“Competition and the Racial Wage Gap: Testing Becker” explores the racial wage gap in the United States. It uses a novel approach to test Gary Becker’s theory that competition can eliminate discrimination. The study employs a unique dataset from the 19th-century American South, where newly freed slaves competed with white workers in a largely unregulated labour market.
Key findings suggest that competition did not eliminate the racial wage gap, contradicting Becker’s theory. In fact, the wage gap was higher in more competitive sectors. The study also reveals that the wage gap was not due to differences in skill or education, as it persisted even when comparing slaves and white workers with similar skill levels.
The study further shows that the racial wage gap was larger in areas where the black population was higher. This finding implies that racial prejudice, rather than economic factors, may have driven the wage gap. The study concludes that market competition alone cannot eliminate racial wage gaps, and that policy interventions may be necessary to address racial wage disparities.
The findings have significant implications for contemporary debates about racial inequality, suggesting that market forces alone may not be sufficient to eliminate racial wage gaps. Instead, proactive policy measures may be required to address this persistent problem.
Go to source article: https://www.nber.org/system/files/working_papers/w31161/w31161.pdf