Is wage discrimination more likely or less likely in competitive markets?

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pohnpei397 eNotes educator| Certified Educator

According to economic theory, wage discrimination is less likely to occur in a market that is competitive.  There are two ways to see why this is so.

First, if the market for labor is competitive, there is less likely to be wage discrimination.  Let us say that you are inclined to pay women lower wages than you are inclined to pay men.  If you can “buy” all the labor you want more or less at your own price (in which case the market for labor is not competitive), you can pay women less than you pay men and they really have no choice but to take the wage you offer.  But if you have many competitors in your market, one of them might offer women fair wages and all the best women will go to work for that competitor.  You will lose out so, to prevent that, you will be less likely to discriminate.

Second, if the market for your product is competitive, you are less likely to discriminate.  In a competitive market like that, you need your firm to be as efficient as possible so it can compete.  In other words, you need the best possible workers.  If you discriminate against women, you will drive away the best female workers.  They will work for your competitors and your competitors will be more efficient because they will have better workers than you have.

For these reasons, economic theory tells us that wage discrimination will be less likely in a competitive market.