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Do Black Canadians Deserve to Earn 10-15% Less Than White Canadians?

A new study from Statistics Canada reveals that second generation Black Canadians earn 10-15 percent less than second generation white Canadians.  So we are looking at people born in Canada to parents (or a single parent) who immigrated to Canada.  Here is the study. This is true even though Black males “are more likely to live in large centres and have higher levels of educational attainment.”    The pay gap is smallest between Chinese and white Canadians.  Here is a Globe and Mail article that discusses the study results.

What do you think explains these outcomes?

As allows, it depends on your perspective on labour markets and discrimination.  A neo-classical economist would say that Black Canadians are paid less because they must be less productive than white people, since they pretend that labour markets are perfectly competitive.  If Black Canadians were as productive or more productive than white workers, but accepted less pay, then rational profit-seeking employers would rush to hire all the Black workers they could find.  This would drive up their wages, since soon the demand for Black workers would outstrip supply, allowing Black workers to bargain higher pay. As a result, the lower pay of Black workers would be short term, since the invisible hand of the market would drive up their wages to that of the white workers.  Therefore, to the neo-classical economist, the explanation for the wage gap must be that Black workers are less productive than white workers (and therefore worth less).

Neo-classicalists give the same explanation for the gender wage gap: women are paid less because they are less productive than men.  That is why neo-classical economists (like Richard Epstein and the Fraser Institute, for example) object to human rights legislation that prohibits wage discrimination.  That legislation just artificially inflates wages above the market rate.  The market will ensure people are paid what they are worth.

The trouble with this rosy view of the world is that the wage gap between white and Black workers is persistent over time, AND Black workers have a much higher unemployment rate than white workers.   This Stats Can chart from the same study shows that the second generation Black workers have over double the unemployment rate (9.2%) of white workers (4.1%)!  This demonstrates clearly that employers do not shift to cheaper Black workers, as classical labour market theory predicts they will. Instead, they keep hiring white workers, who cost more and (according to the Stats Can study on second generation Canadians) have on average less education and training, which we usually associate with greater productivity.  How can classical economic theory explain this behavior?

Is it possible that employers do not make decisions about compensation purely on the basis of merit and productivity?  Or that they lack information about the relative productivity of Black and white workers?  Is it possible that employers just prefer having white workers?

That is certainly the belief upon which our human rights codes, pay equity, and employment equity legislation are predicated.  In other words, employers discriminate against classes of workers based on irrelevant factors not tied to their productivity, but to the employer’s bias and prejudice.  Stats Can does not attempt to explain the wage gap in this study, but it does note the possibility that wage discrimination is involved:

Wage discrimination may or may not be a contributing factor. Relatively little Canadian economics research has been carried out on this issue. In a randomized Canadian field experiment, Oreopoulis (2008) did find that job applicants with English-sounding names and Canadian experience were much more likely to be called for an interview (all other job and personal characteristics identical) than applicants with Asian-sounding names and foreign experience.

What do you think?  Do you think that the wage gap between Black and white workers is based on relative productivity, or prejudice (explicit or systemic) on behalf of Canadian employers?

Does the 10-15% wage gap between Black and white workers surprise you, given that wage discrimination n the basis of skin colour has been prohibited in Canada for decades by human rights legislation (see Section 5 of the Ontario Human Rights Code)?


One Response to Do Black Canadians Deserve to Earn 10-15% Less Than White Canadians?

  1. faiza osman Reply

    March 23, 2011 at 2:31 pm

    it definitely does NOT surprise me at all. As I am a second generation black Canadian woman it is really hard for me to find a job despite the fact that I am educated at one of the highest institutions for business administration in Canada. & I most definitely feel it.

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