Divide and Conquer: Microfoundations of a Marxian Theory of Wage Discrimination

Author(s): John E. Roemer

Source: The Bell Journal of Economics, Vol. 10, No. 2 (Autumn, 1979), pp. 695-705
Published by: RAND Corporation
Stable URL: http://www.jstor.org/stable/3003360
Accessed: 29-12-2015 08:37 UTC

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/
info/about/policies/terms.jsp

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.

RAND Corporation and Wiley are collaborating with JSTOR to digitize, preserve and extend access to The Bell Journal of
Economics.

http://www.jstor.org

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
Divide and conquer: microfoundations of a

Marxian theory of wage discrimination

John E. Roemer

Microfoundations for a divide-and-conquer model ofwage discrimination are

provided by positing that workers' psychologies permit racial integration of
firms to weaken workers' unity and hence reduce their bargaining power
against employers. In this bargaining?as opposed to competitive?model of
wage determination, there are discriminatory equilibria at which both white
and black workers are worse off and employers are better off than would be
the case without worker dissension. Furthermore, owing to the bargaining
structure, market forces cannot unravel the discriminatory wage bargain.

1. Introduction

? The Marxian theory of wage discrimination between workers of different

races is that capitalists use a divide-and-conquer strategy to force wages of
both black and white workers down. The persistence of discrimination is
explained by the persistence of racism in society, which allows capitalists
to make use of such a strategy. According to this theory, capitalists gain and
all workers lose from discrimination, which is a conclusion much at variance
with Becker's neoclassical theory of discrimination (Becker, 1957). The
Marxian position has been elaborated and empirically investigated in recent
years by Reich (1976, 1977). The models presented here will also draw from
recent theories of labor market segmentation (Doeringer and Piore, 1971;
Edwards, Reich, and Gordon, 1975).
It has been somewhat of a task for economic theory to produce micro-
economic models of the labor market in which discrimination persists at
equilibrium. To put the problem in a nutshell, one would expect that any wage
differentials which do not reflect productivity differentials would be competed
away in equilibrium. Various explanations of discriminatory equilibria have
been put forth by neoclassical writers (Arrow, 1972; Becker, 1957; Miyazaki,
1977; Spence, 1974; Thurow, 1969; Welch 1967). These writers achieve the result
by positing actual or perceived differences in productivity of the two types
of worker or by positing "tastes" for discrimination among employers or
workers. The Marxist theory, however, has not been explicitly formulated as a
competitive microeconomic model, so the theory remains in a state of rela-

* Associate Professor of Economics, University of California, Davis.

This work was partially supported by a fellowship from the Social Science Research Council.
I would like to acknowledge useful comments, made on an earlier version of this paper, by Victor
Goldberg, Hajime Miyazaki, and Sam Rosenberg.

695

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
696 / THE BELL JOURNAL OF ECONOMICS

tive vagueness. The task of this article is to construct such a model, to show
that a divide-and-conquer strategy is a competitive, profit-maximizing strategy
for firms, which will result in discriminatory equilibria, even in the presence
of a competitive labor market. (There will, however, be some constraints on
competition, internal to the firm.) It is hoped that this demonstration will
put the Marxian model on the same logical footing as the models I have
called neoclassical, as a candidate for explaining racial wage discrimination.
There is anecdotal evidence in the labor history literature which implies
that employers have deliberately integrated their work forces to prevent unity
ofthe workers and consequent strikes.1 Various models of individual worker
psychology could be constructed. Some of these would embody the docile
behavior which apparently comes with integration and produces the divide-
and-conquer effect; others would not. Here we shall examine only one wage
psychology, that pictured in Figure 1, which produces the divide-and-conquer
effect.
Consider Figure la. If the firm hires a workforce which has a fraction rj of
white workers, we shall posit that intrafirm bargaining for wages will pro?
duce an outcome at which white workers must be paid at least h^rj), and
black workers at least h2(r)). If the firm hires an all black (77 = 0) or all
=
white (77 1) workforce, the bargaining strength ofthe workers is such that they
can force a high wage to be paid. (We shall assume hi(0) = ht(l), which is of
no great consequence to the argument.) The effect of divisiveness among
workers, due to racism, is maximized at proportion 77*, where the wages are
lowest and the wage differential is greatest. The w-shaped character of the
h curves embodies the psychology of racial discord between the two groups

