The Economics of Discrimination


Discrimination is often discussed in the abstract. Details are often blurred and nuances ignored, to present a simplified narrative of the oppressor and the oppressed.

These simplifications may look benign on the surface but they play an important role in the formulation of corporate policies, sets the tone of political rhetoric which result in the codification of law, and eventually what kind of society gets built.

All human beings have biases and prejudices. But the discrimination is when prejudices are put into action. Prejudice is an attitude meanwhile discrimination is an act. The important question, then, is how and when the biases lead to discrimination.

People are often better at acting out their beliefs than wording them. And it is empirically observed that actions are motivated more often by the economics of the decisions rather than by prejudices.

It is not to say that beliefs are not important or they don’t affect actions. Beliefs are an important personal trait and can help explain motivation when judging an individual’s actions. However, when discrimination of a group by another group is discussed, economics matters more and is a better predictor of behaviour than prejudice.

Despite the evidence to the contrary, public discourse on differential outcomes for different groups, communities or gender, almost entirely focuses on anecdotal instances of prejudice with little attention to economic realities.

To illustrate, we go back to the time when prejudice was neither subtle nor considered malice.

In the pre-world war 2 Poland, the government had a policy of not hiring Jewish Physicians. The anti-Semitic sentiment was ubiquitous in the public as well. The whole arrangement was the very definition of institutional racism. But that did not stop polish Jews from practising privately. So much so, that the majority of private doctors were Jewish despite being a minority.[1]

Now, If we are to predict the behaviour of the general polish population at that time, using a simplified narrative, one would expect them to prefer gentile physicians over privately practising Jews. But did they?

Given a large number of Jewish physicians in the Job Market, the government spent more money to avoid Jewish doctors and hire qualified Gentile doctors. This made the government’s medical services expensive. With so many Jews physicians, the cost they charged was dramatically lower than what the government charged.

So if you lived in Poland at that time, you either paid more to avail services of a government physician, who were often inferior to their Jewish counterparts given lack of competition or got a better service at a more affordable price. Jewish doctors thrived despite overwhelming anti-Semitic sentiment because the economics made discrimination extremely expensive for Poles.

This points to a fact often ignored by most, people who pay no price for their decisions, are the most discriminatory, aka the governments, the intellectuals and the social activists.

Polish government officials discriminated against Jewish doctors because they paid no price for it. The general public, however, understood the cost, both financial and health-wise, they would incur if they acted on their prejudices.

Another important corollary is that just because a particular group or community is economically disadvantaged, it does not necessarily imply discrimination. Often economic factors, personal choices and inherent randomness of the world can explain, reasonably well, how and where individuals eventually end up.

And, that provides a more accurate explanation of the world around us than a simplified narrative of the strong preying upon the week. Only if we can debate differential outcomes based on economics, a meaningful debate can be had, which can result in real and practical solutions to reduce the disadvantages of economic realities of different communities and subgroups.

Till then, debates on discrimination will just be theoretical mental gymnastics and keep propagating victimhood and resentment, which will engender bitterness in society and solve nothing.


[1] Ezra Mendelsohn, The Jews of East-Central Europe Between the World Wars (Bloomington: Indiana University Press, 1983), pp. 23, 27

[2].The Thomas Sowell Reader, The Economics of Discrimination