ABSTRACT
The economic analysis of discrimination focuses upon the possibility that significant wage and employment differences persist between groups within the labour force that are not justified by differential productivity and human capital investment. Do characteristics such as gender and race, which are economically irrelevant per se, significantly affect the labour market outcomes for individual labour suppliers? If so then the impact of gender and racial characteristics on earnings and employment outcomes can be regarded as labour market consequences of discrimination. In order to address the phenomenon of discrimination we need to examine economic theories of discrimination and the evidence provided by empirical studies of the topic. At the theoretical level there are two main schools of economic thought regarding discrimination. One is the neoclassical theory stemming from the work of Becker (1957) which is based on the notion that prejudice is expressed in discriminatory tastes on the part of employers, workers and consumers. The alternative is the segmented labour market approach, which can trace its heritage back to the theory of non-competing groups in the work of J.S. Mill (1885). The segmented labour market approach essentially maintains that the labour market is split into sectors including delineations according to sex and racial origin, and that there is very little interaction between those sectors. Examples of this approach are the ‘job crowding’ and the ‘dual labour market’ hypotheses.
