Free movement and discrimination: the case of football

The more you open markets up, the less discrimination you get on grounds of 'taste' (racism). The stuff left over is usually 'statistical' (i.e. where certain groups are different in their average levels of job-relevant criteria). There was already a great paper showing this for the Fantasy Premier League (which I play avidly), but now there's also one for the real Premiership! Pierre Deschamps and José de Sousa look at the impact of the 1995 Bosman Ruling on the gap between black and white footballer wages in the English league. They find that when only 20 clubs competed for their skills, black players were underpaid relative to white ones, indicating that owners were able to indulge their preference against non-whites (or indulge their fans' preferences).

But once the whole of Europe were effectively on an equal footing, blacks became highly mobile and garnered equal pay for their efforts:

This paper assesses the impact of labor mobility on racial discrimination. We present an equilibrium search model that reveals an inverted U-shaped relationship between labor mobility and race-based wage differentials. We explore this relationship empirically with an exogenous mobility shock on the European soccer labor market. The Bosman ruling by the European Court of Justice in 1995 lifted restrictions on soccer player mobility.

Using a panel of all clubs in the English first division from 1981 to 2008, we compare the pre- and post-Bosman ruling market to identify the causal effect of intensified mobility on race-based wage differentials. Consistent with a taste-based explanation, we find evidence that increasing labor market mobility decreases racial discrimination.

The figure below shows how the 'turnover' (i.e. churn between clubs) of black English players jumped when European markets opened up. Market freedoms; exit; a sort of 'voting with their feet', outperformed voice in bringing equality. And we know from ASI research that this did not harm the English national team.

This is in line with a lot of what we have been saying recently—markets are a good way to bring about justice!

Markets don't like racism

It is a commonplace to the point of boringness among advocates of free markets that they make people pay to discriminate based on their tastes. A factory owner who restricts employment to whites only will face a narrower talent pool—likely paying higher wages for lower skills in total or on average. Southern US states had to pass laws to try and stop employers competing with each other over black labour and bidding up their wages. 

Even owners of basketball clubs believed to be personally racist have disproportionately black teams, paying them huge sports star wages. However, not all ethnic groups have similarly prestigious or high-flying careers, and they do not all take home equal market incomes. It would be easy to jump to the conclusion that taste-based discrimination is driving this and the market isn't doing its job fully. But there is an alternative.

Employers cannot observe an employee's productivity directly, at least before they employ them. But they can observe some things about them that signal productivity—using statistics. For example, if on average south Asians or Polish migrants tend to work harder than white Brits, they can use this fact about them to help make their employment decision. This isn't racist—they don't prefer employing south Asians, and they would be equally happy to pay a white Brit £6.50 an hour to produce £7 of stuff—it's just that on average south Asians produce £7 of stuff an hour (say), whereas white Brits produce £6.40.

Which one is actually in place? We can test this. The answer is a resounding 'statistical discrimination'. For example, minorities in France did worse when a large randomised study made them anonymous in job applications—so firms couldn't see their names and thus ethnicities—implying that the reason they were called back and employed less was because their resumes/CVs were less attractive.

In Germany, job applicants with Turkish-sounding names got less callbacks than those with German-sounding names—unless both applicants had a favourable employment history reference. Then, for a given quality of reference, employers didn't care whether they were Turkish or German. On eBay, white sellers receive lower prices selling stereotypically black products and black sellers receive lower prices selling stereotypically white products, but these differences go away when sellers build up credible reputations.

US "landlord response rates across neighborhood racial compositions conform to the statistical discrimination model where agents use past experience to predict applicant quality by race." In the Israeli used car market there is "robust evidence of discrimination against Arab buyers and sellers which, the analysis suggests, is motivated by ‘statistical’ rather than ‘taste’ considerations." In an experiment selling iPod Nanos online, its being held by a black hand made buyers warier, to a similar degree as its being held by a tattooed white hand.

People do no racial discrimination whatsoever, and choose entirely based on expected points return, when picking their fantasy football team. Finally, even most of shared renting decisions in London are based on statistical concerns (some ethnic groups commit more crimes per capita), rather than personal preferences over races and ethnicities.

It is perfectly well and good to lament the fact that for whatever reason, some ethnic groups are less qualified, systematically less hard-working, achieve worse educational results, commit more crimes or whatever. This might be the result of discrimination on some other margin. But we can be pretty sure that markets are picking only on the criteria we want them to use.