1 It is useful to introduce this

essay with several quotations from studies of labor history to
suggest the existence of the phenomenon which is posited:
When the labor shortage ended, those Negroes who had proved their use were retained in
service in substantial numbers. In the summer of 1928 several officials of the Carnegie Steel
Company declared that they could well get along without the Negro, but that they did not choose
to do so. Instead, they kept him in their plants in a ratio of about 10 percent ofthe total number
of employees. The Negro is now recognized as a permanent factor in industry and large employers
use him as one of the racial and national elements which help to break the homogeneity of their
labor force. This, incidentally, fits into the program of big concerns for maintaining what they call
"a cosmopolitan force," which frees the employer from dependence upon any group for his
labor supply and also thwarts unity of purpose and labor organization. Or, as the personnel
manager ofa very large company near Chicago put it: "It makes fraternizing among the employees
difficult." (Spero and Harris, p. 163)
And from a description of farm practices:
A notable fact about farm labor in California is the practice of employers to pay wage scales on
the basis of races, i.e., to establish different wage rates for each racial group, thus fostering racial
antagonism and, incidentally, keeping wages at the lowest possible point. As a part of this general
strategy, "it is a common custom ofthe ranchers to entrust a particular work to a group of laborers
of the same nationality." In this manner, of course, the races are kept segregated and pitted
one against the other. Because of their differences in custom, language, and appearance, the
Hindus were a particularly valuable intermediary group. They were used, and still are to some
extent, as a wedge to separate the Mexican and Oriental groups. How general the custom is of
pitting one race against the other is indicated by the fact that, in 1937, the bookkeeper of
Hotchkiss Ranch (one of the large farm-factories in the San Joaquin Valley) had to be a trained
linguist, as he was dealing with four or five racial groups. The foreman of the Griffen Ranch, in
the same area, stated to a reporter that: "Last year our Hindu workers struck. So this year we
mixed half Mexicans in with them, and we aren't having any labor trouble." (McWilliams, p. 118)

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
 ROEMER / 697

FIGURE 1
WORKERS'MINIMALWAGE FUNCTIONShj (7?)

4
(b)

-*y
V2

of workers which weakens the bargaining power of the workforce. That the
wage differential approaches zero as the workforce becomes homogeneous
is a consequence of the lack of racial divisiveness among the homogeneous
workforce.
Another variant of the model assumes that the divisiveness effect is char?
acterized as in Figure lb. In this case there are thresholds at 772 and 772. If
tjj < 77 < 772 then divisiveness operates, and firms must offer wages above the
minimal values hx and h2 to white and black workers, respectively. For 77
small or large, divisiveness is inoperative, and all workers must be paid the
high wage.
This article will study two models. In both, we assume the following:

(1) There is a finite supply of black and white workers, with a proportion
of white workers in the population of r)pop.
(2) Workers are perfect substitutes in production, and the production func?
tion for all firms is/(L) = L, where L is the amount of labor employed.
(3) All firms face a fixed (world) price p for the output.

Assumptions 2 and 3 are adopted to make the model as simple and translu-
cent as possible. The two models differ in their assumption concerning the
reservation wages of workers. In Model 1, the reservation wage ofa worker ofa
given type (black or white) is the highest wage his type is currently receiving in
the economy. This model contains a serious limitation to competition in the
labor market, for clearly with this assumption about the reservation wage,
an unemployed worker will not compete for the job of an employed worker.
It is not surprising, then, that discriminatory equilibria will exist in this model.
In the second model, the reservation wage of a worker-type is assumed to be
the lowest wage currently being paid to that type of worker (employed or un?
employed). This introduces a much sharper form of labor market competition,
and the main result is that, nevertheless, discriminatory equilibria persist.
(In particular, in the second model, as long as the unemployment of black
(white) workers exists, black (white) workers will be willing to work for any
positive wage.)
A final introductory comment on the noncompetitive structure of these
models, which allows discrimination to persist, should be made. The bargain-

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
698 / THE BELL JOURNAL OF ECONOMICS

ing process within the firm is not competitive in the neoclassical sense. An un?
employed white worker, for instance, may be willing to work for a miniscule
positive wage in the second model: but once he is hired by the firm which is
employing whites in proportion 77, he immediately demands a wage ^1(77). It
is this violation of competitiveness, which constitutes a monopolistic element
in the labor market due to the internal organization of workers in the firm,
that must account for the existence of discriminatory equilibria. The model
therefore falls into the category of internal labor market theories.
We have analyzed the equilibria which exist for both the continuous model of
Figure la and for the model of Figure lb. In the interests of brevity, we present
only the threshold model here, since the mathematics necessary for rigorous
argument in the continuous case are more detailed. We do, however, state
the relevant theorems for the continuous model in the Appendix. The main
qualitative results from the two models are the same.

