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Peddlers Forever?: Culture, Competition, and Discrimination

2016; American Economic Association; Volume: 75; Issue: 2 Linguagem: Inglês

1944-7981

William Darity, Rhonda M. Williams,

Labor market dynamics and wage inequality

Contemporary economic theory has all but completed burial of idea that market discrimination explains racial wage differentials or differences in general pecuniary accomplishments across ethnic groups under competitive conditions. We need only await eulogy. Interment began with failure of model premised on employers' taste for discrimination. The preferences of employers for members of one group over another could not sustain wage differentials under competition if individuals from each group were equally able. Although initial argument was made under assumptions of neoclassical perfect competition, it was beaten back by Austrian process view of competition (see Israel Kirzner, 1973). A latent reservoir of alert entrepreneurs presumably would seize profit opportunities generated by discriminatory wage gap, drive discriminating employers from market, and erode wage differentials. Valiant efforts emerged subsequently to raise from dead idea that competition might eliminate market discrimination. These efforts involved development of market discrimination models under states of affairs characteristic of neoclassical imperfect competition or so-called discrimination. Neither case precluded possibility of ingenious entrepreneurship nor the entrepreneurial capacity to smell profits (Kirzner, p. 229). As a result, in neither case could existence of wage or earnings differentials be maintained by employer decisions. In first case, inventive entrepreneur could circumvent or bring down barrier that was source of imperfection. Similarly, in second case clever entrepreneur could devise procedures for overcoming existing informational discrepancies that might exist about abilities of members of each of ascriptively distinct groups (see Darity, 1982). The application of Austrian process view of competition to problem of racial and ethnic wage differences stripped market discrimination of its analytic significance. However, empirical persistence of such wage differentials in U.S. economy is well established. The demise of theory of market discrimination under competitive conditions has led to increasing use of human capital explanation for differences in economic achievement across ascriptively distinct groups. After many years and scores of statistical studies that revealed that convergence in observable human capital characteristics-especially years of formal education-did not lead to anticipated abolition of black-white wage gaps (see Williams, 1984), there is now a shift underway that identifies source of alleged human capital differences as unobservable cultural differences between ascriptively distinct groups. Cultural variation is accorded primacy in explaining ethnic and racial differences in economic achievement. In light of death of market discrimination explanation, culturalogical explanation is given added force by observation that certain ethnic groups (Japanese and Jewish Americans, to name but two) have managed to succeed despite discrimination (see Barry Chiswick, 1983a, b). The themes of culture and competition thus are focus of this essay. We first provide substantive and historical critiques of new cultural variant of human capital theory. Second, we argue that existence of ongoing market discrimination can be revived by employing an alternative *University of North Carolina, Chapel Hill, NC 27514, and University of Texas, Austin, TX 78712, respectively. We are grateful to Art Goldsmith, Bobbie Horn, Steve Steib, and David Swinton for helpful comments. Research support was provided by Southern Center for Public Policy Studies at Clark College in Atlanta.