Employment discrimination is a form of illegal discrimination in the workplace based on legally protected characteristics. In the U.S., federal anti-discrimination law prohibits discrimination by employers against employees based on age, race, gender, sex (including pregnancy, sexual orientation, and gender identity), religion, national origin, and physical or mental disability. State and local laws often protect additional characteristics such as marital status, veteran status and caregiver/familial status. Earnings differentials or occupational differentiation—where differences in pay come from differences in qualifications or responsibilities—should not be confused with employment discrimination. Discrimination can be intended and involve disparate treatment of a group or be unintended, yet create disparate impact for a group.
Definition
In neoclassical economics theory, labor market discrimination is defined as the different treatment of two equally qualified individuals on account of their gender, race, disability, religion, etc. Discrimination is harmful since it affects the economic outcomes of equally productive workers directly and indirectly through feedback effects. Darity and Mason [1998] summarise that the standard approach used in identifying employment discrimination is to isolate group productivity differences (education, work experience). Differences in outcomes (such as earnings, job placement) that cannot be attributed to worker qualifications are attributed to discriminatory treatment.
In the non-neoclassical view, discrimination is the main source of inequality in the labor market and is seen in the persistent gender and racial earnings disparity in the U.S. Non-neoclassical economists define discrimination more broadly than neoclassical economists. For example, the feminist economist Deborah Figart [1997] defines labor market discrimination as "a multi-dimensional interaction of economic, social, political, and cultural forces in both the workplace and the family, resulting in different outcomes involving pay, employment, and status". That is, discrimination is not only about measurable outcomes but also about unquantifiable consequences. It is important to note that the process is as important as the outcomes. Furthermore, gender norms are embedded in labor markets and shape employer preferences as well worker preferences; therefore, it is not easy to separate discrimination from productivity-related inequality.
Although labor market inequalities have declined after the U.S. Civil Rights Act of 1964, the movement towards equality has slowed down after the mid-1970s, especially more in gender terms than racial terms. The key issue in the debate on employment discrimination is the persistence of discrimination, namely, why discrimination persists in a capitalist economy.
Evidence
Statistical
Gender earnings gap or the concentration of men and women workers in different occupations or industries in and of itself is not evidence of discrimination. Therefore, empirical studies seek to identify the extent to which earnings differentials are due to worker qualification differences. Many studies find that qualification differences do not explain more than a portion of the earnings differences. The portion of the earnings gap that cannot be explained by qualifications is then attributed by some to discrimination. One prominent formal procedure for identifying the explained and unexplained portions of the gender wage differentials or wage gap is the Oaxaca–Blinder decomposition procedure.
Another type of statistical evidence of discrimination is gathered by focusing on homogeneous groups. This approach has the advantage of studying economic outcomes of groups with very similar qualifications.
In a well-known longitudinal study, the University of Michigan Law School (U.S.A.) graduates were surveyed between 1987 and 1993, and later between 1994 and 2000 to measure the changes in the wage gap. The group was intentionally chosen to have very similar characteristics. Although the gap in earnings between men and women was very small immediately after graduation, it widened in 15 years to the point that women earned 60 percent of what men earned. From the abstract: Sex differences in hours worked have increased over time and explain more of the sex-based earnings gap, while sex differences in job settings and years spent in private practice have declined and explain less of the gap.