2. Model 1: divide and conquer with a high reservation wage

? To define the concept of equilibrium, we describe how a firm operates.
It offers a pair of wages (w1,w2) = w, which it promises to pay white and black
workers, respectively. If these wages attract both white and black workers,
then it can hire a workforce in whatever proportions it chooses. If the firm hires
whites and blacks in proportions -
77and 1 77, then the wages w must bt feasible
at 77 (see below), and the firm must make a nonnegative profit. Notice that the
average wage per worker and per unit output will be r)Wl + (1 - 77)w2-
We denote this convex combination of wages:
?
TJWj + (1 77)W2 = rj-w.

Since the production function is f(L)= L, the unit profits will be

TT= p ? Tf'W.

Definition l:2 A Tl equilibrium is a triplet Q = {r),wl,w2) such that:

(1) p > 77-w (profits are nonnegative at Q);

(2) h(r)) = ^ w and Wj > w2 (Q is feasible); and
(/zi(t7),/z2(t7))
(3) there does not exist a triplet (t7',w{,W2) such that:

(a) w' > w

(b) 77' -w' <p (Q\s undominated).
(c) (t7',w') is feasible

The rationale for this definition is as follows. The market is in equilibrium

when, if firms are operating at Q, no other firm can enter the market and start
operation. (A "new" firm can, of course, be an old firm offering a new contract.)
For the new firm to attract workers of both types, it must offer a wage pair w'
strictly greater than the wages currently paid by the firms in operation, since
we assume the reservation wage for each worker is the highest wage paid to
his type.* The challenging firm, then, must offer wages to attract both types of

2 Convention on vector
ordering: v > w means vt > w,-V/; v ^ vv means vt ^ wtfi; v ^ w
means v ^ w and v 41 w.
3 The
requirement 3(a) makes sense if all workers are already employed before the challenging
firm enters. If there are some unemployed workers, we might wish to weaken 3(a) to a weak
inequality. This, however, will be dealt with in Model 2.

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
 ROEMER / 699

FIGURE 2
LOWESTFEASIBLEAVERAGEWAGE FUNCTIONCOfTJ)
Ml?)

h2

T?1 V2

workers, and then choose a proportion 77' which is feasible and profitable.
Hence, the definition of equilibrium states that no new entrant can challenge
the existing firms which operate at Q. (There is a minor technical point here:
we assume that/? < 1. Otherwise, a firm could offer a wage pair sufficiently
high to attract just one kind of worker and could operate at positive profits.
In this case, the model becomes moot.)
Notice that as part of the definition of feasibility, it is assumed that black
workers can never be paid more than whites. The rationale is this: white
workers will not object if black workers are paid the same wage as they are,
but will not allow a greater wage to be paid to blacks. This is part ofthe divide-
and-conquer assumption.
We proceed to characterize the set of Tl equilibria under the assumption
that the price level p is as illustrated in Figure 2. (We consider the case 1 > p
> hx below.) an can only exist for values of 77 such that
Clearly, equilibrium
77j < 77 < 772, for outside that interval, the average wage paid must render
profits negative. Define the lowest feasible average wage function as
-
60(77) = r)h1 + (1 rj)h2',

o)(rj) is illustrated in Figure 2. Obviously, any Tl equilibrium must be in the

interval [t)i,tj] or else profits would be negative.
Consider the triplet, Q = (y),wl,w2), an equilibrium candidate. Notice
that if Q is an equilibrium, profits must be zero there (that is, 77-w = p).
Otherwise, a challenging firm can offer wages slightly higher than (wuw2),
attract all the workers of both types at these wages, and, therefore, hire in pro?
portions 77 and still make positive profits. So we assume = p at Q.
77-w
Notice, furthermore, that if 77 > 77!, then there is a wage offer at 77! which
will dominate Q. This follows because when 77 > 77!, we have r)1-w < 77-w as
long as w2 < Wj. Consequently, a firm can offer wages {w1 + 8, w2 + 8) for
small 8, attract workers of both types, hire them in proportions 77!, and operate
at positive profits.
Hence the only discriminatory Tl equilibria (i.e., wx ^ w2) are at 77^
Conversely, all triplets (r)1,w1,w2) which are feasible and zero-profit are Tl

