Why is the Workplace Racially Segregated by Occupation?
AbstractKen Arrow (1998) asks, “What has economics to say about racial discrimination?” He replies – entirely correctly – that racial “segregation within an industry – that is, firms with either all black or all white labor forces” – may be explained by economic theory, but “the hypothesis of employer discrimination does not at all explain segregation by occupation, [and] discriminatory tastes of other employees … may explain segregation [by firms] within industries but not segregation by occupation[s]” (p. 95), that are filled by racially distinct persons within firms. Becker (1957) and Akerlof and Kranton (2000 and 2010) offer economic theories that deal with social identity differentiation, but these lack rational choice theory foundations, insofar as they impose a utility indicator function as a primitive concept via persuasion, rather than such a function being entailed by derivation from a preference ranking relation defined on a set of outcomes, with restrictions imposed both on the set and the relation. This is a methodological weakness of their work relative to that of Arrow and Debreu (1954). A more serious difficulty with these contributions is that they ascribe a utility function to each individual in an economy, but I prove that assigning to individuals binary preferences, with or without their numerical representation as utility indicator functions, entails the impossibility of interpersonal social-identity diversification, rendering all persons in society indistinguishable by identity. The information necessary to identify a person’s social identity is stripped off the model by the binariness restriction. A person in a binariness-salient model would simply not know against whom to discriminate. Economic theory is, therefore, endogenously color-blind, race-blind, gender-blind, ethnicity-blind, and in general, social-identity-blind. Everybody in the economy is White, or all persons are Black, or all female, or all Hispanics, and so on, but no two persons can endogenously have distinct social identities. This is also true of every player in a game, as in Nash (1951). However, if preferences are non-binary, interpersonal social identity diversification is possible, though their real-valued utility function representation is impossible. This begs the question as to what exact form preferences must take to support the specific utility function of Akerlof and Kranton, which also is non-traditional relative to the utility indicator function in Arrow and Debreu. As it happens, to exhibit diversity of persons by social identity, ascribing a utility function to a person is conceptually too restrictive. By substituting non-binary for binary preferences in the model of Arrow and Debreu, I extend their economic theory. The more general model I thus formulate has the following features: (i) there exists a social state in which all persons maximize their preferences on their feasible sets, (ii) endogenous interpersonal social-identity diversification characterizes this state of the economy, (iii) it is a free-market equilibrium without any state intervention, (iv) it is a Pareto optimal social state, and (v) a sizable proportion of Black workers are segregated into low-rank, low income jobs, whereas White workers in the same observable proficiency domain are placed in high-ranking, high-income jobs, thereby explaining occupational segregation within firms along a racial divide, which entails that (vi) income and wealth distributions vary by social identity. Thus free markets deliver a Pareto optimal state but it is fraught with remediable injustices. Further, my explanation meets standards Arrow sets for such a theory (see p. 21). (543 words)
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43352.
Date of creation: 20 Dec 2012
Date of revision:
justice; social identity; discrimination; race; gender; non-binariness; maximization; rational choice theory; social choice theory; general equilibrium; game theory; asymmetric information; social norms;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-DEM-2013-01-07 (Demographic Economics)
- NEP-HPE-2013-01-07 (History & Philosophy of Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Kelsey & Frank Milne, 1992.
"The arbitrage Pricing Theorem with Non Expected Utility Preferences,"
866, Queen's University, Department of Economics.
- Kelsey David & Milne Frank, 1995. "The Arbitrage Pricing Theorem with Non-expected Utility Preferences," Journal of Economic Theory, Elsevier, vol. 65(2), pages 557-574, April.
- Kelsey, D. & Milne, F., 1990. "The Arbitrage Pricing Theorem with non Expected Utility Preferences," Papers 217, Australian National University - Department of Economics.
- Naqvi, Nadeem, 2010. "On Non-binary Personal Preferences in Society, Economic Theory and Racial Discrimination," MPRA Paper 21522, University Library of Munich, Germany.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Kaushik Basu, 2007.
"Participatory Equity, Identity, and Productivity Policy Implications for Promoting Development,"
- Basu, Kaushik, 2006. "Participatory Equity, Identity, and Productivity: Policy Implications for Promoting Development," Working Papers 06-06, Cornell University, Center for Analytic Economics.
- Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 91-100, Spring.
- Berdellima, Arian & Naqvi, Nadeem, 2011. "Existence of a Pareto optimal social interaction outcome with non-binary preferences," MPRA Paper 28168, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.