Economic Discrimination Essay

Economic Discrimination Essay

The topic that is perhaps the most central in feminist economic thought is discrimination. Studies of the household division of labor, the wage in the labor market, and human capital development for women all have to deal with discrimination. So far we have discussed feminist economics and discrimination in comparison to neoclassical economics. In this discussion neoclassical economics usually takes up a position on an issue that feminist economics usually must refute. This essay will seek to compare feminist economic thought to Keynesian economics; another school of economic thought that also finds points of disagreement with neoclassical economics. A complete review of Keynesian economics is beyond the scope of this essay, so that we will focus on the Keynesian concepts of efficiency-wage and irrational economic actors to explain discrimination. In explaining discrimination we will be looking for a specific economic explanation of discrimination. Furthermore, this essay will not seek to replace other explanations of discrimination, but rather to add onto current discourse on discrimination through the inclusion of Keynesian concepts.

Rather than taking a broad approach, we will focus on discrimination as evident in the gender wage-gap. The first part of this essay will examine the gender wage-gap and gender inequality in three different levels of analysis: the home, the firm, and the state. The second part will be a brief overview of some general Keynesian concepts and their more specific application to the problem of the gender wage-gap. After our examination of Keynesian and feminist economics is complete we will see that feminist concerns of the operation of discrimination at the home, firm and state levels work well with the Keynesian concepts of efficiency-wages and the irrationality of economic actors.

The first level of analysis in examining the gender wage-gap is at the family or home level. At this level we will have to temporarily suspend an explicit discussion about the gender wage-gap, this is so because there are no explicit wages in families. However, this does not mean that examining discrimination at the family level is impossible for or off the topic of examining the gender wage-gap. Instead of speaking of an explicit wage we can consider the allocation of resources within the family as a family wage, rather than examining the responsibilities a certain occupation places on an employee we can consider the allocation of housework within the family. To examine discrimination in the allocation of family resources and responsibilities we will turn to the article “Family Status and Criticisms of Gender Inequality at Home and Work” by Emily W. Kane and Laura Sanchez. In “Family Status” Kane and Sanchez examine the correlation between criticism of gender inequality and the roles of men and women in the family. First, Kane and Sanchez find that, overall, both men and women are more critical of inequalities in the workplace than they are in the home, though women tend to be more critical of both (1088). Another result is that women tend to be less critical of gender inequality if they are married, where as men's level of gender inequality criticism does not appear to be influenced by marital status (Kane and Sanchez 1994, 1089-1090). Men's criticism of gender inequality does change depending on family composition, if a married couple has children then men appear to be less critical of gender inequality (Kane and Sanchez 1994, 1091). Women's level of criticism appears not to be affected by the presence of children; however this may not be because the presence of children does not affect the role of women in the family. Kane and Sanchez argue that the presence of children increases women's dependence to their husbands, which they theorize lowers the criticism of gender inequality, while they also increase the burden that the women must carry, thus raising the level of gender inequality criticism; the result of these opposing influences is that women's criticism stays constant (1091). Furthermore, there is a tendency for women who are married and/or have a high economic dependence on their husbands to “push out feminism”, meaning to abandon egalitarian arguments. This “pushing out of feminism” leads to higher inequality in the workforce as well as the home (Kane and Sanchez 1994, 1093). According to Kane and Sanchez the link between lower levels of gender inequality criticism and high levels of “pushing out feminism” to actual inequality is the way people react in low criticism environments and their interests in pursuing them. It is clear that environments where criticism of gender inequality is low will also be environments with a relatively high level of inequality and discrimination. Kane and Sanchez add that it is not only societal norms that drive inequality and discrimination, but also the interests of individuals within societies, specifically speaking men have an interest in holding to a certain level of gender inequality (1096). Thus women are driven to their low levels of criticism by their dependence and men are driven to their low levels of criticism due to their interests. Discrimination can continue in the home and it is exported into the workplace under such conditions.

