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I have previously written about the detrimental effects of rational discrimination in employment. While this makes good sense for any one employer and his employees (because no-one wants an unproductive colleague) it is damaging to every employer and employee because it reduces the number and skills of possible employees.

The opposite of rational discrimination (irrational discrimination) is known as “taste discrimination”. For example it is often alleged that software business discriminate against female employees. I have always doubted this because obviously if there were lots of smart cheap female developers out there I would snap them up. In my view then free markets are an antidote to taste discrimination.

This theory has now been tested by looking at the the pay of black footballers and found to be correct. Free markets are an antidote to taste discrimination.

When it was difficult for them to move clubs black players got paid less, when the law changed to make it easier they got paid the same as white players. A corollary of this is that employers who discriminate irrationally do worse.

What does this mean to you?

For employers: Perhaps surprisingly, the politically correct view that workforce diversity is a good thing for shareholders might actually be true in free markets because it is an indicator that you are not exercising taste discrimination in employment.

For employees: There is huge legal and social pressure for employers to pay productive and less productive employees the same. The better workers are subsidising the worse ones. Therefore your best strategy depends on whether you are are more or less productive than your peers.

  • If you are more productive and work in a free labour market (such as London) you can maximise income by changing jobs regularly (every three years say)
  • If you are less productive you can maximise income by staying in the same job because when you change job you risk being found out.