources lies at the heart of persistent group affiliation and attachment. Opposing claims to resources constitute the linchpin for the emergence of ethnocentrism or nationalistic sentiments about one’s group. The group – ranging in scale from family to tribe to clan – develops a sense of kinship, fictive or otherwise, driven by the extent to which it is in competition with other groups over relative status.
Tajfel and Turner18 have observed that “intergroup competition enhances intragroup morale, cohesiveness, and cooperation.” Further, they write, “the more intense is an intergroup conflict, the more likely it is that individuals who are members of the opposing groups will behave toward each other as a function of their respective group memberships, rather than in terms of their individual characteristics or interindividual relationships.”19
Experimental research has demonstrated that even minimal groups – groups formed on an entirely arbitrary basis in laboratory settings – quickly can develop within-group loyalties and preferences for other same-group members. But the same investigations indicate that “real groups” – those that are socially established – display greater salience and potency than minimal groups, the latter arbitrarily established de novo.20
The classic debate between social scientists Allport21 and Blumer22 over the sources of prejudicial beliefs provides another window into the theoretical foundations of stratification economics. In Allport’s famous study, The Nature of Prejudice,23 prejudice was treated as matter of individual or personal psychology. People with specific personality types – particularly those who were more likely to succumb to authoritarianism – were more susceptible to adopting and maintaining stereotypical beliefs about “the other”; this susceptibility was reinforced by sheer ignorance.
For Allport, the remedy was structured contact that could perform the therapeutic task of providing better information about “the other.” In order to have the strongest effect in reducing prejudice, he argued that the members of the two groups should interact under conditions where they had equal status; common goals; a climate conducive to intergroup cooperation; and the sanction of authorities, law, or custom. Subsequently, Stuart Cook24 said that the effectiveness of this contact would also be influenced by the proximity between the groups, the direction and strength of within-group norms about contact with “others,” the direction and strength of expectations about authority figures’ attitudes toward intergroup association, and the normal conditions of group interdependence – the predominance of competition or cooperation.
While research on the effectiveness of intergroup contact as a means of reducing prejudice suggests that there is a benefit when some of Allport’s conditions are met, there is no definitive conclusion about which of his conditions are sufficient for a benefit to occur.25 Still, there are some strong conclusions that have been reached about the limitations of intergroup contact.
Ridgeway and Smith-Lovin26 have demonstrated that intergender contact does not consistently erase false beliefs about gender differences. Indeed, any observed inferior outcome on the part of the stigmatized group considered superficially can reinforce prior beliefs about the intrinsic inferiority of that group.
Ridgeway and Smith-Lovin speculate that a key reason for the failure of intergroup contact generally to reduce bias is the fact that the equal status condition is hard to meet, since individuals will carry attitudes prevailing in the wider social context into structured interactions. It is, perhaps, the inability (or failure) to produce the equal status condition that has led the greatest American “experiment” in intergroup contact, school desegregation, to have sharply inconsistent effects on students’ racial beliefs.27
Tropp and Pettigrew28 find that even in settings consistent with the optimal conditions for contact, intergroup contact is more effective in influencing affective rather than cognitive dimensions of prejudice. People can develop a liking for and friendships with members of the other group (affective); indeed, they can develop quite positive assessments about individuals from the other group. However, they will not necessarily alter their stereotypical beliefs about the group as a whole (cognitive). Their friends from the outsider group will be seen generally as exceptions.
