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Be aware of a third theory of discrimination.

Most economists are fully aware of two economic theories of discrimination, animus-based discrimination and statistical discrimination. Be on the lookout for institutional discrimination, which we want to remove from our classrooms and profession but include in lessons about how discrimination can affect economic markets.

Institutional Discrimination

Definition: Institutional Discrimination is the adverse treatment of and impact on members of minority groups due to the explicit and implicit rules that regulate behavior (including rules set and enforced by firms, schools, government, markets, and society). Institutional discrimination occurs when the rules, practices, or “nonconscious understandings of appropriate conduct” (Haney Lopez) systematically advantage or disadvantage members of particular groups.

Institutional discrimination may result in equilibrium allocations that are unfair and inefficient. Government intervention may be necessary to address the imperfection.



  • Last-hired-first-fired practices
  • Firms identifying job applicants through referrals from existing workers
  • An interviewer’s ease of communication with people who are of the same race/gender/ethnicity/class
  • Licensing rules for beauty parlor operators and pin curls
  • Accessibility on college campuses

In the classroom, institutional discrimination can occur when an instructor

  • uses slang or examples that are unknown to students from certain socioeconomic or cultural backgrounds
  • holds office hours, or otherwise schedules significant learning opportunities, during times commonly used for work-study jobs or athletic practices
  • writes exam questions that require students to have prior knowledge of a situation or phenomenon
  • assumes the students most comfortable in speaking about economics with the instructor are those who have the best understanding of, or most interest in, the material.

Inequalities are embedded in the structure of the economy and in the structure of the classroom. The institutionalized inequalities tend to work against, rather than for, members of historically disadvantaged groups.

Common Defenses of Institutional Discrimination

It can be helpful to look at the common arguments that are used to defend practices that contribute to institutional discrimination. A well-developed and empirically supported treatment of the ideologies involved is outside the realm of economics (see Bonillo-Silva 2006), but nevertheless a brief treatment can empower students and educators when engaged in discussion about discriminatory practices. The challenge here is that savage inequalities along lines of race and gender persist in the US despite that few Americans identify themselves as racists or misogynists. These inequalities are perpetuated in large part by racial indifference rather than racial hostility (The New Jim Crow), and the ideologies can be defended with arguments that seem reasonable and moral.

Eduardo Bonilla-Silva writes, "The frame of abstract liberalism involves using ideas associated with political liberalism (e.g., "equal opportunity," the idea that force should not be used to achieve social policy) and economic liberalism (e.g., choice, individualism) in an abstract manner to explain racial matters."

  • The principle of equal opportunity can be used to defend many of the practices listed above. For example, "last-hired-first-fired practices never make references to race, so how could it be discriminatory? If a white person is hired last, they will be treated the same as if they were black, and vice versa." This example and similar arguments rely on ignoring that the practice operates within a context of racial inequality. Given this context, the institutional discrimination serves to perpetuate and deepen injustice.
  • The principle of individualism is sometimes used as a justification for cases of institutional discrimination. For example, "a private business should have the right to screen candidates in whatever way it determines is most cost-effective, within reason. If using referrals from current hires is part of a recruitment strategy, then neither the government nor any other body has the authority to enforce a change in policy." Once again, this position does not take into account the context of inequality in which the practice is used. It can be shown that in many cases, this sort of policy keeps out members of underrepresented communities.
  • While crude biological explanations of racial difference are rare, cultural racism continues to explain inequality. For example, "blacks and latinos are underrepresented in my microeconomics course because they are more interested in other subjects" or "latino men choose to spend more time on athletics over academic work because their culture overly values the former and inadequately celebrates the life of the mind." These views have clear roots in biological racism (blacks are still seen as lazy, but rather than explicitly mention race, contemporary whites reference "black culture.")

Information on this page is from Bayer (2011).

Compare to animus-based discrimination, implicit associations, and statistical discrimination.