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
700 / THE BELL JOURNAL OF ECONOMICS

equilibria, since any challenger (according to part (3) of the definition of Tl

equilibrium) must offer wages strictly greater than (w1,w2). But at any value
>
77 77j, this will produce negative profits.
Let us inquire where nondiscriminatory equilibria exist (i.e., wx = w2).
Since profits must still be zero at a nondiscriminatory equilibrium, we
must have wx = w2 = p. But this is impossible, since the white wage is not
feasible when wx > hx > p. In this case, then, there are no nondiscriminatory
equilibria. If, however, 1 > p > hl9 then there is a nondiscriminatory
equilibrium for all 77 in the interval [77!,772].
The results for Model 1 can be summarized as follows:

Theorem 1. Let the price be given at/?, where hx > p > h2. Then:

(a) There exist discriminatory Tl equilibria at 77! and only at 77!. These
equilibria consist of all wage pairs (w1,w2) which are feasible and zero-profit.
(b) There are no nondiscriminatory equilibria.

If, on the other hand, 1 > p > hx, then (a) above still holds, but:

(b') There is a nondiscriminatory equilibrium (r),p,p) at every 77e[771,772].

In either case:

(c) At any time, an economy can sustain only one discriminatory Tl equi?
librium.

Only statement (c) still requires proof. If (Tj^w^wf) and (rq1,w(i,wl2)

are two discriminatory equilibria, then with proper choice of the labeis a
and /3, w% > w? and w? < wf. Consequently, all white workers in firm a
cease working, since their reservation wage is w\, and all black workers in
firm /3 cease working since their reservation wage is vvf. Hence only one
discriminatory equilibrium can be sustained. Q.E.D.

Therefore, in the case of a high reservation wage, discriminatory equi?

libria exist. One can note the simple economic idea behind Theorem 1. White
workers are a costly but necessary input into production, since without them
production at nonnegative profit levels is impossible. We expect, then, that
optimization on the firm's part will lead to minimizing the costly input, which
is precisely what happens at 77^
The main deficiency of the Tl concept of equilibrium is that unemployed
workers exert no pressure on wages. It is not startling that without this com?
petitive pressure on price from excess supply, discriminatory equilibria exist.
In the next section, we therefore consider an alternative assumption about
the reservation wage.

3. Model 2: divide and conquer with a low reservation wage

? In the last model, the reservation wage of the type / worker was the highest
wage currently being paid to his type. In this model, the reservation wage is
the lowest wage currently being paid to his type. In particular, if there are
unemployed black workers, then the black reservation wage is zero. Even if
a black worker is working, his reservation wage is zero because if he refused
to take a wage cut, his alternative would be to join the existing ranks of the
unemployed. On the other hand, if all black workers are employed and the

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
 ROEMER / 701

lowest wage being paid them is w2min,then no black worker will work for less than
w2min, since when all blacks are employed, a particular worker assumes a job is
available for him which pays at least that minimum wage. Consequently:

Definition 2: The reservation wage for type / worker is:

Wi = min w{,
3

where {w{} are the wages being paid to type / workers; this set includes the
wage zero if there are unemployed workers of type /.

Definition 3: AT2 equilibrium is a set of triplets Q = (77,wuw2) such that:

(1) each Q is a Tl equilibrium; and

(2) if (wuw2) > (wl9w2) and w is feasible at 77, then 77-w >p.