The tenacity of prejudicial beliefs, even in the face of properly structured contact, would not have surprised Hebert Blumer. Blumer located the origins of prejudice not in the orbit of individual psychology but in a collective concern about relative group position among members of ethnic/racial groups. In Blumer’s approach to prejudice, the “feelings” of one group about the members of another are grounded in comparative group status.29
Focusing on the group in the socially dominant position, Blumer identifies four major types of shared feelings among members of the in-group that constitute prejudice: (1) a feeling of superiority; (2) a belief that the “subordinate group is intrinsically different and alien”; (3) a sense of “proprietary claim”; and (4) a “fear and suspicion that the subordinate race harbors designs on the prerogatives of the dominant race.” Blumer himself says that the third feeling, “proprietary claim,” is of “crucial” importance. He elaborates as follows:
It is the feeling the part of the dominant group of being entitled to either exclusive or prior rights in many important areas of life. The image of such exclusive or prior claims may be wide, covering the ownership of property such as choice lands and sites; the right to certain jobs, occupations or professions; the claim to certain positions of control and decision-making as in government and law; the right to exclusive membership in given institutions such as schools, churches and recreational institutions; the claim to certain positions of social prestige and to the display of the symbols and accoutrements of these positions’ and the claim to certain areas of intimacy and privacy.30
Stratification economics explicitly lines up with Blumer’s view of the sources of prejudice. A signature feature of stratification economics is the critical role assigned to relative group position as a basis for the development and maintenance of prejudicial beliefs about the “other.” The material benefits associated with group identity affect the dominant group’s attitudes toward and treatment of the out-group. While both the dominant and subordinate group typically will have their respective patterns of internal hierarchy, comparative benefits of being part of the dominant group will span their entire membership and will be understood, at least implicitly, as such.31
Coalition stability has been a long-standing issue in the literature on collective action, and a key route to stability is a shared distribution of the benefits, although not necessarily on a uniform or equal basis.32 In the later pages of his monumental study Black Reconstruction, W. E. B. Du Bois addressed the question of why lower-class whites stayed in the white racial coalition rather than joining blacks to challenge the white elite.33 His answer begins with the suggestion that, in the immediate aftermath of Reconstruction, lower-class whites received a sheer “psychic benefit” from their racial status: “[T]he white laborers, while they received a low wage, were compensated in part by a sort of public and psychological wage.” But Du Bois’s discussion of the specifics of the “public and psychological wage” delineates tangible relative benefits that readily could be assigned monetary values:
They [the white laborers] were given public deference and titles of courtesy because they were white. They were admitted freely with all classes of white people to public functions, parks, and the best schools. The police were drawn from their ranks, and the courts, dependent upon their votes, treated them with such leniency as to encourage lawlessness. Their vote elected public officials, and while this had small effect upon the economic situation, it had great effect on their personal treatment and the deference shown them. White schoolhouses were the best in the community, and conspicuously placed and they cost anywhere from twice to ten times as much per capita as the colored schools. The newspapers specialized on news that flattered the poor whites and almost entirely ignored the Negro except for crime and ridicule.
On the other hand, in the same way, the Negro was subject to public insult; was afraid of mobs; was liable to the jibes of children and the unreasoning fears of white women; and was compelled almost continuously to submit to various badges of inferiority.34
Such an implicit intraracial contract – what Roithmayr refers to as a “racial cartel”35 – continues to exist among whites in the United States.36 As this book will explore in subsequent chapters, whites of all social classes and education levels have a much lower likelihood of exposure to unemployment; rarely become as asset-poor as blacks; experience better health outcomes and greater safety in encounters with the police and the criminal justice system; and, of course, are not subjected to racial microaggressions that erode emotional well-being and personal efficacy.37
Today’s intraracial contract displays the long reach of an ideal explicitly articulated in a June 27, 1848, speech by John C. Calhoun, antebellum senator from South Carolina: “With us the two great divisions of society are not the rich and poor, but white and black, and all the former, the poor as well as the rich, belong to the upper class, and are respected and treated as equals.”38
The evidence generated by studies on colorism expands the understanding of the advantages associated with white privilege. Colorism is a form of racism that allocates privilege or disadvantage on the basis of the lightness or darkness of one’s skin shade. Greater proximity to white-identified norms of appearance and attractiveness carries benefits.
For example, using data from the Multi-City Study of Urban Inequality and after controlling for level of schooling, high school performance, work experience, health status, self-esteem, age, marital status, number of dependents, workplace characteristics, and parental socioeconomic status and neighborhood characteristics at age sixteen, Goldsmith et al. found lighter-complexioned black males experienced treatment in U.S. labor markets little different from white males.39 On the other hand, using the same controls, black males with medium and dark skin tones incurred significant discriminatory penalties relative to white males.
In a companion study, they found that darker-complexioned black women suffered a significantly lower likelihood of marriage or remarriage than black women with lighter skin tones.40 Having a darker complexion also is associated with greater odds of harsher sentences if convicted of comparable crimes, including greater odds of receiving the death penalty for similar capital crimes.41 Clearly these findings also subvert an unqualified belief in the operation of an unvarnished “one drop rule” in the United States.
