Shame on Joe Stiglitz, Part II

by Russ Roberts on September 12, 2013

in Uncategorized, Work

A while back I posted on a cheap shot that Stiglitz took at Gary Becker on the New York Times web site. Here’s what Stiglitz wrote on the 50th anniversary of Martin Luther King’s “I Have a Dream” speech:

Another Nobel laureate of the Chicago School, Gary S. Becker, would attempt to show how in truly competitive labor markets discrimination couldn’t exist. While I and others wrote multiple papers explaining the sophistry in the argument, his was an argument that fell on receptive ears.

In my original post, I called this a caricature of Becker’s view. It’s worse than that. It’s inaccurate. When I read it I couldn’t get at my copy of Becker’s 1957 book, The Economics of Discrimination which was revised in 1971. I’ve now looked through the revised edition carefully and I can’t find anything remotely like Stiglitz’s claim. But let’s make it easier. Here’s Becker on the topic in his Nobel Prize Lecture in 1992:

A literature has developed on whether discrimination in the marketplace due to prejudice disappears in the long run. Whether employers who do not want to discriminate will eventually compete away all discriminating employers depends not only on the distribution of tastes for discrimination among potential employers, but critically also on the nature of firm production functions.

Of greater significance empirically is the long run discrimination by employees and customers, who are far more important sources of market discrimination than employers. There is no reason to expect discrimination by these groups to be competed away in the long run unless it is possible to have enough efficient segregated firms and effectively segregated markets for goods.

Some economists have suggested ways that discrimination could disappear via competition. But I don’t think Gary Becker is one of them unless he has written something after 1992 that I don’t know about that contradicts the rest of his writing. Stiglitz owes Becker (and the readers of the New York Times) an apology.

Unfortunately, the same inaccurate portrayal of Becker is found in Stiglitz’s own Nobel Prize address from 2001 making clear that Stiglitz has misread Becker’s book:

Yet the theories that we were taught paid little attention to poverty, said that all markets cleared—including the labor market, so unemployment must be nothing more than a phantasm, and that the profit motive ensured that there could not be economic discrimination.

The last word of the that sentence leads to this footnote:

See, e.g. Becker [1971] The insight was simple: that so long as there were sufficient numbers of, for instance, unprejudiced employers, they would bid up the wage of the discriminated to their marginal productivity.

The footnote is suggestive of the truth but it’s not true. First, it ignores discrimination on the part of customers and fellow employees which was a key part of Becker’s book. But put that to the side. It isn’t even an accurate caricature of Becker’s work. Nothing in The Economics of Discrimination says that that the profit motive will eliminate discrimination. In fact, the whole of Becker’s book is about the persistence of discrimination and why it varies regionally, by the size of the discriminated group relative to the discriminators and other factors such as how competitive markets are. But even competitive markets can have persistent discrimination if the taste for discrimination is sufficiently widespread.

 

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