Question

A population is composed of green and blue people. A significant proportion of green people discriminate against the blues. The blues do not discriminate. The greens are wealthier and currently constitute almost all of the employers. The blues are mostly unskilled, but there are also many unskilled green workers. If a green employer discriminates he will not hire a blue worker unless he/she works at a significant discount compared to the green workers. Consider the following two situations.

1.There are no barriers to labor market competition and no mandates (no minimum wage or anything).

2.A minimum wage is set at a level above the free market wage that would employ all workers.

What will be the outcomes of the market process in these two situations? - explain in terms of employment, wages earned and segregated or integrated workplaces/firms (some green firms do and some do not discriminate).

Answer 1

Green people being more rich and skilled have attitude issue which make differentitate between green and blue people. Green people usually dont hire blue people unless they get a huge benefit in hirong them, but this leads to inequality in the economy, rich being more rich and poor becoming more poor.

In the first situation where there are no barriers to labour market, green people will hire green people only, leading to more inequality, further even if they hire blue people, their work will not be paid according to their worth since the govt has no control over the wage rate or on the rights of the workers.

But in the second situation where a minimum wage level is set, the conditions for the workers would be better than before as there will be equal opportunities for both green and blue people to grow and earn better since the min wages have been fixed and noone will be forced to work at a lower rate.