Sometimes, individuals are discriminated against in the labour market due to their disabilities, race, religion, gender, etc. Often this discrimination comes in the form of wage gaps, but this explanation also discusses other forms of discrimination in the labour market.
What is discrimination in the labour market?
Discrimination in the labour market occurs when a worker or a group of workers get paid less than other workers for doing the same job.
Imagine Julie, who works at one of the big banks as a financial analyst. She earns a wage of £15 for doing excel spreadsheets and valuing companies. However, Mark, who is also a financial analyst and does the same job as Julie, gets paid £18.
Although it’s an imaginary example to illustrate discrimination in the labour market, it’s very common in the real world.
Workers in the labour market are discriminated against on many bases, such as gender, race, or religion. These factors are usually taken into account by those on the demand side of the labour market looking to hire workers. When factors such as gender or others are considered, the demand curve experiences a leftward shift, which results in a lower wage equilibrium.
The characteristics of discrimination in the labour market
Although wage is one of the main tools of discrimination in the labour market, it is not the only one. For instance, discrimination in the labour market could be based on promotional benefits, recruitment, etc. Wage discrimination provides a useful tool through which discrimination can be measured, and it is the most common one that happens in the real world.
Discrimination usually happens when there is an imperfectly competitive labour market. The reason for that is that in such labour market structures, employers can influence the wages and pay someone differently from what they would pay someone else. So, whenever there’s discrimination in the labour market, that is usually an imperfectly competitive labour market.
An important condition that needs to exist for labour market discrimination to take place is that employers can separate particular groups of people that supply the same labour.
Diagram of discrimination in the labour market
The labour market discrimination diagram shows the wage a person of a specific background should have and their paid wages.
Fig 1. - Impact of discrimination in the labour market
Figure 1 illustrates the impact wage discrimination has on the labour market. The market wage everyone should be paid occurs at We, where labour supply and labour demand meet. However, not everyone gets paid We. Employers choose to pay some workers the minimum amount they are prepared to work for, which happens somewhere between We and W1.
The market wage is £12 per hour. Mike does the same job as his co-workers. They are being paid the market wage but Mike is being paid £10 per hour. Mike being discriminated against costs him £2 per hour worked.
Such situations happen in the real world, but trade unions are one of the main institutional bodies that try to address these issues. They help employees of different backgrounds gain equal opportunities and wages in the labour market. Some government policies also aim to address such issues by having companies fined in cases of discrimination against certain groups of people.
Another way wage discrimination can occur, is when workers get paid less than the marginal revenue product of labour (MRPL).
Fig 2. - Workers paid less than their MRPLS
As you can see in Figure 2 , employers refuse to pay workers the wage corresponding to Point A - where MCL and MRPL are equal (the market wage) - but pay workers W1, which is significantly lower than their marginal product of labour.
Although this helps the firm maximise its profits, it provides workers with unfair wages. This is common in a labour market where certain employers possess monopolistic or oligopolistic market power.
Four types of discrimination in the labour market
There are many types of labour market discrimination. Discrimination in this market can take many forms, and it can be very subtle. However, four main types of labour market discrimination include:
- Wage discrimination.
- Employment discrimination.
- Employee discrimination.
- Customer discrimination.
Wage discrimination
This is the most common type of labour market discrimination.
Wage discrimination is when a worker or a group of workers get paid less than other workers for doing the same job.
In certain workplaces or industries, women workers get paid less than men although they may do the same work. This is also common for people with disabilities or who have certain ethnicities or religions.
This is a type of discrimination that is easier to spot. Some rules and regulations aim to address this issue by trying to lower the wage gap.
Employment discrimination
Although employees might earn the same income for doing the same job, there are other ways that discrimination in the workforce could take place.
Employment discrimination is when a worker or a group of workers are treated unfairly because of their age, race, gender, etc.
Alex and Simon have the same qualifications for the same job. They are both paid the same hourly rate, but Simon is much older than Alex. Their boss decides that everyone has to take part in this training course but doesn’t allow Simon to take part because he is ‘too old’.
This type of discrimination is somewhat harder to spot and measure compared to wage discrimination.
Employee discrimination
This type of discrimination is similar to employment discrimination but it occurs between employees.
Employee discrimination is when fellow workers treat another worker or a group of workers unfairly because of differences in their religion, race, age, ability, etc.
Lisa dislikes Fiona because she is better at performing a certain task than her. Because of this, she continually harasses her. This results in an unfriendly environment in the workplace.
Customer discrimination
This type of discrimination occurs between an employee/employer and their customers.
Customer discrimination occurs when customers are treated differently because of their gender, race, age, etc.
It could also be when customers treat workers of a firm differently for one of those reasons.
A worker might refuse to provide a certain group of people a particular good or service because they are of a different background, age, etc.
Gender discrimination in the labour market
Gender discrimination is an issue all over the world. Many countries still have extreme cases of gender discrimination in the labour market.
Women's participation in the labour market was very low during the 50s. Many women weren’t as educated as men due to laws and schools preventing them to attain higher education. At that point in time, discrimination was legal and many companies only hired men. They would only hire women for the repetitive and low skilled jobs.
Although legal discrimination seems like a long time ago, the impacts of those laws, regulations, and restrictions are still felt today. In fact, still in certain parts of the world, some women and girls are not allowed to go to school or to work.
It was until recently that women in the UK had significantly low market participation as opposed to men. Although this issue has been addressed to a great extent, there are still issues. For example, many women are still paid less than men for doing the same job. Women also tend to perform worse when it comes to bonuses.
Some reasons why women are paid less are:
- Women tend to end up working in lower-paid industries.
- Women are usually underrepresented in certain occupations.
- Women tend to ask less for pay-rises than men.
Despite these factors, we are seeing an increase in women working in higher-paid fields such as software engineering and computer science.
Another reason women are discriminated against in the workforce is the idea that they should stay at home to raise their children. Even despite women working in the same jobs as their male counterparts, they are assumed to be the primary caregiver and do most of the work of raising children. Thus, the pay gap between men and women worsens when a woman decides to have children.
For a company, women with children translate to less output: not only does the firm need to pay them when they’re on maternity leave, but also, because women tend to be the primary caregivers, they will usually take more time off to take care of sick children. For a company, this means that not only does it have less output because workers are unavailable, but also it has higher costs because it still has to pay its employees’ salary whilst they are on maternity leave. Because of this, many companies are more discriminatory towards hiring women.
Fig 3. - Gender discrimination in the labour market
Figure 3 above shows when there is gender discrimination in the workforce. The demand curve shifts to the left when an employer is prejudiced against a certain gender. This results in a lower wage for that particular gender.
Discrimination in the Labour Market - Key takeaways
- Discrimination in the labour market occurs when a worker or a group of workers get paid less than other workers for doing the same job.
- Workers in the labour market are discriminated against on many bases, such as gender, race, religion, etc.
- An important condition that needs to be met for labour market discrimination is that the employers can separate and determine particular groups of people that supply the same labour.
- The four main types of discrimination in labour markets include wage discrimination, employment discrimination, employee discrimination, and customer discrimination.
- Wage discrimination is the most common type of labour discrimination. It happens when two individuals get paid differently for doing the same job.
- Gender discrimination is the most common form of discrimination in the labour market.
Subjects Free & expert-verified explanations.
Exams Exam preparation made easy.
Textbooks Free and expert-verified textbook solutions.
Magazine Best study tips and tricks for your exams.
