Actual discrimination in the marketplace depends on the combined discrimination of employers, workers, customers, schools and governments – updated

A literature has developed on whether discrimination in the marketplace due to prejudice disappears in the long run. Whether employers who do not want to discriminate will eventually compete away all discriminating employers depends not only on the distribution of tastes for discrimination among potential employers, but critically also on the nature of firm production functions.

Of greater significance empirically is the long run discrimination by employees and customers, who are far more important sources of market discrimination than employers. There is no reason to expect discrimination by these groups to be competed away in the long run unless it is possible to have enough efficient segregated firms and effectively segregated markets for goods.

Gary Becker (1992).

When the disfavoured group had few members, the wage difference between the favoured and disfavoured would be very small or non-existent because they could find employers who had little distaste for working with them. For example, African-Americans suffered more from discrimination than did Jews because blacks constituted a much larger population. Becker explains:

Employee discrimination against minority fellow workers-such as a male worker who does not want to work for a female boss- cannot be so easily competed away by non-discriminating employers. For they have to pay discriminating employees more, perhaps a lot more, to work with minority members. A similar argument applies to consumers who do not want to be served by particular minorities…

Segregation can serve as a way to bypass the prejudices of other workers, consumers, and employers. When Jews could not get work in the banking industry at the turn of 20th century, they began to open their own banks that hired mainly other Jews. African-American doctors and dentists in the old South catered to other blacks as their patients

Competition from more rational firms might gradually eliminate employer discrimination, market forces alone would rarely erode discrimination rooted in the tastes of workers or consumers.

The market will not compete away customer discrimination because the market is good at giving customers what they want. It is not necessarily possible for disfavoured groups simply  to take jobs where there is no customer contact, particularly if they are large in number relative to the total population. It is also the case the customer discrimination is largely immune from antidiscrimination laws except in blatant cases.

Customer discrimination results in employment segregation, which adds further to the job search costs of minorities as they must find jobs with less customer contact. This lowers their asking wages to save on job search costs and time unemployed.

Customer discrimination can linger because their attitudes may change only slowly, and the preferences of a wide group of individuals may need to change.

An entrepreneurial opportunity arises to those entrepreneurs who are first to alert insert murders of the costs of the prejudice. This is a far more successful way of bringing racial segregation and discrimination to an end. Entrepreneurs put an explicit price on  each and every form of discrimination wherever it might be. 

In professional sport, for example, racial integration came from entrepreneurs risking the loss of some of their existing fans in return for the anticipated cost savings and greater commercial and sporting success from hiring talented minorities and foreigners. Consumer prejudices were eroded by entrepreneurship.

The art of business consists of identifying assets in low-valued uses and devising ways to profitably move them to higher-valued ones. Entrepreneurs profited from finding ways to eliminate discrimination as quickly as possible.

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