The advantages of whiteness and the disadvantages of blackness raise the more general question of why anyone ever would identify with a subaltern or subordinate group. Stratification economics points toward an answer that suggests, given the preexisting structure of intergroup inequality, members of the subordinate group incur net benefits from standing with the despised group. These net benefits can be associated with greater insulation from direct abuse and assault from the dominant group by the shelter provided by other members of the subordinate community and particular within-group possibilities for economic gain from which they are excluded by the dominant group.
The use of stratification economics will alter the way in which economists analyze a host of social phenomena. In the next three sections of this chapter, we consider how stratification economics affects the analysis of the provision of public goods, immigration, and employment discrimination.
Application of Stratification Economics 1: Public Goods
Stratification economics posits that ascriptive markers such as race can serve as signals to provide privileged access to public goods/services.42 Given the nonexcludable nature of public goods, financing their provision requires some degree of cooperation and altruism among individuals. To the extent that there are at least some altruistic motives among contributors to public goods, own-group altruism among dominant groups can result in stratified public good provision. The dominant group’s returns to own-group altruism can be an increasing function of their income and wealth relative to the racially subordinate group.43
In the absence of altruism, stratified public good provision can result if racially dominant groups are not willing to pay for public goods that will be consumed by subordinate groups.44 This could occur when members of the dominant group assign positive weights to benefits only for members of their own race/ethnicity.45
While not explicitly identified as such, the theoretical model of redistribution considered by Alesina, Glaeser, and Sacerdote46 captures some core insights and predictions of stratification economics with respect to public good provision. In their model, the demand for redistribution is determined by the extent to which individuals value the utility of private consumption enjoyed by others. The more altruistic individuals are, the more they value the consumption of others, and the greater the degree of redistribution.
Alesina et al. find that one empirical determinant of the level of redistribution appears to be race, as the level of redistribution in the United States is low relative to Europe, and the U.S. population is more racially heterogeneous. As such, an implication is that the relatively low level of redistribution in the United States possibly reflects a low level of interracial altruism based on whites possibly viewing nonwhites as being “undeserving” of income transfers or “handouts.”
To the extent that public goods/services involve redistribution through the tax mechanism, the Alesina et al. model predicts that the provision of public goods/services also will be stratified, reflecting the preferences of a dominant group that views subordinate groups as being less worthy of benefiting from public goods financed by tax revenues. More sordidly, there is the possibility that relative to Europe, dominant groups in the U.S. view the misfortune of the non-white subordinate groups as being “their own fault,”47 and thus may exclude subordinate groups from public good consumption. In the extreme, this can lead to death, since many public goods (e.g., clean water, pollution abatement, public health interventions) affect human mortality.48 The provision of these goods is negotiated through voting, and voters may fail to prioritize the welfare of subordinate groups in a socially heterogeneous country.49
While stratified public good provision constitutes a departure from egalitarianism, it has particularly stark and vulgar implications for the distribution of casualties, fatalities, and recovery associated with natural disasters. Rescue and disaster relief are, if not pure public services, publicly provided services financed through taxes. In this context, stratification economics suggests that the population risks associated with natural disasters will not be distributed fairly or on a race-neutral basis.
Indeed, a violation of the egalitarian notion of equal environmental hazard risks for all individuals50 appears to have occurred in the case of Hurricane Katrina. Price found that during Hurricane Katrina, the probability of dying in the city of New Orleans as a result of the hurricane increased if you were black and/or poor suggesting that the provision of publicly funded rescue services was stratified by race and class (measured by income).51 Post–Hurricane Katrina, there is evidence suggesting that publicly funded relief remained racially stratified.52 Banerjee also has detected a similar pattern of group-based stratification in relief provision in the aftermath of flooding in Bangladesh.53
The presence of huge deposits of lead in the water in Flint, Michigan, also is indicative of the stratified nature of the quality of public goods provision. Dominant social groups that capture the best public goods are engaged in a specific version of a more general practice that the sociologist Charles Tilly described as “opportunity hoarding.”54
Application of Stratification Economics 2: Immigration
Immigration is another area in which stratification economics can provide distinctive insights about the nature of intergroup inequalities. In this context, we define socioeconomic “assimilation” as the process in which individual immigrants achieve levels of wealth, income, educational attainment, and other dimensions of well-being that are on par with the host country’s dominant group. This form of assimilation is the most relevant to stratification economics compared against other assimilation dynamics involving norms, culture, intermarriage, and so on, because of its potential effect on intergenerational socioeconomic change correlated with race and ethnicity.
