a language theory of discrimination

A Language Theory of DiscriminationAuthor(s): Kevin LangSource: The Quarterly Journal of Economics, Vol. 101, No. 2 (May, 1986), pp. 363-382Published by: Oxford University PressStable URL: http://www.jstor.org/stable/1891120 .

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A LANGUAGE THEORY OF DISCRIMINATION*

KEVIN LANG

Any advanced industrial society is composed of a number of speech communities with different verbal and nonverbal languages. In particular, in the United States blacks and whites and men and women have sharply differing methods of speaking and listening. This paper develops a model in which people can only work together if they "speak" the same language and in which it is costly to learn a second language. The competitive market will tend to minimize communication through segregation, but if interaction is required, the cost will be borne by the minority. A number of nontrivial predictions are derived from the model.

I. INTRODUCTION

Although discrimination has been the subject of a great deal of study, none of the social sciences, including economics, has developed an adequate explanation for its persistence. This paper brings together three bodies of literature to develop a model that not only is capable of explaining the existence of discrimination but also has considerable empirical content that appears to be confirmed.

The argument can be summarized in a few points. We know from the sociolinguistic and sociological literature that the United States (and most other societies) is composed of several distinct subsets known as speech communities, which communicate using related but different verbal and nonverbal languages. Language can be viewed as a barrier to trade. Overcoming that barrier involves transactions costs. A competitive market will organize itself in order to produce the optimal level of transactions costs. It follows that there will tend to be a single business language that will tend to be the language of the economically most pow- erful group. Economic life will be segregated by speech community in order to minimize transactions costs. Those transactions costs that cannot be eliminated will be borne by the minority group. The minority group will tend to learn the language of the majority

*1 am grateful to Kenneth Chomitz, Maxwell Fry, Amihai Glazer, Shulamit Kahn, Lawrence Summers, Finis Welch, members of the UCLA Labor Workshop, and an anonymous referee for comments and criticisms. I owe a special debt to Martha Cox for guiding me through the sociolinguistic literature. Any remaining errors are, of course, my own.

?) 1986 by the President and Fellows of Harvard College. Published by John Wiley & Sons, Inc. The Quarterly Journal ofEconomics, May 1986 CCC 0033-5533/86/020363-20$04.00



364 QUARTERLY JOURNAL OF ECONOMICS

rather than vice versa and to the extent that the majority language is learned in school, skilled minority members will tend to get more education than their counterparts in the majority.

Since it is always possible to explain market imperfections by transactions costs, it is therefore not generally desirable to do so. However, three defenses of the language transactions cost approach are provided in the paper. First of all, as outlined in Section II, it is a distinct improvement over the existing theoretical literature on discrimination, which relies either on tastes (as much of a deus ex machina as is transactions costs) or on statistical discrimination having implications generally contrary to factual evidence. The second defense is the reasonableness of the assumption. Finally, the assumption gives rise to testable hypotheses that appear to be confirmed. Section III reviews some of the extensive literature on language differences in the United States. Language is used here in a broader sense than that of common parlance. Language refers to all aspects of verbal and nonverbal communication by which individuals transmit information. Blacks and whites or men and women can be said to "speak" different languages in this sense. Finally, Section IV derives a number of nontrivial predictions that appear to conform to the evidence presented in Section V.

II. ECONOMIC THEORIES OF DISCRIMINATION

The modern economic theory of discrimination began with Becker [1971] and was extended by Arrow [1972a, 1972b, 1974]. Becker and Arrow suggest that people have attitudes toward those with whom they work, those whom they supervise, and those from whom they buy goods. They require compensation in order to work with members of the group they do not like. If all workers or employers share the same taste for discrimination, the group that is discriminated against will receive lower wages to compensate the discriminators. The Becker-Arrow model has two well-known drawbacks. First, it is unsatisfactory to explain phenomena by tastes, since ultimately all economic phenomena can be "explained" by invoking the right utility function. Second, in a competitive market discriminators will be driven out by nondiscrimi- nators. The result might be segregation, but wages would be equal for all groups. Thus, we are left to choose between denying the



A LANGUAGE THEORY OF DISCRIMINATION 365

existence of perfect competition and deciding that we are all bigots.

Recognizing these difficulties, Arrow [1974] proposes an al- ternative model in which employers believe that one group (blacks) is less productive. If there are different skill levels, blacks may never be employed in the higher skill jobs. Therefore, the false belief may never be proved wrong. The equilibrium, however, is not stable if firms experiment. The only way blacks would receive lower wages in the long run is if they were, on average, less productive.

