Evaluate the following: "Employers who discriminate against women will have lower costs than rival firms that hire employees strictly on the basis of merit (productivity)."

Answer 1

Economic theory suggests that this view is incorrect. If an employer could hire female employees at a wage rate lower than that paid to equally productive male workers, he could reduce his costs (and increase his profits) by substituting female for male workers. For a firm to minimize its unit costs, the change in output (marginal product) from the expenditure of an additional dollar must be equal for all inputs. This would not be true for employers who discriminate. An additional dollar spent on female employees would expand output more than an additional dollar on male workers. Thus, when an employer pays male workers wages higher than those paid to equally productive female employees (both actual and potential), his costs will increase relative to those of the non-discriminating employer.