ABSTRACT
Gary Becker's classic work on labor market discrimination has served as the basis for many of theories, that ultimately rely on the persistence of market imperfections. All of the models of pay inequality have difficulty explaining the persistence of pay inequality in the face of competitive pressures and the improvement in information available to economic agents. A basic premise of the behavioral model and of x-efficiency theory per se is that wage rates can affect productivity through the intermediary of firm organization by affecting effort intensity. Thus the pay inequalities caused by discrimination can be expected to persist as long as discriminating employers can affect the rate of pay of female employees characterized by the same basic productivity as men. This chapter discusses pay inequality caused by discrimination in the labor market which can persist even under the assumption of perfect competition in the product market.
