Labor market discrimination may take the form of different wage rates for equally productive workers with different personal characteristics (such as race, sex, age, religion, nationality, or education).
Labor market discrimination may also take the form of exclusion from jobs on the grounds of social class, union membership, or political beliefs.
American economist Gary Becker (1930-) has developed a theory of discrimination which examines the behavior of employers who have displayed a ‘taste’ for discriminatory practices.
Also see: dual labor market theory, crowding hypothesis, segmented labor market theory, non-competing groups, search theory, insider-outsider wage determination
G Becker, The Economics of Discrimination (Chicago, 1957)
Labor discrimination as defined by Kenneth Arrow is “the valuation in the market place of personal characteristics of the worker that are unrelated to worker productivity”. It can be thus understood as the differentiation of workers based on characteristics such as color, race, origin, gender etc. that can be classified as factors that do not have a role in determining his or her productivity. There are multiple dimensions that need to be considered when discussing such discrimination. The most obvious is that the group discriminated against is paid less for identical jobs. This is known as wage discrimination and is the most prevalent form of discrimination. The attempt to combat such a form of discrimination can be seen in increasing equal pay legislation in different countries. Examples of this are the Equal Pay Act (1970), Sex Discrimination Act (1975), and Employment Protection Act (1975), but the effectiveness of such legislation is subject to much debate. Secondly, that the level of unemployment for the disadvantaged group in general is higher than that of other groups that do not face such discrimination. Thirdly, there is discrimination based on the kind of jobs that they have access to, the discriminated group given preference for repetitive and menial tasks.This is known as employment discrimination, where an individual is excluded from a job that is worked on by a person with equal productivity. When this happens, the disadvantaged group is employed for a job he or she is over-qualified for, simply because the group does not have access to better paying jobs in par to their counterparts and are denied opportunities of recruitment and promotion. A general misconception prevails that discrimination is only practiced by the employer. This is not true. In addition to employer discrimination, customer discrimination can also exist in the market. Customers may prefer to transact with only a certain kind of people.