The Efficiency and the Efficacy of Title VII

Abstract

In a recent article in this journal,' John Donohue argues that Title VII of the Civil Rights Act of 1964,2 which forbids employment discrimination on racial and other invidious grounds,3 may well be an efficient intervention in labor markets, even if efficiency is narrowly defined as maximizing social wealth. His argument is of considerable interest. Social welfare legislation, notably including legislation designed to help minority groups, is usually thought to involve a tradeoff between equity and efficiency, or between the just distribution of society's wealth and the aggregate amount of that wealth. If Donohue is right and equity and efficiency line up on the same side of the issue, these laws are considerably less problematic than they have seemed to some observers. Donohue's argument builds on Gary Becker's theory of racial discrimination.4 For Becker, discrimination by whites against blacks is the result of an aversion that whites have to associating with blacks.' This aversion makes it more costly for whites to transact with blacks than with other whites. Becker likens this additional transaction cost to transportation costs in international trade.' The higher those transportation costs are, the less international trade there will be. Countries such as Switzerland that are highly dependent on such trade because