Arrow's model of statistical discrimination and a similar model developed by Phelps [1972] is extended in Aigner and Cain [1977]. In their model blacks and whites have the same average productivity, but employers observe blacks' productivities with greater error. Bayesian employers will estimate the workers' productivities as a weighted average of mean productivity and measured productivity; they will place more weight on the mean in the case of blacks because of the greater measurement error. Conse- quently, blacks who appear to be highly productive receive lower wages than whites who appear to be equally productive; on the other hand, blacks who appear to be relatively unproductive do better than their white counterparts. As the authors note, it is difficult to label this equilibrium discriminatory, since both groups receive the same average compensation. Blacks will receive lower average compensation only if firms are risk averse, an assumption rejected by most economists.

To explain differences in average wages for groups with equal initial endowments, Lundberg and Startz [1983] suggest a model in which workers can invest in human capital. Since their productivity is observed with greater error, blacks are compensated for a lower proportion of their increased productivity and therefore receive a lower return to education than do white workers. As a result, black workers invest less in education, are less productive, and receive lower average wages than do whites. This model has several difficulties. First, it assumes that employers cannot observe levels of education. Second, it cannot explain why blacks get lower wages than do whites (holding other factors such as education constant). Third, it appears that blacks get more education not less than equivalent whites (holding other factors constant) [Griliches, Hall, and Hausman, 1978; Lang, 1982].

Thus, neither the Becker-Arrow tastes model nor the Arrow-




Phelps statistical discrimination model provides an adequate explanation of the persistence of discrimination. This is not to say that tastes do not explain any form of discrimination. They may serve as the basis for discrimination in goods such as education that are not provided in competitive markets. Similarly, stereo- typing may play a role particularly when there is social enforce- ment of prevailing norms [Akerlof, 1976].

Before leaving this section, special consideration must be given to Welch's [1967] model of discrimination. Welch argues that complementarities in production cause black and white workers to be employed together. In particular, high and low education workers are complements, and blacks, for historical reasons, tend to have less education than do whites. Welch assumes that there is a fixed cost involved in obtaining cooperation among members of different races. This cost depends only on the minimum number of workers from either group and may result from tastes for discrimination or from problems of communication. Under these as- sumptions, without complementarities there would be segregation. The cost of mixing the two races is borne by the minority race, and the return to schooling is lower for minority workers if employed with majority workers. Consequently, educated minority workers will tend to work only with members of their own race. One important result is that as the educational attainments of the two races converge, there will be more segregation although, as Welch recognizes, if education tends to diminish the costs of integration, this effect may be offset.

The model presented in this paper assumes that the cost of integrating the work force is the cost of allowing members of different groups to communicate. Section IV discusses the impli- cation of this assumption. The assumption itself is the subject of the next section.

III. SPEECH COMMUNITIES

Shared knowledge of a grammar and a sound system is not sufficient for mutual intelligibility. Individuals must also have common knowledge of ways of speaking [Hymes, 1964] and ways of listening [Erickson and Shultz, 1982]. The language that must be shared is not only verbal but also nonverbal including such elements as posture, gesture, and eye contact. Sociolinguists have coined the terms "communicative competence" to refer to the com-




plete knowledge needed for mutually intelligible conversation and "speech community" to refer to a set of individuals who share communicative competence [Gumperz, 1968].

Confusion and misunderstanding may occur when people from different cultures meet even when one is fluent in the other's language. The case of the Arab who starves at a European banquet because his refusal of food is taken at face value is now legendary [Argyle, 1967]. Hall [1955] notes Latin Americans may chase Europeans and Americans around the room as they try to estab- lish their different customary social distances.

Such differences are not limited to individuals from different countries. Sociolinguists have noted sharp differences among individuals from different speech communities within the United States. It is widely recognized that Black English is distinct from Standard American [Fasold and Wolfram, 1970; Labow, 1971, 1973]. Black English has its own grammar, vocabulary, and pho- netics. This does not imply that all blacks speak Black English or that Black English is unrelated to Standard American. Never- theless, a substantial proportion of inner city blacks do speak a version of English, which differs from the version taught in schools. Differences include a relative absence of the verb "to be" as a verb predicate (that dude bad), dropping the s in the third person singular (he run), and dropping R's (Carol becomes Cal).

