Gary Becker, Gay Marriage And The Cost of Discrimination

In 1955 the Nobel prize winning economist, Gary Becker made an assertion that changed the face of economic thought about discrimination. He demonstrated that discrimination has an economic cost to the person who discriminates. In his doctoral dissertation, Becker argued that if an employer refuses to hire an inexpensive black laborer preferring instead a pricier white, the employer is ultimately the loser. He or she will be unable to profit from the cheaper labor.

Becker also showed that discrimination would be less prevalent in more competitive industries. For example, if a company making cars insisted only on hiring expensive white males, they would quickly loose ground to companies hiring equally qualified but less expensive African-American females. In this case, competition forces the employer to avoid the cost of discrimination.

Becker also said – and our liberal readers will hate this - that industries with more regulation have more overall discrimination. Okay, so a great example is the mortgage lending industry. The Federal government has numerous rules regulating the taxability of housing interest- everybody knows this. Interestingly enough, the housing industry also has chronic issues with redlining and overcharging of minorities. According to a Beckarian type analysis, the end result of this is reduced minority home ownership and by definition less profit for lenders.

By way of a natural test of Becker’s point, California is starting to see the economic benefits of lifting restrictions on gay marriage. A recent piece in the L.A. Times noted that California may gain as much as a billion dollars in additional business by legalizing same sex unions. By removing discrimination based on sexual orientation, wedding halls, bakers, airlines and cosmetics vendors and ultimately the state of California all stand to profit by a LOT.

Amen for free markets; it seems they reward merit in more ways than one.

Best,

James