One would expect varying rates of socioeconomic assimilation as each immigrant arrives in the host country with personal characteristics that lead to temporary barriers to assimilation. Differences in language, education, skills, and social/cultural customs could initially affect labor market and other socioeconomic outcomes, including job performance, rates of adjustment to new social and job market circumstances, and expectations. However, key determinants of socioeconomic assimilation also include immigrants’ wealth and ethnic identifiers, especially their phenotypical characteristics. Dependent on human and financial resources, socioeconomic assimilation is typically viewed as a gradual but temporary process that usually does not extend beyond the first generation in immigrant families.
Darity describes “the master narrative about immigration” in the United States as one that “begins with the image of a nation of unbounded opportunity and freedom” where “newcomers were … destined to enter their newly adopted country at the bottom of the urban social ladder.”55 He adds:
By dint of hard work, commitment to the value of education, acceptance of delayed gratification and a cultural orientation toward achievement, each new wave of ethnic immigrants would ride to the top of the urban escalator. Higher income, engagement in broad social and political participation, and assimilation into Americanness was available to all who entered the country if they had the desire and determination.
This “master narrative” and the belief that barriers to socioeconomic assimilation are temporary, malleable, and dependent on individual volition do not explain the emergence of immigrant enclaves whose residents face quantifiable disparities persisting across generations. Ignored are the experiences African Americans brought to this country by force through slavery. Also ignored are the similar experiences of descendants of Native American and Hispanic populations embedded in a web of violence and coercion directed against them, although their presence long preceded the establishment of the United States.
Immigrants to the United States within the last few decades do not appear to lack the will to assimilate in the broader context of the term. They frequently even prefer to identify with the dominant racial group in the United States. Evidence suggests that “regardless of their skin shade, two-thirds of recent immigrants to the United States choose the designation of white in their census responses.”56 But this self-identification presents measurement problems when studying immigrants’ intergenerational socioeconomic mobility because some individuals (usually the more educated and affluent) stop identifying themselves as belonging to any racial or ethnic group except for the dominant one.57
An important implication of Darity, Mason, and Stewart58 is that the intensity of self-identity of a subordinate group is a positive function of the identity penalty imposed on them by the dominant group. An increase in the intensity of social identification among the dominant group will be associated with an increase in the intensity of social identification among the subaltern group. For example, a rise in hate crimes against Islamic Americans after the attacks of September 11, 2001, was associated with a significant rise (9 percentage points) in the fraction of Arab and Islamic Americans who self-identified as “black” and “other-race” rather than “white.”59
Antman and Duncan60 demonstrate that evidence from the American Community Survey, where respondents report both their ancestry and race, reveals that identity making can be subject to a rational calculus given the situation at hand. Using a natural experiment created by some states adopting bans on affirmative action, they demonstrate that individuals from underrepresented groups (based upon their ancestry response) are less likely to identify with the corresponding racial group, while individuals from overrepresented groups (again, based upon their ancestry response) are more likely to identify with the corresponding racial group when affirmative action is prohibited.
It is worth noting, however, that an emerging literature that applies stratification economics to immigration indicates that skin tone (and other phenotypical features), rather than self-reported racial identity, is a significant determinant of immigrants’ levels of wealth and income in the host country.61
Stratification economics offers multiple explanations of persistent inequality faced by immigrants; two of the most important will be mentioned here. First, individuals in the immigrant group may share characteristics, such as skin tone, that trigger discriminatory practices in the host country. Second, barriers to socioeconomic assimilation within an immigrant population may derive from stratification in the home country imported to the host country and possibly sustained over time through the flow of new immigrant arrivals into ethnic enclaves.62 A paradigmatic example of imported stratification is evident in the replication of caste discrimination in the United Kingdom practiced there by members of the East Indian community.63
Stratification by skin tone is a major determinant of intergroup inequality in the United States. Persistent intergroup inequalities which may be explained by stratification economics are reported in many countries. Additional studies examine economic stratification by skin tone in Brazil and Mexico.64 Discrimination by phenotype also seems to apply to immigrant populations. Darker citizens and immigrant residents and their descendants, whether the country of origin is in Africa, the Caribbean, or Latin America, do not seem to fare as well in the process of socioeconomic assimilation as their lighter-skinned counterparts.65
The concept of imported stratification offers support for Darity’s (1989) lateral mobility hypothesis,66 which links labor market outcomes to premigration resource attainment and to selection effects in migration decisions (for an excellent example, see Masao Suzuki’s work on Japanese immigrants in the United States). The lateral mobility hypothesis proposes that the relative social position of the majority of members of an ethnic immigrant population in their country of origin will have a strong effect on the relative position achieved by their children and grandchildren in the receiving country. Indeed, their group is likely to reproduce the relative status held in their country of origin in the new country.
