Academic journal article
By Haggerty, Mark; Johnson, Colleen
Journal of Economic Issues , Vol. 29, No. 1
The Bureau of Labor Statistics reports that blacks comprise about 10 percent of the work force. Given that proportion, it is interesting to note that 30 percent of nursing aides are black; 29 percent of domestic servants are black; 25 percent of vehicle washers are black; and 21 percent of janitors are black. Conversely, 0.7 percent of geologists are black; 1.5 percent of dentists are black; 2.1 percent of architects are black; and 2.6 percent of lawyers are black [Hacker 1993, 13]. Blacks are disproportionately represented in low-paying, low-status jobs, while they are significantly underrepresented in high-paying, high-status jobs. In addition to occupational differences, there are other significant differences that exist between blacks and whites, as Table 1 illustrates.(1) The obvious question is, how do we explain these distinct racial biases in occupation and employment status, poverty rates, income distribution, wage rates, and education levels?
Within neoclassical economics, wage determination, occupational status, poverty, and underemployment are all examined within a choice-theoretic model of human capital investment and marginal productivity. While these theories focus on the supply-side characteristics of workers to explain income and occupational differences, they typically ignore, or at least downplay, demand-side factors such as labor market discrimination. The lack of attention given to the effects of discrimination often results in an explanation of labor market inequalities that sees individual decisions as the result of exogenous tastes and preferences and economic incentives. The formation of those preferences, as well as the impact discrimination may have on economic incentives, does not usually enter into neoclassical discussions.
Table 1. Racial Differences in Income, Poverty, and Education, 1991 % with Four Median Poverty Median Wkly. Race Yrs. College Income Rate Earnings White 22.2% $36,915 10.7% $446 Black 11.5% $21,423 31.9% $348 Source: Statistical Abstract of the United States 1992.
The endogeneity of preferences and incentives has, however, been assimilated into institutional labor theory explanations, which argue that wage inequality and occupational segregation are not the products of individual, rational choice [e.g., see Fischer 1987; Jennings 1990]. Rather, social and cultural barriers are erected that serve to segment the labor force into specific groups, some of whom (i.e., minorities, women, poor) are then relegated to secondary labor markets with low-paying, low-status occupations. Groups, segmented by their racial and ethnic heritage or their low-income status, are found in communities that are characterized by inferior schools and substandard physical environments. These factors in turn influence the development of individual characteristics and preferences that limit occupational choice and constrain income mobility.
Incorporation of discrimination into institutional explanations allows discussion of what Blau and Ferber  refer to as "feedback effects." For example, if blacks perceive that their return on schooling is lower, their incentive to invest will be adversely affected. But while some feedback mechanisms are obvious, some are much more subtle. Our concern in this paper is with two of these less apparent effects of discrimination: the inequity of school funding and the distribution of environmental pollution.
The lack of attention given to these often hidden effects of discrimination limits the explanatory power and policy applicability of labor market theories. We present a multifaceted argument, joining together the endogenous development of an individual's characteristics and the role discrimination plays in determining the ultimate "market" outcome. We provide evidence that the ecological environment in which a child is raised can adversely affect both physical and mental characteristics. …