Question

Compare the three original economic models of discrimination (i.e., employer, employee, and customer) in terms of:

- the cause of discrimination

- the impact of discrimination

- conclusions regarding the persistance of discrimination in the long-run.

Answer 1

In Economics, there are two models of discrimination-

1) Taste based discrimination

2) Statistical based discrimination

Taste based discrimination can be defined as the discrimination which arises out of personal taste, prejudice or any feeling against a particular group.

Statistical based discrimination is the discrimination which arises out of physical attributes of the person.

The sources of Taste based discrimination are employer, employee and customer .

Comparing the three economic models of discrimination under Taste based discrimination-

	Employer	Employee	Customer
Cause of Discrimination	Does not like or have a preference for people of other races and women. There is no reason for this, just their own personal view.	Does not have a liking of working with another group based on gender or race due to personal reasons. For e.g.- In a firm, men do not like working with women	While purchasing good from a firm, customer might show a dislike for a certain group of employee based on their color or gender due to personal reasons.
Impact of discrimination	The discriminated group is as productive as the non-discriminated group. If the employer removes all the discriminated employees, decide to work with only the employees of his preference and pay them high wages, the profits will reduce. If he employees discriminated group at lower wages, then it will help in increasing firm's profit.	Men may demand extra wage or some sort of compensation for working with women as they do not prefer working with them.	The customers will refrain from buying products from an employee they do not like. For e.g.- White customers do not want to deal with employees of Hispanic origin. They also reduce or stop buying the firm's products. The firm will reduce or stop demanding Hispanic employees.
Persistence of discrimination in the long run	The firm will not be able to make profits and thus incurring a cost.	This demand of men will lead the firm's cost to rise. This cost is incurred because of hiring women. To reduce their cost, the firm will demand lesser women to employ. This will lead to a decrease in wages of women.	The firm reduces or stops employing Hispanics and might also fire some of the employees of the same origin. This leads to decrease in output of the firm as the contribution of Hispanic employees fall. Due to this fall in output, the revenue of the firm will fall in the long run.