Preliminary studies point to empirically significant links between discrimination in the home and host countries and its effect on postmigration socioeconomic outcomes.67 Tamara Nopper also cautions that attention must be given to which immigrant communities are recipients of significant state support to facilitate the transition to the receiving country and which are not.68 As Nopper demonstrates, immigrant communities that receive the privileges of host country government support typically have superior outcomes compared to groups that do not.
Application of Stratification Economics 3: Discrimination
Propelled by Gary Becker’s Economics of Discrimination,69 the economic theory of discrimination has evolved into two principal approaches: Becker’s own taste-based discrimination model and the statistical model of discrimination.70 Taste-based models posit that agents discriminate against members of social group A because of their preference for members of social group B.
In the initial models examined by Becker, there were no productivity differential between members of groups A and B. Agents (employers, for example) simply “liked” members of group B more than they like members of group B. While Becker actually had some critical observations about Allport’s approach to the theory of prejudice, Allport’s foundation for stereotypical beliefs rooted in personal psychology is a convenient way to characterize the source of Becker’s taste for discrimination as “exogenous” or given.
An intergroup wage gap in taste-based models arises from three potential mechanisms: employer discrimination, employee discrimination, and customer discrimination. Under employer discrimination, persons doing the hiring prefer members of group B over group A. They only will hiremembers of group A at a wage discount, thereby producing a wage wedge. Under employee discrimination, workers from group B – who, presumably, are first in – dislike working with members of group A and must receive a wage premium to work alongside members of A. Under customer discrimination, consumers prefer products or services made by members of group B, leading to a higher derived demand for B workers on the part of employers and a corresponding wage wedge in their favor.
Statistical models of discrimination posit that agents lack complete information regarding the true productivity of individual members of group A. As a cost-efficient measure, they assign what they believe to be the average productivity of the group as a whole to each member of group A. If they also believe A’s average productivity is lower than the average for members of group B, then they will select members of group A for positions proportionately less often than members of group B. This can result in a wage gap.
The difficulty with both the taste-based discrimination and the statistical discrimination models is they are unstable. Ultimately, both approaches imply that non-productivity-based differentials in wages must evaporate over time; both approaches deny the persistence of discrimination.
Employer discrimination should be eliminated insofar as there are some employers who prefer pecuniary gain to prejudice and will take advantage of the lower cost, comparably efficient members of group A, to generate higher profits than the discriminators. Their success should drive the discriminators out of business, propel a rise in wages for members of A, and close the intergroup wage gap.
Employee discrimination is not sustainable if some employers simply hire work forces consisting exclusively of members of group A. Again, since they are lower cost and comparably efficient, those firms will experience a profit advantage until the relative growth in demand for A workers closes the wage gap. The standard conclusion is that employee discrimination will lead to a world of segregated work forces with equal wages.
Customer discrimination is the only one of Becker’s three forms of taste-based discrimination that appears, in principle, to be sustainable. But this would require consumers to closely monitor the hiring practices of firms whose products appear in retail outlets without any explicit indication of whose hands made them. Customer discrimination seems to have greatest efficacy in the provision of face-to-face services, where consumers actually can see who is doing the work for them.
The statistical theory of discrimination also is subject to the instability problem. If employers are incorrect and the distributions of productivity for members of group A and B are the same, they should learn this over time and hire black and white workers at the same rate. Certainly they have a profit motive to improve the information they have about the potential of any job candidate, regardless whether they belong to group A or B. More cost-efficient methods for gauging the true productivity of any employee should evolve that will erode the information gap.
On the other hand, if employers are correct in their forecast that members of group A generally are less productive than members of group B, then there is no need for a theory of discrimination. While there may be inequitable outcomes for members of group A at the upper end of the distribution and members of group B at the lower end, strictly speaking, no economic discrimination is being exercised against members of group A. They are hired and paid at lower rates because their group collectively is not as productive. Human capital differences between the groups would fully explain the wage gap without resort to an explanation depending upon discriminatory behavior on the part of employees.
