One of the most striking arguments of Gary Becker’s theory of discrimination is that there is a cost of racial discrimination. If you hire people based on personal taste rather than job skills, your competitors can hire these better works and you work at a disadvantage. I think the strong version argument isn’t right. Markets do not instantly weed out discriminators. But the weak version has a lot of merit. If you truly avoid workers based on race or gender, you are giving away a huge advantage to the competition.
Well, turns out that Becker was right, at least in one data set. Devah Pager has a new paper in Sociological Science showing that discrimination is indeed associated with lower firm performance:
Economic theory has long maintained that employers pay a price for engaging in racial discrimination. According to Gary Becker’s seminal work on this topic and the rich…
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