Probably, relatively little misunderstanding among native American speakers results from differences of grammar or pronunciation. A few examples have been noted. "Dey ain't like dat" is likely to be translated as "they aren't like that" rather than "they didn't like that," [Stewart cited in Fishman, 1971]. How- ever, generally, people will realize that they have not understood or been understood. Not surprisingly, speakers are understood best by members of their own status group [Harms, 1961].

Misunderstanding is much more likely to arise because individuals are unaware of verbal or nonverbal differences between groups other than grammar and pronunciation [von Raffler-En- gel, 1980]. Among educated southerners, the use of ain't is a signal that the listener has been accepted and that the speakers can shift from formal to informal mode. Northerners who do not understand the signal or who by training are unable to return it are likely to be viewed by southerners as stuffy [McDavid, 1973]. Nonverbal differences may be particularly important. French [1973] found that black and white children are equally good at express- ing themselves nonverbally. However, black children understand




black children better, and white children understand white children better.

Misunderstandings are important in work-related situations. Burns [1957] found that over half of managers' decisions or in- structions were perceived by subordinates as information or advice. Similarly, women tend to be more verbal than men in the sense that they will talk longer than men when asked to describe a picture; in male-female exchanges, however, men do more of the talking. One possible explanation is that women appear to look for visual cues giving permission to break in, while men carry on speaking until receiving visual signals that the other wants to speak [Argyle, 1967]. Thus, women may have relative difficulty obtaining the floor in mixed conversation.

One of the most striking examples of communication break- down as a result of different nonverbal codes is described in Er- ickson and Shultz [1982]. They studied the interaction between guidance counselors and students. They argue that at regular intervals speakers signal that a listening response is required. If the expected listening response is not forthcoming, the speaker assumes that the listener has not understood the content of his message and repeats the explanation. Among white counselors the signal that a listening response was desired was a pause without a shift in intonation at the end of a syntatic clause. Blacks use a high steeply falling contour that may precede a filler such as "you know." Whites' listening responses consist of a verbal response, or a pronounced nod of the head, or both. Among blacks the listening response is a less pronounced nod of the head. The result of these differences was that white counselors often missed blacks' listening responses. Consequently, they would repeat their explanations. The student in turn would feel that he was being "talked down" to, and his confidence in the usefulness of the counselor's advice would be diminished or even destroyed.

Cases of nonverbal codes causing breakdowns in male-female communication have not been as well documented. Nevertheless, it has been recognized that both women's speech patterns and nonverbal styles are associated with low power in U. S. society [Henley, 1977]. Individuals using "women's communicative style" are evaluated as less intelligent and competent than when they express the same arguments using "men's communicative style." One possible explanation is that the style used by women is less effective. Effective intervention requires authoritative, self-con- fident, and directive speech. However, as Cox [1983] points out,




women's speech styles, which are considered inappropriate for success in the United States, are quite similar to those used by Japanese managers, a group generally considered to be successful in business. Nevertheless, Cox reports that women's communication styles have been a significant impediment to their ad- vancement in U. S. industry.

If nonverbal codes create a barrier to communication, tcom- munications entrepreneurs" would presumably appear to fill the gap by serving as translators. At the very least, we would expect some individuals to learn the other group's code. Indeed, some members of the minority group learn the majority's code. There is an extensive literature on code-switching by individuals who operate in two speech communities.

Thus, the sociolinguistic literature demonstrates that there are costs associated with overcoming the barriers to communication between speech communities. In the following section a simple model is developed which assumes that these costs exist and has entrepreneurs acting as links between different speech communities. A further defense of the model is provided in the fifth section when theoretical predictions are confronted with empirical evidence.

IV. LANGUAGE AND DISCRIMINATION

Assume for simplicity that there are just two states, having a common language (communication) and not having a common language (noncommunication). Further assume that two actors must communicate in order to complete a transaction or produce output and that if they do not speak a common language, no business can be transacted and no output produced. The marginal cost of learning a language is constant across all languages, across the number of languages learned and across individuals. Lan- guage is strictly productive. Individuals do not derive utility from learning additional languages.

Breton and Miezkowski [1977] have analyzed the development of lingua franca. They argue that when members of several different language groups all interact, they will tend to use the most common language as a lingua franca. This follows from the fact that transactions costs are minimized when each member learns no more than one language and when the largest possible number learns none. This suggests that there is a role for extra- market forces and history in the determination of the lingua franca.