The second level of analysis in discrimination, at the firm level, is also in the private sector, but outside of home and family relations. To examine discrimination at the firm level we will turn to Joan Acker's article “Thinking about Wages: The Gendered Wage Gap in Swedish Banks”. In “Thinking about Wages”, Acker examines the trend of the gender wage-gap in the Swedish Banking system. According to Acker, the wage gap, after a period of steady decline, began to increase in the early 1980s. After a series of interviews, Acker discovered that the managerial system in Swedish Banks allowed managers a degree of discretion from which arose a preference for male employees (Acker 1991, 390). Acker identifies five points in the wage-setting process where the manager's discretion can affect the gender wage-gap. The first is in the initial hiring, during this process the values of age, experience, and education are determined by the hiring managers and the employee is given their base wage. However, Acker found that inequalities in this area were actually decreasing so that women were earning 97% of the base salary of men during the period of examination (Acker 1991, 397). The second point of possible growth in inequality is the wage-group placement. At the end of the third year of employment an employee is considered for wage group placement, which will affect the rate of growth of their wage. The decision to place an employee into a wage group is based on autonomy of work, capability, and competence of the employee. The autonomy criteria did have a disparate impact on women; however, the inequality caused by this was rather small with rate of women placed into wage-groups being three percent behind that of men's placement rate (Acker 1991, 397-398). Lateral movement, the third point of growth in inequality, has a stronger influence on the gender wage-gap. Movement between departments, full-time to part-time, and vice versa, favors men because they tend to move more, thus taking advantage of salary increases, and women who move, temporarily or permanently, into part-time from full-time, due to family reasons, are seen as less committed to the bank and thus lose salary increase (Acker 1991, 398-399). The fourth point that increases the wage gap is the distribution of the local pot, which is a fund that the central offices distribute to local branches and specific departments. The distribution of the local pot, much like the allocation into wage groups, is complex and subjective. Although numbers, such as productivity or sales, are involved men tend to be noticed more often than women because managers tend to view men as individuals interested in the bank and women as part of a group less interested in the bank (Acker 1991, 400). The final point affecting the wage gap is the wage drift, an increase of the initial hiring wage due to special raises approved by managers and wage increasing promotions. This wage drift is increasingly responsible for the gender wage-gap. This is so because the employees that most benefit from wage increases outside of the standard wage-setting policy are specialists who work in the central offices; these specialists tend to be male (Acker 1991, 400-401). Another force that has led to the increase in the gender wage-gap was that deregulation caused managers to devalue the work done in branch offices, which were mostly composed of women (Acker 1991, 404). Although Acker does not explicitly use the world discrimination, she is speaking of it when she mentions the tendencies of managers to favor decisions that increase the gender wage-gap. We have seen through Acker's article that, if there are no gender discrimination controls, managers will discriminate against women, usually on the basis of questioning women's commitment to firm.

The final level of analysis of gender discrimination and its possible effects in wage-setting is at the level of the state. Lilja Mósesdóttir in her article “The State and the Egalitarian, Ecclesiastical, and Liberal regimes of Gender Relations” examines the idea of the state as social relation. The article includes an examination of the politics of the women's movement, a typological establishment of gender relation regimes, and the factors involved in a regime change. For the purposes of this essay we will focus the regimes that Mósesdóttir identifies and how they could affect discrimination and wage-setting. The egalitarian regime views women as working mothers and has created policies to assist them. These policies include a living wage, the provision of social services to assist in the role of a parent, and access to the labor market. There still remain, however, a number of discriminatory practices within this regime. Women continue to perform the bulk of unpaid labor, they are discouraged from working full-time, and there is a gender division of labor between sectors, i.e. women are more heavily employed in the public sector and men are move heavily employed in the private sector (Mósesdóttir 1994, 633-634). The Ecclesiastical regime is perhaps the regime that supports the highest rate of gender inequality. In this regime women are viewed as wives and mothers who should not have a strong tie to the labor market, i.e. nothing above part-time work. There are indirect supports that assist the wife in her duties. This regime attempts to encourage high employment and wages that can support single breadwinner families so that the husband can retain his patriarchal role of the provider. The regime places the responsibility of raising children onto the family or volunteer organizations, the state is only a “last resort” provider of social services (Mósesdóttir 1994, 634-635). The final regime that Mósesdóttir describes is the liberal regime where men and women are considered workers who can support themselves, unless they are placed in the role of single parents. The state seeks to encourage both men and women to enter the labor market, thus there is little support by way of welfare and unemployment assistance. Wages are not controlled by the state to a high degree, in comparison to the egalitarian model, so that the firms can take on a number of low-wage workers (Mósesdóttir 1994, 635). In this system disparities exist between women and between men and women. Educated women with high-salaries can buy social services so that they have fewer domestic responsibilities than low-wage earning women who have to perform a greater portion of domestic duties than their spouses. Between men and women there is a wage gap which exists despite similar work effort between men and women. In such a regime women's interests have not formed into a coherent political force due to cleavages among racial and class lines (Mósesdóttir 1994, 635). Once again the author does not speak directly about discrimination in these regimes, but does describe its affects and manifestations within these regimes. All of these regimes have a common theme of discrimination that is systematic, and hence more significant than a connection by exceptions to rule. The difference between regimes is that discrimination has different results; for example, in the ecclesiastical regime there is a clear separation of women from the market while in liberal regime women are included into the market but treated differently, via a gender wage-gap, than men. Therefore, discrimination can be present in all state systems, despite their sets of values, and it will have an impact on women's relationship to the market, their families, and each other.

