Sunday, July 26, 2015

Maybe The Market Does Help Promote Racial Equality And Worker Safety

By David Henderson of EconLog. Excerpt:
"Now I don't trust the free market to preserve racial equality either. You can't preserve what has never existed. But what I do trust the free market to do is to undercut racial discrimination--by making those who discriminate pay for discrimination even if a government can't catch them. There's a large economics literature on this. And I do trust free markets more than I trust government. After all, governments in the South, in South Africa, and in Nazi Germany, to name three, had pro-discrimination laws. Here's what Linda Gorman writes in "Discrimination" in The Concise Encyclopedia of Economics:

Many people believe that only government intervention prevents rampant discrimination in the private sector. Economic theory predicts the opposite: market mechanisms impose inescapable penalties on profits whenever for-profit enterprises discriminate against individuals on any basis other than productivity. Though bigoted managers may hold sway for a time, in the long run the profit penalty makes profit-seeking enterprises tenacious champions of fair treatment.
And worker safety? Read W. Kip Viscusi's piece "Job Safety" in the Concise Encyclopedia. Here's the opening paragraph:

Many people believe that employers do not care about workplace safety. If the government were not regulating job safety, they contend, workplaces would be unsafe. In fact, employers have many incentives to make workplaces safe. Since the time of Adam Smith, economists have observed that workers demand "compensating differentials" (i.e., wage premiums) for the risks they face. The extra pay for job hazards, in effect, establishes the price employers must pay for an unsafe workplace. Wage premiums paid to U.S. workers for risking injury are huge; they amount to about $245 billion annually (in 2004 dollars), more than 2 percent of the gross domestic product and 5 percent of total wages paid. These wage premiums give firms an incentive to invest in job safety because an employer who makes the workplace safer can reduce the wages he pays."

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