A couple of days before the brilliant Gary Becker passed away, the economist David Henderson pointed out that the case of Los Angeles Clippers owner Donald Sterling provided a useful real-world test for Becker’s theories on the economics of discrimination.
Becker, the Nobel laureate and one of the greatest economists, famously argued that markets over time will tend to punish those with a taste for discrimination. In his book "The Economics of Discrimination," using W for the discriminating group and N for the group discriminated against, Becker developed a model tending to show “that discrimination by any group W reduces their own incomes as well as N’s." In other words, discrimination has a cost to the discriminator -- a cost the he is presumably willing to suffer for the pleasure of discriminating.
Henderson offers an example: “The white person who refuses to hire a black person who is more productive than a white employee (assuming the same wage for each) will find himself doing less well economically than if he hired the black person.”
What has this to do with Sterling? Henderson explains:
Well, it seems fairly obvious that Donald Sterling is a racist. But you couldn’t tell that by looking at the race of the players whom he has paid big bucks to hire. ... Indeed, take a look at the Clippers’ payroll. The top 3 players alone made in salary this season a total of over $46 million while the payroll for the whole 18-person roster was $73 million. And guess what race these top 3 are.
In other words, if Sterling was seeking to maximize profit, the market for talent would force him to run the club the same way his successor likely will.
Both fans and critics of Becker’s influential theory have noted Henderson’s piece. I would simply urge a note of caution in seeking to test it through the Sterling example. Not all discrimination arises from hatred. There is, for example, the well-known phenomenon of statistical discrimination, where W, bearing no hint of animus, might falsely ascribe to individual members of N what W believes to be true of the members of N he has met, and therefore act irrationally in the market. (“I won’t pay N as much because they’re all lazy.”) That, however, doesn’t seem to be Sterling’s problem.
But there is something else. As my Yale colleague Ian Ayres points out in his book “Pervasive Prejudice?: Unconventional Evidence of Race and Gender Discrimination,” another, less-studied of animus is the bigot who actually prefers the company of the group that he despises, because of the pleasure he obtains from mistreating them. In such a case, one might not see the evidence of bigotry in the market. But one would hear about it in the tales employees tell.
Becker, I suspect, wouldn't have disagreed. He would have predicted, however, that as stories of an employer’s misbehavior spread, the employees of race N would tend to avoid the workplace in question if they could. Thus in the end the bigoted employer might actually have to pay a premium to surround himself with those he intended to abuse. Alas, the market for back-office jobs in Los Angeles professional sports is almost certainly too small to test the hypothesis. But Gary Becker would have had great fun trying.
Corrects first paragraph to reflect that the Clippers are now based in Los Angeles.
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