Thus, a T2 equilibrium is one in which no challenger can make positive profits

by offering wages which will attract both types of workers.
We analyze the existence of discriminatory T2 equilibria. Since all T2
equilibria must be, more weakly, Tl equilibria, we may limit the search for T2
equilibria to points of the form {r^^w^w^, where tjj-w = p and {wx,w2)
= (huh2). Suppose 7)P0P > 77^ Then, if all firms are hiring at 77! (as they must
be in a discriminatory equilibrium), there must at least be some unemployed
white workers. In that case, the unemployed white workers, whose reservation
wage is therefore zero, can be attracted to and held in the firm at a wage hx.
Hence, with t)pop > 7}l9 the only possible white wage at T2 equilibrium is hx.
Therefore, since profits are zero at the T2 equilibrium, the black wage must be
that unique value w2 such that:
-
TJj/lj + (1 770^2 =P-
This shows that the only possible T2 equilibrium is at Q = (7)l9hl9w2).
It is left to show that Q is in fact a T2 equilibrium when 77^ > 77j.*that is, that
no entrant can make a feasible wage offer which dominates (hl9w2) and still
earn positive profit. Notice that there is only one type of unemployed worker
at Q. If both types were unemployed, the wage offer (hx,h2) would be acceptable,
and positive profits would be possible. Since 7)P0P > 771, it is the white workers
who are unemployed; all black workers are employed at the wate w2. Hence,
the reservation wage for black workers is w2 > 0. Although the white workers'
reservation wage is zero, they must be paid a wage at least hx to hold them in
the firm. It follows immediately that nonnegative profits cannot be made at any
dominates for feasible fraction >
wage offer which (hx,w2) any 77 tjx. Thus
= is a T2 equilibrium.
Q (171,^1,^2)
We summarize the situation for T2 equilibria:

Theorem 2:

If 7]P0P> 7]u there is a unique discriminatory T2 equilibrium, = {y)i,huw2),

(a) Q
where w2 = p - r\xhxl\ - j]x. In this case there are white unemployment
and black full employment.
(b) If r\pop < 77j, there is a unique discriminatory T2 equilibrium, Q = {t)uWx,h2),
where wx = p - (1 - ri^hjr)!. In this case there are black unemployment
and white full employment.
(c) If 7}P0P= 7)1, any Tl equilibrium is a T2 equilibrium.

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
702 / THE BELL JOURNAL OF ECONOMICS

(d) Nondiscriminatory T2 equilibria only exist if p > hx. Ifl > p > hx, then
(VpopiPiP) is the unique nondiscriminatory equilibrium, and it exists only
if 7]P0PG [77!,772].

Part (a) has been demonstrated. Parts (b), (c), and (d) follow easily with
similar argumentation.
Hence, even in the T2 case, where unemployment exerts competitive
pressure on the wage, discriminatory equilibria exist. Furthermore, an
interesting observation follows from the existence of nondiscriminatory equi?
libria. At such equilibria, divisiveness lowers the wages of workers (below what
they would be in the segregated firm), even though discrimination is not evident.
Hence, the absence of discriminatory wages cannot be taken as evidence ofthe
absence of the divide-and-conquer effect. Since in modern society wage
discrimination has become somewhat difficult and even illegal for the firm,
one might expect the entire divide-and-conquer effect to be embodied in a low
general wage rate rather than in a wage differential.

4. Some possible objections

? Several comments should be offered on possible anomalies of this model.
For the United States, the value of 77^ is about .8. Certainly 77! < .8. It,
therefore, follows from Theorem 2 that there will be white unemployment and
black full employment at a discriminatory equilibrium, which is not in ac-
cordance with what appear to be the facts. How can this be explained as con?
sistent with the divide-and-conquer formulation?
First, note that the existence of discriminatory equilibria only at the low
value of 77 = Tji is not a curiosum of the two models examined here. On the
contrary, this result is robust under any reasonable formulation of the divide-
and-conquer mechanism. This follows since the logic of cost minimization is
to economize on the use in production ofthe costly input?white workers.
However, one cannot immediately compare the actual unemployment
situation we observe with the unemployment in the models. For the model,
the relevant populations are white and black workers of equal skill. The model's
jurisdiction must also be limited to an area within which there is labor mobility.
We are then led to ask: among workers of a particular level of skill in a par?
ticular area, what is the fraction of white workers? This fraction i)pop may be
substantially below .8 for unskilled groups. It may easily be below the value
tjj, which in a particular area might be in the range .3 < 77! < .5. Hence,
Theorem 2 is not inconsistent with black unemployment in a particular area at a
discriminatory equilibrium.
We might also ask: What determines the value 77!, which is a psychological
parameter? 77! is the proportion of white workers necessary to trigger the
divide-and-conquer effect. If we accept the conventional wisdom that racial
antagonisms in a city are greater when 77^ is smaller, then we might conclude
that as j)pop rises, a larger proportion of white workers in the plant is necessary
to trigger the divide-and-conquer mechanism: that is, 77! rises as 77^ rises. If
so, then even
relatively large values of 7)P0P (measured on the population of
unskilled workers) might still preserve the ordering r)pop < 771.
These tentative remarks are meant simply to defend the models against
what appears at first sight to be an anomalous result. In principle, empirical
tests can be designed to test whether racial unemployment data are consistent
with the model's predictions.