If some people already know a second language, the lingua franca may not be the most common first language. Thus, there are many possible equilibria.

Since learning a language is costly, market forces will act to limit the extent to which members of different language groups must interact. In the extreme case, there will be complete segregation. If two speech communities, L1 and L2, have the same production sets, the same tastes, and there are no increasing returns to scale, there will be no interaction between the groups, since there are no gains from trade. Since trade involves transactions costs, no trade will occur. In general, however, these conditions will not hold. As a result, trade will be beneficial, and interaction between the groups will take place. However, market forces will tend to minimize the de- gree of interaction. Thus, we would expect occupational segregation to be widespread. Only a relatively small number of individuals will serve as intermediaries.

In the remainder of this section, I consider a model in which there are workers from two speech communities, whites who speak W and blacks who speak B. The two communities trade because of differences in the capital-labor ratio in the two communities. Whites have more capital relative to workers and therefore hire black labor.

In equilibrium the marginal cost to whites of hiring blacks and whites including transactions costs must be equal. Similarly, blacks must receive the same net of transactions cost wages whether they work for a white or black firm. In the following paragraphs these equilibrium conditions are used to determine relative wages for blacks and whites.

Consider first the case of a white employer who is considering hiring a fixed number of workers. An integrated work force is clearly an inferior mode of production, since it unnecessarily requires many workers to learn a second language. Consequently, the employer must choose among three options: hiring only whites, hiring blacks who have learned W, and hiring unilingual blacks and learning B. Consider the employer's costs under the three options. If he hires only whites, he incurs costs equal to

(1) costs= nww,

where n is the number of workers employed and ww is the wage for whites. If he hires bilingual blacks, he must pay each worker




the going wage for unilingual blacks plus the amortized cost of learning a language, denoted by d. Thus, his total costs are

(2) costs = n(Wb + d),

where Wb is the market wage for unilingual blacks. Finally, if he hires unilingual blacks, he must learn to speak B. His costs are therefore

(3) costs = nWb + d.

If we compare (2) and (3), it is immediately apparent that if the employer hires more than one black worker, he will hire unilingual blacks and learn B himself, since for n greater than one, (3) is always less than (2). The assumption that the cost of learning a language is equal for all workers is, of course, restrictive. If the cost to owners of learning a language is much higher than the cost to workers, it is possible that the workers rather than the owner will learn the language.

If we maintain the assumption that the cost of learning a language is equal for all workers, we can use (1) and (3) to derive the black-white wage differential. If some firms hire whites and some hire blacks, the total costs from the two strategies must be equal. Setting (1) equal to (3) and rearranging terms, we obtain

(4) Wb = Ww - din.

The black-white wage differential is therefore equal to din. So far the results resemble those that are derived from the

"tastes" model of employer discrimination. The major differences are that employers hiring blacks make "higher profits" because they are compensated for learning B and that there is no long- run tendency toward the elimination of wage differentials in the language model. In the tastes model, discrimination will be eliminated, unless bigotry is nearly universal, a stronger assumption that most economists wish to make. However, as noted in Section III, language differences are nearly universal; so wage differentials will tend to persist.

Consider now the case of a white employer who is considering hiring two types of labor that must communicate, one supervisor and supervisees (called workers). For simplicity, assume that the ratio of workers is fixed by technology so that there are n workers for each supervisor. The employer has four options, to hire a white supervisor and white workers, a black supervisor and white work-




ers, a white supervisor and black workers, or a black supervisor and black workers.

The case of the all-white work force sets the standard for comparison. Supervisors are assumed to receive a wage just sufficient to compensate them for additional effort and training required for their job:

(5) WWs = WW + C,

where wws is the wage white supervisors receive and c is the compensating differential. The firm's total labor costs are

(6) costs= (n + 1)ww + c.

Suppose instead that the employer hires black workers and a bilingual black supervisor. The firm's labor costs are

(7) costs = Wbs + n Wb,

where Wbs is the wage received by black supervisors. Since black supervisors must be compensated both for the cost of learning W and for being supervisors, we know that

(8) Wbs = Wb + c + d.

If some firms hire black workers and supervisors and some firms hire white workers and supervisors, costs must be equal for the two types of labor force. Setting (6) equal to (7) and using (8), we can derive the black-white wage differentials for supervisors and workers,

(9) Wbs = WWS + ndl(n + 1),

and

(10) Wb =Ww -dl(n + 1).

