Competitive markets answer discrimination. @RichardAEpstein @HooverInst

Sep 09, 2017, 05:45 AM

09-09-2017 (Photo:0754324 - Women mechanics at the Ealing Common Underground Workshops. ) Twitter: @BatchelorShow

Competitive markets answer discrimination. @RichardAEpstein @HooverInst

The data do indeed reveal persistent pay differentials between men and women, which the Obama White House attributed largely to illegal discrimination. Under its view, progress in this area requires removing or reducing these pay differentials by coercive action if necessary.

One measure of the size of this supposed problem is that across all industries, white female wages are on average 82 percent of those of white male wages, according to Pew Research Center. Asian women earn about 87 percent of what white men earn, black women 65 percent, and Hispanic women 58 percent. Asian men, however, earn 117 percent of what white men earn. The common, but by no means universal, conclusion is that some large chunk of these differentials is the product of employer discrimination.

The recent decision by the Trump administration to challenge that consensus makes good economic sense given the serious gaps in reasoning and evidence behind the costly and counterproductive Obama initiative. Let’s start with the basic question of whether discrimination on the basis of sex and race can persist in competitive markets. In 1957, the economist Gary Becker first published his book The Economics of Discrimination, which argued correctly that discrimination could survive in markets in which firms possessed monopolistic power, but not in competitive markets where free entry and exit are possible. The logic here is that a monopolist is in a position to engage in discrimination with respect to prices or terms of service because its customers have few if any other options. Hence, from the earliest days, the law imposed duties on common carriers and public utilities to supply services on a fair, reasonable, and nondiscriminatory basis because of their market power.