US Equal Employment Opportunity Commission: An Overview
The Economics of Discrimination

Discrimination in business can be costly. As the remainder of this text shows, there are both micro (firm level) and macro (national/global) costs to discriminating. In marketing, being able to discriminate between groups of people plays a key is role in segmentation strategies. Indeed, it is the antithesis of a mass marketing or global (standardization) approach. As will be seen, however, even discrimination in marketing can have costs: lost sales due to erroneous or false stereotypes or fines due to Civil Rights violations.

In management, the costs have been better defined. The International Labor Organization , a United Nations specialized agency with over 163 member countries, has demonstrated that there is renewed universal commitment amongst its members to promote and realize, among other things,
the elimination of discrimination in respect of employment and occupation. Countries which are members of the ILO include nations from all continents.


The costs of discrimination are both individual and social. The U.S. Joint Economic Committee (1980) estimated the loss in GDP due to racial discrimination to be about 4 percent per year. Another study done by Estelle James, which is more analytical in nature, places the loss due to gender discrimination at about 3 % of GDP. According to Sharp, Register and Grimes( 1996) race and gender discrimination reduced the nation's output by more than $450 billion in 1994. If other types of discrimination are calculated in, the number could easily exceed one-half of a trillion dollars per year.

Although most countries are committed to getting rid of discrimination, however, the
degree of commitment and level of legal enforcement of anti- discrimination legislation varies significantly by nation. In the U.S., workplace lawsuits continues to soar with 40,000 filed each year. The propensity to litigate, however, also varies from country to country.

It is difficult to estimate the individual cost of discrimination to businesses. In the U.S., where lawsuits are more likely, data is still difficult to obtain. More than 24,000 discrimination suits, however, are filed annually in U.S. federal court; many more are filed each year in U.S state courts. In the US, the average dollar amount of compensatory damages awarded is
over $250,000. Additionally, punitive damages are awarded in almost one-third of the cases.

Many of the cases are settled out of court, but regardless of the outcome, employers often face costly and time-consuming battles. The obvious solution is to educate employees and human resource workers on discrimination. Another way to reduce your liability is to take out Employment Practices Liability Insurance (ELI). The cost of EPLI is substantially less than drawn-out litigation and can be further reduced by informed employers working closely with insurance brokers to manage risk aggressively (a hard look at hiring and firing procedures, training practices, and grievance policies).

U.S. discrimination legislation is also a concern to
foreign companies. The Japanese Ministry of Labor reported that 57% of the 331 Japanese corporations in the US are concerned about being the target of an employment discrimination suit.
U.S. companies operating abroad are equally concerned as foreign plaintiffs often seek to sue U.S. companies because the courts do not provide damage caps (as in many foreign countries) but rather, they have virtually unbridled discretion in awarding damages. Furthermore, US companies are thought to have "deep pockets".

Multinational firms that have been charged with discrimination include: Matusshita, 
Dentsu, Gateway, American Airlines, Taco Bell, Toyota, Hall Mark, Nissan, Texaco,
WalMart, Boeing, Honda, Lockhead Martin, Lennox International, Avis, Chase Manhatten, and International Paper.

Title VII of the Federal Civil Rights Act of 1964 prohibits discrimination in employment based on race, color, religion, sex, and national origin.
The Age Discrimination in Employment Act (ADEA) of 1967 prohibits discrimination based on age.

The Americans with Disabilities Act (ADA) of 1990 prohibits discrimination of age and disabilities. (Section 501) of the Rehabilitation Act of 1973 prohibits employment discrimination against federal employees with disabilities.
The Equal Pay Act of 1963 prohibits discrimination on the basis of gender in compensation for substantially similar work under similar conditions
The Civil Rights Act of 1991, includes provisions for monetary damages in cases of intentional discrimination


Originally, only ADEA had extraterritorial application. Since 1991, however, Congress amended Title VII and ADA to provide for extraterritorial application

When can a person sue?

'Traditionally the following rules have applied:

1. The employee must be a US citizen
2. The company must have at least 15 employees working in the US (independent contractors do not count as employees)
3. The foreign company must be CONTROLLED by the US employer

To determine whether an employer CONTROLS a foreign operation the following criteria are used:

The interrelations of corporation
The common management
The centralized control of labor relations and
The common ownership or financial control, of the employer and the corporation

There are 2 important instances when discrimination laws do not apply abroad
1. If it would break the law of the foreign country (e.g. mandatory retirement ages)
2. Bona fide occupational qualification (BFOQ)- these are extremely usual
(race and color are NEVER allowed as BFOQ)

HOWEVER, recently a State District Court in Texas held that a U.S. company may be subject to jurisdiction in the U.S. court system and face liability for actions arising in a foreign country, involving foreign residents, and stemming from the actions of the company's foreign subsidiary (Rodriquez-Olvera vs Salant Corp). The trial court did not dismiss the case because Salant's subsidiary in Texas made certain operating decisions for the company's Mexican operations.

How can a U.S. company reduce exposure to liability?

  • ensure that decisions regarding non-U.S. operations are made from within the non-U.S. operation, not in the U.S.
    reduce and monitor practice or activities of the non-U.S. operations that may result in liability (e.g. improve working conditions and monitor discriminatory actions)

Consumer Discrimination
By its nature, marketing depends on being able to discriminate between different groups of people. Indeed, the underlying philosophy is that all consumers are not the same and the they can be profitably segmented into markets based on demographic and behavioral dimensions. Studies have shown, for example, that gender, age and ethnicity and important segmentation variables. Indeed, there has been a rise in ethnic, generational or cohort (age), and gender marketing. Because such strategies actually benefit these groups, discrimination (in this sense) is perfectly acceptable.

While discrimination in employment has been the focus of attention for many years, however, little can be found in the marketing literature about negative stereotyping and discrimination. Some marketing research has uncovered
erroneous stereotyping. For example, recent research has shown that women now account for 40% of all cars buyers and men for 40% of food shopping dollars. By stereotyping consumers, marketers can miss out on increased sales. Stereotyping in this sense would have bottom-line implications.

Increasingly, marketers are being accused of perpetuating
negative stereotypes especially in advertising and corporate visual identity (corporate logos). The use of negative stereotypes often results in negative publicity for the firm. Negative publicity often has bottom-line implications as well.

One particular area of concern to marketers is the problematic areas of "public accommodation" and "price discrimination". Price discrimination occurs often and is generally part of pricing or promotion strategies. Women, for example, pay more for dry cleaning, shoes and apparel, and haircuts than men. Several years ago Victoria's Secret even sent catalogs to both men and women, but the catalogs targeting men had lower prices. Furthermore, in a 1990 study, the author showed that white males were systematically offered new cars at lower prices than were blacks and females. Movie theaters and restaurants also often offer discounts and/or lower prices to children, students, and retirees. Bars frequently have "ladies night" with reduced or free cover charges for women. The rationale for such practice is that certain groups are willing to pay more.

When consumers have sued businesses they have done so under
State and Federal civil-rights laws. The laws apply where a member of a protected class, otherwise fit and able to pay, has been refused admission or service in a place of public accommodation. The refusal to receive or serve the victim, and the victim's subsequent humiliation and mental distress, are the wrongs that the law intends to address. When Denny's employees failed to serve African-Americans, it was sued under Civil Rights.

In other cases, it is not so clear. In a 1985 California case, for example, beverage discounts during ladies nights in bars and taverns was held to violate state laws concerning public accommodation (only Washington State approves of this practice). To date, no cases of age-based price discrimination has been challenged