As we celebrate the 100th Anniversary of International Women's Day, we are reminded of the harsh economic consequences when we engage in a culture of economic exclusion that harms everyone equally. by Bill Gee
(centrist)
Tuesday, March 8, 2011
The ideal Capitalist is colorblind and gender-blind. After all, the money that comes from an African-American woman is worth just as much as the money from a white, Anglo-Saxon man. On a more macro scale, goods and services that come from one nation and people should have equal footing with goods and services from another nation. In other words, the ideal capitalist judges goods and services based on their utility, quality and price and not on the gender or the ethnicity of the person or persons who produced it.
Unfortunately, history has shown that factors such as gender, race, and national origin often play an important role in our individual economic decisions, often to the detriment of the macro-economy. In other words, when we choose to base our economic decisions on our perceived prejudices of the person or people who produced that good or service, the only people we ultimately hurt is ourselves.
Taste-For-Discrimination Model
In Microeconomics, the taste-for-discrimination model is an extension of General Demand Theory insofar as "Consumer Taste" is a determinant of Demand. The model assumes a certain level of "disutility" as the result of consumer choice that is based on factors other than the general utility of the good or service in question. In simple English, economists use this model to measure the amount of wasted utility that occurs when we base our purchase and hiring decisions on factors not related to the quality of the resource itself.
Mathematically, we use the term "Discrimination Coefficient" when describing the effects of discrimination. For illustrative purposes, we will use gender as our basis of discrimination. However, race and national origin fit equally into this model.
Let us say that the owner of an Accounting firm has the need to hire 100 processors, and the hiring manager has a bias against female employees. The employer will pay a man $20 per hour and is only willing to pay a woman $16 per hour to do the same job. This employer's discrimination coefficient is $4, because $4 is the difference between the "preferred" employee rate and the "non-preferred" employee rate. If the market rate for Account Processors is above $16 per hour, the prejudiced employer will only hire men in his firm. However, if the market rate were to go below $16 per hour, the biased employer would only hire women for his firm because the market rate would exceed his "taste-for-discrimination" coefficient.
The Disutility of Discrimination
In real terms, discrimination produces a "disutility" in society. In our above example, the disutility occurs when men are hired in disproportionately higher numbers than women, and it also occurs when women are hired at a lower wage rate but in larger numbers than men. We can measure disutility when we have an idea of the overall size of the market. For this example, we are using the overall market of Accounting Processors. For simplicity, we will assume a market size of 200 consisting of 100 men and 100 women. A gender-blind employer would likely employ equal numbers of men and women in such a market with a discrimination coefficient of $0.
Scenario 1: Market Rate = $19 per hour
In this scenario, the employer hires all men for the firm.
Disutility = 50 women not hired X Discrimination Coefficient of $3 + 50 "extra" men hired X Discrimination Coefficient of $1 = $200 per hour Disutility of Resources.
In other words, this employer is doing $200 per hour of damage to the economy through his discriminatory practices.
Scenario 2: Market Rate = $15 per hour.
In this scenario, the employer hires all women for the firm.
Disutility = 50 "extra" women hired X Discrimination Coefficient of $1 + 50 men not hired X Discrimination Coefficient of $5 = $300 per hour Disutility of Resources.
In other words, this employer is doing more damage to the economy by hiring women at a lower wage due to the fact that he has "depressed" the wages beyond his tolerance for discrimination.
In the above example, we used gender as the discriminating factor, but this model can be applied to include race, national origin, sexual preference, or any other discriminatory characteristic you wish to choose.
The aggregate cost of discrimination to an overall economy is enormous. Without getting into the mathematics, consider these multiplying variables for Scenario 1:
Inefficiency due to too few male workers relative to job openings. (In other words, due to a lack of male workers, poor performers must be retained in order to satisfy the prejudices of the employer.)
Loss of income potential for the 50 women not hired and the losses resulting from their inability to make purchases to support their families and communities. Also, their skills and entrepreneurial ability is wasted due to their inability to participate in the market.
For Scenario 2:
Inefficiency due to too few female workers relative to job openings.
Loss of purchasing power due to depressed wages of the women who are working and the men who are not. In other words, overall purchasing power is depressed.
Bottom Line: Discrimination hurts an entire economy, not just those who are being discriminated against.
Over the years, a great deal of progress has been made in reducing the "gender gap" and the "race gap" when it comes to hiring and compensation practices, but we still have a long way to go. Women still only earn 75% of what their male co-workers earn, and African Americans and other minorities still make up a larger proportion of the unemployed workforce. If we wish to end this practice of institutionalized discrimination and promote a more egalitarian economy, it begins and ends with our own consumer practices.
If you wish to see more women on the Boards of Directors of companies, buy products or services only from companies that have women on their Boards of Directors. If you want to see more products produced here in the United States, buy products made in the United States. If you want to see more products and services that promote a healthy planet, buy those products and services.
The Government can do its part by mandating certain gender and ethnic quotas in the workplace, but these efforts are meaningless and counterproductive if they are not coupled by an overall change in market behavior by the people who engage in it. Money may hold the images of dead white men, but its purchasing power belongs to all people equally.
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in this article are those of Bill Gee only and
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