Factor Substitution and Discrimination in Labor Markets

摘要: The object of this paper is to provide a theoretical framework for explaining the absence substitution non-discriminated factors discriminated as consequence legislation designed reduce or eliminate their pay differentials. An example such types regulations laws equal legislation. This has been noted in empirical literature. Typical examples area are, example, hiring whites vis-A-vis blacks, males females, migrants versus non-migrants and by castes. are usually paid less than counterparts. Two interesting related questions arise context. First, why do profit maximizing but discriminating firms hire both factors? theory discrimination fails satisfactory answer question. Second, does an increase payment factor (via legislation) necessarily result decrease its usage (given neoclassical production function that allows substitution)? models presented show outcome may not fact relationship be exact opposite. That is, usage. One can distinguish at least two approaches incorporating exploitation production. one like treat workers identical argue workers. treated separate indispensable production, institutional other non-economic reasons value marginal product. In latter case exploited Robinsonian sense. second approach some advantages over first. Economic rationality first would suggest should only cheaper dearer both, tastes.' However, real world it commonly observed hired simultaneously. there possibility re-switching between factors. Therefore extends literature how Using approach, logically raise question higher rewards. We type model no theorem.