Can one bad apple spoil the bushel? Re-examining Becker's theory of discrimination when market value rules.

In 1957 economist Gary Becker first published "The Economics of Discrimination." In it Becker argued by way of verbal theorizing, formal and analytical modeling, and empirical observation that efficient and competitive markets should eliminate discrimination in hiring over the long run. Becker's argument was as profound as the logic underlying it was straightforward; because discriminating firms are willing to pay a premium to hire only those workers who fit a desired profile—or, alternatively, because non-discriminating firms may be able to hire discriminated-against workers at a discount, thus presenting such firms with cost advantages—competition should drive discriminating firms out of business and any wage gaps resulting from discriminatory hiring and compensation should be arbitraged away over time (Becker 1957). In equilibrium, according to Becker, the average level of discrimination in a competitive market will come to equal the level of discrimination of the least discriminating firm. This process lends to a remarkable outcome: the presence of even a single non-discriminating employer in a market otherwise composed of discriminators will, under certain circumstances, reduce average discrimination to zero. We begin the present paper with a contrary proposition: the presence of even a single discriminating employer in a market otherwise composed of non-discriminators can, under certain circumstances, increase average discrimination in the market to the level of the single discriminator over the long run. Importantly, in our account the original non-discriminators need not become discriminators in preference; or, to use Becker's language, they need not learn to have a "taste for discrimination." Nonetheless, the behaviors of non-discriminating firms—specifically, hiring practices and wages paid—will come to mirror the behaviors of discriminators in equilibrium. For all the promise of Becker's original model we demonstrate an equally remarkable, but also very plausible, consequence. Discriminatory hiring practices and wage setting can spread through a market like an invisible virus, infecting even those who believe themselves immune.