Ethnic discrimination and the income of majority-group workers

Neo-classical economics suggest that workers belonging to a superordinate ethnic group gain from economic discrimination against members of a subordinate ethnic group. The Marxist perspective disagrees, contending that superordinate workers actually lose. When income differentials between Jews and Arabs across local labor markets in Israel are decomposed into "legitimate' and "discriminatory' components, the data lend support for the neo-classical perspective. However, the relationship between market discrimination and the income of superordinates is more complex than perceived by previous work on the topic. On the average, Jewish workers gain from economic discrimination against Arabs. But they do not gain equally. Such discrimination results in increased income inequality among Jewish workers, increasing the income share received by Jewish workers at the upper tail of the income distribution and decreasing the income share received by workers at the lower tail. -Authors