Wage discrimination as an illegal behavior

Abstract

Paying different wages to workers of equal productivity because of demographic groups to which they belong is illegal in the US and other Western countries. Yet, the vast economic literature on wage discrimination has entirely overlooked this fact when modeling the employer's discriminatory behavior. Consequently, the desirability of practicing wage discrimination, whether arising from differences in labor supply elasticities or from an inherent taste for discrimination, has never been confronted with the risk of getting caught and punished due to violating the equal pay law. Incorporating this risk into Joan Robinson''s (1969) discriminatory monopsony model and Gary Becker''s (1971) taste-for-discrimination model, this paper examines the effects that illegalizing wage discrimination may have on the wage differential under discriminatory monopsonistic and competitive conditions. The analysis unveils a sharp contrast in the effect of illegalization in the alternative settings.Illegal Behavior