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
 ROEMER / 703

Another objection might be raised. Suppose the economy is at a dis?

criminatory equilibrium (fr)i9hl,w2). Why cannot an entrepreneur form a
coalition with black workers and offer to hire them at w2 + 8? In that case, the
entrepreneur and the black workers will all be better off; in return, the black
workers must forego their ability to exercise their strength in unity, which
could extract for them a wage of 1, but which would drive the firm out of busi?
ness. Or, in another variant, why do they not accept the entrepreneur's offer,
and then bargain up to a wage of p, not forcing the firm out of business? An
answer to this is that perhaps on the margin it does occur. It can be argued,
nevertheless, that big firms will not make such offers to workers. Notice that
in the case postulated here of the firm with the segregated workforce, the
wage w2 + 8 is below the value which workers are able to achieve with their
degree of unity (that is, 1), whereas in the case of discriminatory equilibrium,
the workers' unity cannot win them higher wages. Hence, the employers in
these segregated firms are always at the mercy of a militant workforce, whereas
employers in integrated firms have insurance against being "held up" by the
workers. Big firms, it can be argued, might opt for the strategy with insurance.4

5. Conclusion
? The mechanism which triggers the divide-and-conquer effect is this: if black
and white workers are mixed in certain proportions, racial discord is introduced
in their ranks because of their particular psychologies, and their bargaining
ability is consequently reduced. The firm can then lower the wages it is required
to pay either group. Since whites are the more costly workers to hire, equi?
librium occurs at a point where white workers are hired in that minimal propor?
tion necessary to trigger the dissension effect. Although the equilibrium is
discriminatory, it cannot be unravelled.
A comparison should be made with Becker's 1957 neoclassical model of
wage discrimination. In Becker's model, and in similar neoclassical models,
workers face wage discrimination because of tastes by firms or by workers
themselves for homogeneity in the workforce. First, we should not posit firms
as being invested with these irrational tastes. That is antithetical to both the
Marxian and neoclassical notions of the firm as a profit-maximizing, capital-
accumulating entity. In fact, this is Becker's conclusion, for in long-run
equilibrium, firms with these inefficient tastes will not survive, and, therefore,
discrimination will not survive. Concerning the tastes of workers for dis?
crimination, the argument is different. It cannot be argued that these tastes
do not exist: however, I will maintain that such tastes are not sufficiently strong
to become translated into higher reservation wages which workers demand if
they are to work with others of another race. But, more to the point, the
mechanism generating discrimination in the Becker model is qualitatively dif?
ferent from the one posited here. In the former, the mechanism is competitive;
in the latter it is a bargaining mechanism with shelters against competition
and with monopoly rents. In the present model, higher wages are foregone,
at integrated values of 77, not because workers prefer integration, but, on the
contrary, because integration creates dissension which weakens their bar?
gaining position.
4 It is
beyond our scope here to examine further whether firms would choose the insurance
strategy or the strategy of coalition with black workers. We remark that, according to Marxian
theory, no coalition of workers and capitalists can be secure; hence, the choice of the insurance
strategy by firms, posited here, is consistent with a more complete Marxian theory of the firm.

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
 704 / THE BELL JOURNAL OF ECONOMICS

There is a weakness in this formulation which necessitates a closing caveat.

The model, like all models which take the psychological structure of agents?
in this case, the h curves?as exogenously given, tends to blame the victim.
Who, after all, is responsible for wage discrimination here? The workers who
are so irrational as to permit the divisiveness embedded in the h curves to rule.
It must, therefore, be added that in a full Marxian or radical treatment, the
present model would be a partial equilibrium analysis in this important sense:
a complete analysis would inquire into what institutions and practices in capi-
talist society are responsible for endowing workers with theh-curve psychology.
This, perhaps, indicates the sharpest difference between the neoclassical and
radical approaches to the problem of discrimination: while the former tends to
accept individual psychologies (i.e., preferences) as a datum, the latter claims
that psychologies are endogenous, and in fact are manipulated in such a way as
to produce an equilibrium outcome beneficial to capitalists. Certainly, this
paper makes no pretense of analyzing this important issue; and it is for this
reason that the model presented provides only a foundation for a Marxian/
radical treatment, and does not itself represent a complete theory.