A number of points are apparent from (9) and (10). Black supervisors earn more when they supervise black workers than they would if they supervised white workers, since supervisors of whites are paid only wws. In addition, the "compensating differential" for supervising blacks is insufficient to compensate white supervisors for learning B. Thus, in accordance with the principle of maximal segregation, black supervisors will be matched with black workers and white supervisors with white workers. How- ever, the gain from having black rather than white supervisors in a firm with black workers is small (dI(n + 1)).




Just as black supervisors are matched with black workers, black owners will be matched with black supervisors and workers. Thus, if there were no market imperfections, only blacks would work in black-owned firms. The driving force behind this result is that transactions costs are minimized by maximal segregation.

So far we have assumed that all firms employ workers and supervisors in the same proportions. If different industries have different technologies so that requisite supervisor-worker ratios differ, blacks will be employed in those firms with the largest worker-supervisor ratios. To see this, let n be the worker-supervisor ratio at which firms are indifferent between hiring white and black work forces so that (6) and (7) are equal. Consider a firm for which the worker-supervisor ratio is m. From (9) and (10), the cost to a white employer of hiring an all black work force is

(11) cost = Wws + mww - (m - n)dI(n + 1),

while the cost of hiring an all-white work force is

(12) cost = was + mwW.

If the ratio of workers to supervisors is above the point at which firms are indifferent between hiring white and black work forces (i.e., for m greater than n), hiring an all-black work force will minimize the cost of production, while for m less than n, the firm will minimize cost by hiring whites.

Thus, in addition to having lower lifetime earnings because they must bear the cost of intergroup communication, blacks have lower wages because they are occupationally segregated into low wage jobs; that is, they are employed in firms with relatively low supervisor-worker ratios. A higher proportion of whites than of blacks are supervisors. The driving force behind this result is that the difference between supervisors' and workers' wages is greater for blacks than for whites, since black supervisors are not only compensated for the costs of becoming a supervisor but also for the cost of learning W (see equations (9) and (10)). Again, transactions costs are minimized by minimizing the number of people who learn a second language, that is, by employing blacks in firms with few supervisors. This result does not depend on the restrictive assumption of fixed factor coefficients for supervisors and workers. On the contrary, since the difference between supervisors' and workers' wages is greater for blacks than for whites,




firms employing a black work force will substitute away from supervisors toward workers, thereby reinforcing the tendency for blacks to be concentrated in low-skill jobs.

Although black supervisors earn more than white supervisors, the model is perfectly consistent with whites earning higher wages than blacks at all levels of schooling. This point follows directly from (10) for workers who do not learn W but bear part of the cost of the supervisor learning a second language. Black supervisors will also earn less than whites with the same amount of education if language is learned in school. To see this, we must recognize that d represents the extra income required to compensate black supervisors for the time spent in school learning W. Whites who spend an equivalent time in school to learn some- thing else will also receive compensation at least equal to d to compensate them for the cost of their time spent in school. Thus, whites with educations equal to those of black supervisors will receive at least

(13) w As + d, which is greater than the wage received by black supervisors.

Whether blacks or whites obtain more education is indeter- minate in this model. On the one hand, blacks are relegated disproportionately to low-skill jobs. On the other hand, those in high- skill jobs will generally have more education. It is not self-evident which effect would dominate.

In this model the return to education is actually higher for blacks than for whites. Both blacks and whites receive compensation of c for being supervisors. However, blacks who are not supervisors receive lower wages than whites who are not supervisors. Therefore, the percentage return is higher for blacks than for whites. This result depends crucially on the assumption that the compensation required for being a supervisor is independent of income. If c were proportional to income, the return to schooling would be identical for blacks and whites.

A stronger prediction can be made regarding changes in educational attainment when the system is in disequilibrium. In equilibrium blacks should supervise blacks, and whites should supervise whites. Suppose, however, that the distribution of su- pervisory skills by race is nonoptimal and that some blacks are supervised by whites, as would be the case were there discrimination in the provision of school services. In this case, black and white supervisors will receive the same wage, and therefore, the




return to education will definitely be higher for blacks. Therefore, educational attainment will rise faster for blacks than for whites. Thus, holding parental education constant, we would expect blacks, on average, to get more education than do whites.

This section has developed the theoretical implications of a model which assumes that language differences impose transactions costs. The next section reviews the evidence relating to those predictions.

