Monday, 25 October 2010

Hooray for competition : what fights discrimination?

In class we have stressed again and again the benefits of competition.  In addition, we looked today at arbitrage as what consumers might do and its consequences for the ability of firms to price discriminate.  Here's a lovely example of firms doing it and its consequences for the ability of other firms to price discriminate, from The Economist.
 Gender arbitrage in South Korea: If South Korean firms won’t make use of female talent, foreigners will
Oct 21st 2010 | Seoul

"Working women in South Korea earn 63% of what men do. Not all of this is the result of discrimination, but some must be. South Korean women face social pressure to quit when they have children, making it hard to stay on the career fast track. Many large companies have no women at all in senior jobs.

This creates an obvious opportunity. If female talent is undervalued, it should be plentiful and relatively cheap. Firms that hire more women should reap a competitive advantage. And indeed, there is evidence that one type of employer is doing just that.

Jordan Siegel of Harvard Business School reports that foreign multinationals are recruiting large numbers of educated Korean women.

South Korea is the ideal environment for gender arbitrage. The workplace may be sexist, but the education system is extremely meritocratic. Lots of brainy female graduates enter the job market each year. In time their careers are eclipsed by those of men of no greater ability. This makes them poachable. Goldman Sachs, an American investment bank, has more women than men in its office in Seoul.

 Firms will have to use all the talent they can find. If they don’t, their rivals will."

This finding is exactly that found by Sandra Black, page 41ff. She found that the opening of US state banks to competition raised the relative wages of women as new entrants hired hitherto low paid women and bid up their relative wages.