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.

Discrimination – effect on demand and supply

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.

Quantity ofLabourWages £/hourEUSMRP(D)FWf[favoured group]Copyright: www.economicsonline.co.ukMRP(D)UWU[Unfavoured group]EFDiscrimination reduces demand for theunfavoured group, and lowers the wage rateQuantity ofLabourWages £/hourEUSMRP(D)FWf[favoured group]Copyright: www.economicsonline.co.ukMRP(D)UWU[Unfavoured group]EFDiscrimination reduces supply to the‘favoured group, raising the relativewage rateSFWf[favoured group]Wage differential due todiscrimination

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:

  1. Long-term investment in education and training to prepare people better for the labour market.
  2. Structural reforms to promote stronger and more sustainable economic growth which can boost demand for workers, creating a more competitive environment that forces managers to drop discriminatory hiring and promotion practices.
  3. Specific anti-discrimination legislation backed up by effective enforcement.
  4. Enforcement agencies should be empowered, even in the absence of individual complaints, to investigate companies and sanction employers when they find evidence of discrimination.