Appendix

? The existence theorems concerning equilibria for the continuous model of

Figure la are sketched here.

Theorem Al (Tl equilibrium): Let 77 be minimum of the least average wage

function, = If h(0) > p > o>(t)), then:
a>(77) 77/2(77).

(a) there exists a nondiscriminatory Tl equilibrium at which all workers are

paid wage p;
(b) there exists a discriminatory Tl equilibrium (77,^(77)) at which each worker
is paid a wage precisely on the appropriate h curve;
(c) if there exists more than one discriminatory equilibrium, which in general is
the case, then there exists precisely an interval of 77's for which such
equilibria exist;
(d) all discriminatory equilibria except the one referred to in part (b), have
precisely one of their wages lying on the appropriate h curve, while the
other wage lies above its h curve;
(e) two equilibria cannot exist simultaneously in the economy; i.e., all firms hire
at the same pair of wages and the same proportions 77, with the exception
of the nondiscriminatory case, where the proportions may vary between
firms.

Theorem A2 (T2 equilibrium):

(a) If and only if 77^ < t)2, there is at most one T2 equilibrium at which there
is black unemployment, and that occurs at a certain proportion 7)2. t)2 is in
fact a T2 equilibrium. At that equilibrium, blacks are paid h2(r)2), and whites
are paid, in general, a wage greater than ^1(7)2).
(b) There is at most one T2 equilibrium at which there is white unemployment,
and that occurs at a certain value t)j. At that equilibrium, whites are paid
a wage ^(tjj), and blacks are paid, in general, a wage greater than h2(i)2).
This point is in fact a T2 equilibrium if and only if 7)P0P > 7]1.

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions
 ROEMER / 705

Theorem A3: Consider the three equilibrium states of the economy:

(i) black unemployment only

(ii) white unemployment only
(iii) full employment.

Then, an economy can be specified (that is, there exists a specification for
the h curves, and a value r)pop) such that a discriminatory T2 equilibrium exists
exhibiting (i), (ii), or (iii) above, or in which any combination of (i), (ii), and
(iii) can occur at different equilibria for the economy. Also, at most one T2
discriminatory equilibrium can be sustained in an economy at a time.

References

Arrow, K. "Some Mathematical Models of Race Discrimination in the Labor Market" in Anthony
Pascal, ed., Racial Discrimination in Economic Life, Lexington, Mass.: D.C. Heath, 1972.
Becker, G. The Economics of Discrimination. Chicago: University of Chicago Press, 1957.
Doeringer, P. andPiore, M. Internal Labor Markets and Manpower Analysis. Lexington, Mass.:
D.C. Heath, 1971.
Edwards, R., Reich, M., and Gordon, D. Labor Market Segmentation. Lexington, Mass.:
D.C. Heath, 1975.
McWilliams, C. Factories in the Field. Boston: Little, Brown and Co., 1939.
Miyazaki, H. "The Rat Race and Internal Labor Markets." The Bell Journal of Economics,
Vol. 8, No. 2 (Autumn 1977).
Reich, M. "Who Benefits from Racism? The Distribution among Whites of Gains and Losses from
Racial Inequality." Department of Economics, University of California, Berkeley,
Mimeo, 1976.
-. "The Neoclassical Approach to Racial Discrimination: A Survey and Critique." De?
partment of Economics, University of California, Berkeley, Mimeo, 1977.
Spence, A.M. Market Signalling. Cambridge: Harvard University Press, 1974.
Spero, S. and Harris, A. The Black Worker. Port Washington, N.Y.: Kiddikat Press, 1966
(reprinted from 1930 first edition).
Stone, K. "The Origins of Job Structures in the Steel Industry." Review of Radical Political
Economy, Vol. 6, No. 2 (Summer 1974).
Thurow, I. Poverty and Discrimination. Washington, D.C: Brookings Institution, 1969.
Welch, F. "Labor Market Discrimination: An Interpretation of Income Differences in the Rural
South." Journal of Political Economy (June 1967).

This content downloaded from 204.235.148.92 on Tue, 29 Dec 2015 08:37:25 UTC
All use subject to JSTOR Terms and Conditions