Intergroup Disparity: Economic Theory and Social Science Evidence

Abstract

Consider a hypothetical community where two groups are distinguished by an ascriptive characteristic or a set of ascriptive characteristics that are understood as separating markers by the members of each of the groups. Indeed, the distinguishing characteristics may be recognized by others external to the two groups or external to the community. Furthermore, these separating markers are associated with the social categories of race or ethnicity. Credible surveys taken by researchers reveal that, on average, the members of the two groups experience widely distinct economic outcomes. Members of group A are found to have significantly lower earnings, a higher incidence of unemployment, less prestigious occupations, lower levels of total income, and substantially lower levels of wealth than members of group B. Conventional economics offers two major explanations for the observed disparity between groups A and B. First, average productivity-linked endowments (or a human capital gap) correlate strongly with membership in each of these ascriptively bounded groups, producing the differences in outcome. The origins of these background differences have been attributed to a variety of causes. The four most prominent reasons offered for the wedge in human capital acquisition have been (i) an unequal allocation of social resources across the two groups, (ii) the intergenerational transmission of past disadvantage or advantage across the groups, (iii) somewhat invidiously, cultural differences between the groups, and (iv) most invidiously, genetic differences between the groups that generate not only the ascriptive distinctions but also differences in intelligence and motivation. Second, at any moment, members of each group with given productivity-linked characteristics can be confronted with differential treatment of those characteristics in markets, especially labor markets. In short, conventional theory suggests that the observed gap in outcomes could be due to discrimination against group A and nepotism on behalf of group B.