Discrimination, Economics of

In the abstract, 'discrimination' refers to distinctions or differentiation made among objects or individuals. In economics, as in ordinary parlance, discrimination typically carries a pejorative connotation. The term is generally reserved for distinctions that are socially unacceptable and economically inefficient. Economic theories of discrimination can be categorized into theories about tastes and preferences of economic agents, economic power, and statistical discrimination. Achieving a consensus on what the broad features of discrimination in markets, especially labor markets, should entail is a seemingly straightforward task compared with obtaining a consensus on empirical measures of discrimination. The standard measurement technique is that of wage decompositions. With the advent of newer and more sophisticated econometric methods for estimating earning relationships, measurement of discrimination has become more ambiguous. Legal and employee morale considerations constrain attempts to remove discrimination in the workplace in a way that would correspond to accepted economic principles of efficiency. Comparable worth seeks to remedy discrimination by relying upon experts to value job attributes in an unbiased manner. Empirical studies of labor-market discrimination are global in nature and encompass both developed countries and developing countries.