Futile and effective ways to combat wage discrimination

Using Becker's ‘taste for discrimination’ model, the chapter analyzes the current legislation against wage discrimination and finds it counterproductive. Using a costly apparatus of auditing, detecting and fining violators does not deliver results. If a fine is levied on discriminators and reimbursed to the disadvantaged workers in order to undo the discrimination, it affects equally the demand for and the supply of those workers, because their expected wage includes the fine, and has no real effect. If the fine is collected and kept by the government, it shifts employment away from the workers it seeks to help, to others, depressing the total employment. In contrast, levying a tax on the favored workers effectively curbs discrimination in the labor market. A quota is a possible substitute for a tax with questionable side effects. Affirmative action is in essence a sort of tax on employing favored workers, only administered in an indirect, clumsy and costly way. Yet, the chapter explains its humble impact in the right direction. An explicit and direct tax would do much more and with a negative cost. Alternatively, subsidizing the disfavored workers is a costly but as effective policy that, in addition, boosts total employment.