Labour Economics | What is Statistical Discrimination?

Definition of Statistical Discrimination

Discrimination is a social phenomenon which has existed since the very first days of society due to the mere evidence that our world is just the survival of the fittest. The more severe the competition prevails in society, the stronger is discrimination which arises primarily due to the tastes and preferences of decision makers in a certain economic area. In this post, we are going to discuss the concept of statistical discrimination which is an inherent factor of labour markets.

Statistical Discrimination in Labour Market

Statistical discrimination is observed in the absence of prejudice when equally productive workers are treated differently because they come from statistically different recruitment pools. The profit-maximising employer who needs to decide between two workers endowed with the same educational attainment tends to use statistics to predict the productivity of the potential employees provided they come from statistically different groups. The groups may differentiate based on indirect discriminating factors such as the gender, race, ethnic group etc. which are not directly related to the workers' productivity. However, those factors can help the employer to reduce the underlying uncertainty as for the the workers' productivity and meet the right decision based on the group average. Thus, in the absence of discriminating factors the profit-maximising employer can seize the opportunity of statistical discrimination to choose the most productive worker.

Example of Statistical Discrimination 

During the Cold War girls had a very low chance to be accepted at state translators' schools in the Soviet Union. Russian translators' schools were at that time almost closed institutions providing language training not only for future translators and interpreters, but also for diplomats and intelligence officers. The maximum number of students enrolled in such a program per year did not exceed 25 persons who were in most cases men who had served in the army.

The reason was not because women were disliked or discriminated in the Soviet Union. On the contrary, such a conclusion could not be further from the truth. It is commonly known that in the Soviet Russia women had many more rights than in some Western European countries such as West Germany (the Federal Republic of Germany before 1989). Russian women acquired political and economic rights after the first communist decrets of 1917, whereas in West Germany women were not allowed to open a bank account without the written consent of their husbands until the late 1960s.

The true reason was different. In the Cold War, linguistic education in Russia presupposed that the person would be sent for a difficult and stressful work abroad. Therefore, men were preferred because (right or wrong) the probability of women not fulfilling the demanding tasks abroad and being influenced by the foreign secret services were higher than for men. Moreover, after a certain period of work women had a high risk of taking maternity leave. For men such a risk was excluded.