Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, August 26, 2008

Racial Discrimination and Competition

Posted by D. Daniel Sokol

Something that we tend to overlook in that competition can be used to reduce racial discrimination (see for example the books by Sowell and Becker in the 1970s for further reading- the more competition there is, the harder it is to indulge a "taste" for discrimination in hiring). Antitrust law is a great tool for destroying discrimination based on race.     Along these lines, I found an interesting working paper Racial Discrimination and Competition by Ross Levine, Alexey Levkov, and Yona Rubinstein (Department of Economics - Brown University) that analyzes how competition reduced discrimination in the banking industry.

ABSTRACT: This paper assesses the impact of competition on racial discrimination. The dismantling of inter- and intrastate bank restrictions by U.S. states from the mid-1970s to the mid-1990s reduced financial market imperfections and lowered entry barriers facing nonfinancial firms. We use bank deregulation to identify an exogenous intensification of competition in the nonfinancial sector, and evaluate its impact on the racial wage gap, which is that component of the black-white wage differential unexplained by Mincerian characteristics. We find that bank deregulation reduced the racial wage gap by spurring the entry of nonfinancial firms. Consistent with theory, the impact of competition on the wage gap is particularly large in states with a comparatively high degree of racial bias, where competition-enhancing bank deregulation eliminated between 20 and 30 percent of the racial wage gap.

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