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Labour market discrimination is defined as a situation where workers or groups of workers are treated differently in terms of recruitment, pay, benefits and promotion from other workers or groups due to their non-economic characteristics, including gender, race, religion and age. This means that while workers may be equally productive, they are not treated the same. Treatment may be positive, where certain groups are favoured, or negative, where groups are treated less favourably.
In terms of demand, negative discrimination will lead to employers downgrading the expected value of employment of a particular group, and hence reducing the expected MRP, and shifting the demand curve to the left. The effect of this is to reduce the wage rate of the group discriminated against, as well as reducing employment prospects.
Also, some workers who fear they may be discriminated against may not
seek employment in those firms that they perceive practice discrimination.
Hence they do not supply their labour to those types of firms. This shifts
the potential supply curve to the left, and raises the relative wage rate of
the favoured group.
Despite various Acts of Parliament, including the Equal Pay Act (1970), Sex Discrimination Act (1975), and Employment Protection Act (1975), considerable pay differences exist - though not all can be attributed to discrimination.
There are several policies that could be used to help reduce discrimination. A report by the OECD suggested the following:
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