Economics of Labor
What is the Neoclassical theory of discrimination? Why is Neoclassical theory pessimistic about the efforts of government to end discrimination, yet at the same time optimistic about the end of racism in the labor market?
The neoclassical theory of discrimination states that racism is irrational, and with the right market forces can be wiped out. The theory suggests that in a competitive market where the companies do no set preferences there will be competition which will help eradicate racial wage differences and employers that discriminate on an ethnic basis. The neoclassical theory then professes that 'if discrimination is costly, then increased industry competitiveness from international trade lessens the incentive for employers to discriminate...' [Berik, et al. 2004] Thus, they suggest a growing and competitive labor market is the best solution to ending discrimination. Their theory is based on the fact that the market is more determined to make profits than to be discriminatory and any factor that affects the profits adversely will be effectively removed over time. Discrimination is seen as one such factor. However, the neoclassicists also state that discrimination cannot be eliminated when the government intervenes in the market. They suggest that policies such as affirmative action and comparable worth are simply laws that help create discrimination as they reduce the value of competition. For the neoclassicist, competition free of outside intervention is the only means to ending discrimination.
How do the theories of Marable and Reich argue that racism is helpful (Reich) and even essential (Marable) to capitalism?
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