Now that we have explored discrimination in three different levels of society, we will briefly examine two important aspects of Keynesian economics that can be helpful in explaining discrimination. One of the central tenants to Keynesian economics is the idea of “sticky” or rigid prices. While classical economists believe that prices can change rapidly to clear a market, Keynesians argue that, while prices will change in the long-run, prices are rather sluggish in the short-run. This has a number of consequences in the economy. In his summary of neo-Keynesian Economics Gregory Mankiw describes three factors that cause prices, and wages, to stay constant in the short-run. The first is menu costs. These are costs associated with changing prices, which include sending out new price lists to sales staff, changing advertising material, printing new catalogs, etc. This minor costs cause “sticky prices” because of “aggregate-demand externalities”, meaning the externalities caused when a firm shifts its prices. If a firm were to lower its prices the real income of buyers would increase, as the average price level has decreased, and thus the demand for other firm's products would increase. In this situation a firm would not be willing to pay the menu costs of adjusting prices (Mankiw, 2002). Another reason for “sticky prices" is that prices are not set by all firms at the same time. The firms that increase their prices first will suffer a loss of customers until the remaining firms also increase their prices (Mankiw, 2002). Finally, a coordination failure will lead to rigid prices. Coordination failures occur when firms, and other economic actors, attempt to anticipate the actions of their counterparts. Firms will be wary of their competitors lowering prices first, or raising prices last, while union leaders will be concerned with the concessions that other unions have gained. In this model cooperation leads to the most rewarding outcome, but because of the risks associated with trusting your competitor to follow suit coordination does not occur (Mankiw, 2002). Due to menu costs, staggered price setting, and coordination failures, firms will not quickly adjust to the market-clearing price level.

However, rather than considering prices in general and their relation to discrimination, we will focus on wage, the price of labor, as that is the most appropriate price to consider when examining Feminist economics. What is the significance of wages not adjusting quickly to clear the labor market? Alan Blinder, in his summary of Keynesian economics, explains that if wages do not change to accommodate shifts in the market, then there will be surpluses and shortages in the labor market (Blinder, 2002). Another question we must ask of the “sticky” wages concept is why are wages rigid? Once again we turn to Mankiw for an explanation of a possible source of “sticky” wages. The broad concept of efficiency-wages, which is split up into three different theories, is used to explain the phenomena of “sticky wages”. The efficiency-wage is a wage, which is above the market-clearing wage, that firms will pay employees to maintain a certain level of effort and morale, the various theories of efficiency-wage only differ on the their explanation of the relation of wages to productivity (Mankiw, 2002). The first efficiency-wage theory states that a higher wage reduces turnover of workers. If workers can obtain a higher paying job at another firm then they will do so, leading to a high employee turnover rate. A high turnover rate reduces production because it takes time to hire and train new employees; therefore, firms have to have competitive wages to retain employees and maintain production (Mankiw, 2002). The second efficiency-wage theory states that the quality of a firms employees are determined by that firms wage. If a firm lowers its wage it risks losing its higher quality employees, who produce more, to other firms who pay a higher wage (Mankiw, 2002). Finally, the third efficiency-wage theory argues that a higher wage will cause employees to work harder. Due to the difficulty of monitoring employee's production, especially in large corporations, firms will pay a high wage in order to ensure that employees put a certain level of effort into their work. Employees can always shirk their responsibilities, but a higher wage means that there will be a higher cost in getting caught slacking off and being terminated (Mankiw, 2002). The concepts of efficiency-wage, firms paying a specific wage to ensure productivity, can be applied to the wages that women receive. Firms, according to the efficiency-wage concept, believe that women can only excerpt an effort level lower to that of men. However, the efficiency-wage concept does not explain why firms would believe that women can only excerpt an effort level lower than that of men. To understand why firms would determine a different efficiency-wage for men than for women we have to turn to Keynesian ideas on the irrationality of economic actors.