There are a number of weaknesses with all of these approaches. While both the taste-based model and the statistical model imply that employer discrimination cannot persist in a world where workers from two (or more) groups are equally productive, cross-national evidence does not indicate that workers from different social groups with similar productivity-linked characteristics progressively receive similar employment outcomes. Discrimination does not invariably decline, even in market-based economies; in some cases, such as Brazil, the degree of discrimination (against Afro-Brazilians) actually appears to have increased periodically.71 A cross-section, intersectoral U.S. investigation by Agesa and Hamilton found that neither greater degrees of foreign nor domestic competition were linked to lower degrees of discrimination.72
The conclusion that the employee discrimination version of the taste-based model will lead to equal pay with segregated workforces assumes that the workers from the dominant group will accept an arrangement where they do not have to work side by side with members of the subordinate group. It overlooks the possibility of violent resistance to any conditions that create a greater measure of intergroup equality – in this case, greater equality in pay. During World War II, when the U.S. Navy attempted to hire black employees in all-black facilities, white workers even blocked the formation of the Jim Crow workplaces. White riots in shipyards from Mobile, Alabama, to Chester, Pennsylvania, prevented the Navy from establishing separate industrial worksites for black workers.73
The customer discrimination model fails to explain why black workers in the United States are disproportionately crowded into the low-wage personal services sector, where they necessarily have extensive face-to-face contact with white consumers.74 A better explanation is that white consumers are not resistant to all contact with black service providers; they simply want black service providers to be “in places where they belong” – in comparatively subservient positions.
Finally, the statistical discrimination model does not explain the persistence of unequal outcomes when employers have greater knowledge about the characteristics of the job candidates. Particularly compelling are Devah Pager’s urban field experiments, where she found that black men with no criminal records face lower odds of a call back for a job than white men with criminal records.75 Bertrand and Mullainathan found that improved resumes for job candidates with black-sounding names did not increase their odds of receiving a call back.76 These studies suggest that the failure to hire black workers at the same rate as white workers is not attributable to an informational deficiency about the individual black candidate.
The instability of discrimination is a conclusion wedded deeply to an imagined world in which discriminators act independently of one another, rather than as members of a coalition, tribe, team, or gang. Independent action makes virtually all economic theories of discrimination, including the statistical theory of discrimination, result in a condition where the discriminatory disparity logically cannot persist.77
Again, here is where stratification economics intervenes by offering a different vision. Intragroup alliances based upon common interest in preserving or extending the relative status of the group lead to a common understanding, on the part of dominant group members, of how to behave toward members of the subordinate group in arenas that affect material and political well-being.78 This includes giving dominant group members a nepotistic advantage and subordinate group members a discriminatory disadvantage in employment opportunities.
If there is a cost to employers for subscribing to these principles, these can be offset by direct or indirect subsidies from the public sector.79 Moreover, the potential cost of choosing employees from a group they prefer is lower if less-than-full employment conditions typically prevail. The goal, as Blumer argued, is turf preservation to maintain relative group position, with all the attendant benefits for the dominant social group. Within the purview of stratification economics, discrimination is both rational and functional, albeit unfair and inequitable.
Conclusion
For far too long, conventional economics has overemphasized autonomous individual optimization and underemphasized the importance of group formation, group identification, and group action. In turn, that has led its practitioners to identify differences in individual attributes – such as human capital endowments, motivation, and tastes – as the key explanatory factors for intergroup differences in outcomes.
Simultaneously, conventional economics has overemphasized the significance of absolute levels of consumption, income, and wealth and underemphasized relative levels of consumption, income, and wealth as drivers of human satisfaction. Moreover, when attention has been drawn to relative values, conventional economics typically has limited the pertinent reference group to other similarly situated individuals, such as neighbors or classmates, rather than outsider racial, ethnic, caste, gender, or religious groups.
Instead, stratification economics calls for a reorientation of the analysis of intergroup differences. It calls for a foundation anchored in the analysis of the determinants of and the effects of relative group position. It calls for an alternative view of the social importance of the group and group affiliation with respect to individual’s life outcomes. It calls for a rewrite of the rules for economic analysis.
