Answer to Question #88460 in Microeconomics for Priyanka

Question

‘In the Becker’s taste-for-discrimination model, discrimination is practiced even though it is costly to do so. However, in the statistical discrimination model, it is clear discrimination pays’ Distinguish between the two discrimination models and comment on the statement.

Answer 1

Becker’s taste-for-discrimination model is one of the most prominent neoclassical models which explain discrimination. The model states that some workers, customers, or employers would not want to come into contact or work with people who are from another racial group. Thus, there is preference or taste against people who are from groups that are disadvantage such as women. It further states that the taste could be treated in a similar way that economists analyze the preference between services and goods.

This is discrimination model is expensive to the firm although, it is still being practice. Its discrimination comes in the sense that an organization can employ people, who are from disadvantaged group and pays them lower wages leading to increase in profitability, or can discriminate by employing only workers from higher wage group and pays them higher salary leading to lower profit. Thus, in this latter case, discrimination will impose a cost to the firm.

Statistical discrimination model on the other hand is a model which focuses on human capital. It shows how investing in training and education could lead to higher earnings. This is because; benefits of education and training accrue over time leading to higher earnings over entire work life of an individual. Therefore, in this model people with higher skills, training, and education are paid higher than those who have low skills, education and training. This will definitely pay the company since, people with higher education and training will be more productive.

In regard to the statement that, ‘In the Becker’s taste-for-discrimination model, discrimination is practiced even though it is costly to do so. However, in the statistical discrimination model, it is clear discrimination pays’, it is true that in Becker’s model discrimination is costly whereas in statistical model discrimination pays. This is because, in the Becker’s model, it will be costly to the firm to employ people from high wage while in statistical discrimination model, it pays through higher productivity when a firm employees people with higher training and education.