The idea of rational economic actors attempting to maximize the marginal benefit of their activities while minimizing their marginal costs is a central idea of economics. If economic actors were irrational then no coherent and consistent study of economics would be possible. Keynesians, however, do not have much faith in the “people are rational” view of society. That is not to say that Keynesians believe that economic actors are completely irrational children, acting on whim, with no foresight whatsoever. To understand the Keynesian view of the irrational tendencies of economic actors we will turn to a most appropriate source, Keynes himself. In The General Theory of Employment, Interest, and Money Keynes created an economics model that was an almost complete departure from the classical system of economics that dominated the economic thought of his day. Part of Keynes model included a description of economic actors, as investors and consumers, behaving in a less than rational manner. Investors, according to Keynes, rely on convention to make long-terms investment decisions. Investors make investment decisions through a series of short-term considerations, which eventually lead to a long-term investment decision based on convention (Keynes 1964, 152-153). If investors interpret their information through a model that is based on habit and assumptions that the future will be like the past, then they are not behaving rationally. Another problem of convention is that investors do not make decisions based on market conditions but on the convention which other investors adhere to. Keynes explains this best in a `beauty contest' model of investment. In this model investors are like participants of newspaper beauty contests where the goal of the contest is to guess the women, taken from a large sample, which the general public finds most appealing. In this contest the participants will not choose the women that they think are the most attractive, but what they think their neighbors think are the most attractive (Keynes 1964, 156). This form of investment is clearly irrational; it is based on conventions and speculation on conventions. Keynes also argues that consumers can be irrational as well. Consumers will, despite the current economic conditions of the time, restrict their spending so that they can gradually increase their level of expenditure. Furthermore, consumers desire to save can also be related to “unreasonable but insistent inhibition of acts of expenditure as such” (Keynes 1964, 108). The above examples are not the only evidence of irrationality that Keynes finds in economic actors. Furthermore, Keynes does not propose that economic actors are completely irrational; for example he mentions a number of rational reasons that consumers save such as providing for unexpected expenditures and preparing for future costs, such as education (Keynes 1964, 107-108). It is clear that if people are driven by convention then, in Keynes model, they will be affected by gender discrimination.

However, before discussing the relevance of Keynesian economic idea of efficiency-wage and irrationality to feminist economics it is necessary to further develop the idea of economics actors as irrational. The one question that remains is what is the proof that economic actors are not rational? There is no one source that outright proves that economic actors are irrational. However, George A. Akerlof has worked on economics systems with asymmetric information and, in his lecture “Behavioral Macroeconomics and Macroeconomic Behavior”, he outlines six points that demonstrate the irrationality of economic actors. The two points most important to our discussion of discrimination and the gender wage-gap, because they deal directly with the labor market and wage, are involuntary unemployment and a “self-destructive” lower class. In the model of rational firms and workers, all workers who want to be employed can be at the market rate. The presence of involuntary unemployment in the market is a sign that there is some irrationality operating within the market, this irrationality can be explained through the efficiency-wage concept (Akerlof 2001, 366). The neoclassical economic theory cannot account for extreme poverty and social issues such as crime, drug abuse, and welfare dependency. Social issues, such as drug abuse, develop from irrational behavior because as groups attempt to establish an identity, they find that the least costly way of doing so is to oppose mainstream values; thus self-destructive tendencies arise from the need to create an identity (Akerlof 2001, 367 & 387). Whether or not Ackerlof's explanations for these phenomena are adequate is not as important as that they have been observed. The labor market and social relationships, especially those within the lower class, have been shown to have some degree of irrationality.

So far we have examined discrimination in three different levels of analysis: the home, the firm and the state. We have also examined discrimination in the Keynesian model by considering the concept of efficiency-wage and irrationality. Discrimination is itself irrational; it is based on casual observations and rumors that are rarely accurate at the aggregate level. Therefore the connection between feminist concerns of discrimination at the home, firm, and state levels and the Keynesian insistence that economic actors are irrational is clear. In class we have observed that women have a lower rate of return to investments such as education and experience than men. The efficiency-wage theory, along with irrationality, is helpful in understanding why this would occur. Women are paid at a rate that their employer believes will maximize their effort. A higher education and more experience mean, at least from the firm's perspective, that an employee has a higher capacity to produce; therefore the employees wage would increase. However firm's are also irrational in that they discriminate against women, they must believe that women cannot excerpt as much effort as their male counterparts, hence the gender wage-gap. By returning once again to the feminist articles we examined on discrimination in the home, firm, and state and Ackerlof's observation on irrationality in labor markets we see that there has to be a certain level of discrimination within society. Therefore, feminist arguments of systematic discrimination work well with the Keynesian model of efficiency-wage and irrationality of economic actors to explain the gender wage-gap.

We have seen that Keynesian concepts can be incorporated into feminist concerns of the gender wage-gap. Feminist analysis at three different levels has presented some of the effects and causes of discrimination throughout society. The Keynesian concepts of efficiency-wage and irrationality have been successfully compared to feminist concerts of discrimination, and it was found that they are parallel concerns in many ways. While efficiency-wage theory helps to explain some of the reasons for the gender wage-gap, the most important common feature between feminist and Keynesian economics is that discrimination is irrational and irrationalities do exist in the market.