ABSTRACT
A theory of discrimination is inseparable from a theory of wage setting. The economics literature on discrimination can be seen as constructing an argument that the wages of certain groups are not set at the appropriate price. Founders of American institutionalism or institutionalist political economy following World War I tried to bring more realism to economic theory. All three dimensions of wages—living, price, and social practice—influence the level of workers' current wages. The chapter presents a framework for understanding wage setting that provides a dynamic analysis of wages, including relative wages, that focuses on both rigidity and change. Associating gender and race-ethnicity solely with discriminatory processes assumes that basic wage determination models remain unchanged. The framework seeks to develop a methodology in which gender relations, class identity, and race-ethnicity are incorporated into the analysis from the very beginning.