V. EMPIRICAL EVIDENCE

The model outlined in Section IV is consistent with persistent wage differentials between blacks and whites or men and women. To the extent that blacks and whites remain in different speech communities and whites are the economically dominant group, blacks will receive lower wages. Segregation in both the north and south has contributed to the maintaining of distinct speech communities for blacks and whites. In fact, enforced segregation may be the primary factor that has prevented the economic rise of blacks. While other immigrant groups mixed freely with members of the dominant speech community, blacks were unable to do so.

It is clearly more difficult to argue that persistent male-female wage differentials are based on segregation since in the United States girls and boys have generally mixed socially and attended the same schools. Nevertheless girls and boys have received different social training, which is reflected in language differences.

Desegregation has been associated with a narrowing of black- white wage differentials [Welch, 1973; Freeman, 1973; Smith and Welch, 1977], although a variety of explanations have been put forward for this development. On the other hand, male-female differentials have remained roughly constant despite similar leg- islation governing equal pay and prohibiting discrimination against blacks and women. The model developed in the previous section suggests that the wage differential will only narrow as language differences are reduced. Henley [1977] reports that nonverbal behavior differs between feminists and nonfeminists. It is possible that the wage differential will narrow as the daughters of feminists enter the labor force.

The view that "successful" minority members will know the language of the majority has been confirmed by several observers.




O'Barr and Atkins [cited in Cox, 1983] found that women in high- status occupations tend to use a "male communication style." Similarly, black guidance counselors knew white codes for evok- ing and giving a listening response [Erickson and Shultz, 19821.

The language model also implies that minority members will tend to learn the language of the majority. This tendency is borne out by empirical research. Black counselors knew the white code and used it with white students. Some black students sporadically used white codes when dealing with a white counselor [Erickson and Shultz, 1982]. Whites never used black code. Among bilingual Canadian children, French children sometimes used English code with English children. English children never used French code [von Raffler-Engel, 1975].

Like the "taste"-based models of discrimination, the language model implies segregation. Moreover, in the language model minority members will tend to be disproportionately in low-skill occupations. While Arrow's model of statistical discrimination and the model developed by Startz and Lundberg are consistent with minorities being in low-skill jobs, they do not imply segregation. Occupational segregation has been a major theme in the literature on women in the labor force [Blaxall and Reagan, 1976] and a lesser one in the racial discrimination literature.

One of the surprising implications of the language model is that, if members of the majority supervise minority workers, holding parental education constant, minorities will get more, not less, education than members of the majority. None of the discrimination models, with the exceptions of Arrow's statistical discrimination model with no experimentation, is consistent with this result. In fact, it appears to be correct for blacks [Griliches, Hall, and Hausman, 1978; Lang, 1982]. The case of women is more complicated. Presently, women have a higher rate of grad- uation from high school and a lower rate of college attendance. More significantly, educational attainment has been rising faster for women than for men [Lloyd and Niemi, 1979].

It follows from the language model that for a given skill level, minority members will have more education than majority members. Assuming that language is learned in part in school, minority members will, in addition to obtaining other productive skills, get extra education in order to master the majority language. This prediction also appears to be confirmed [Schmidt and Strauss, 1975].

The language model also implies that minorities will be in




firms in which there is a high ratio of workers to supervisors, or more precisely, that they will be in positions where the ratio of workers who must be bilingual to workers who need not be bilingual is small. McLaughlin and Turner [1982] found that among California lawyers at the associate level and with less than ten years experience, a significantly higher proportion of women than men were in large firms.

The empirical content of the language model is therefore much richer than that of the tastes model. The language model makes several predictions that are not derived from tastes models: "successful" minority members know the dominant language, minorities are more educated given their skill level, and minorities are in firms with low supervisor-worker ratios. Both models imply that there will be occupational segregation and that minority members will receive lower wages, although these are short-run phenomena in the tastes model. There are three points on which the models disagree. The tastes models implies that minorities will receive lower returns to skill level and education. The language model does not predict a lower return to schooling but does predict a higher return to skill level. Prior to 1960 returns to education were lower for blacks than for whites [Welch, 1967], perhaps because of lower quality education [Welch, 1973]; more recent evidence for blacks and women is mixed, but it appears that returns to education are similar for men and women and blacks and whites [Lang and Ruud, 1986; Lloyd and Niemi, 1979]. Finally, the language model implies that education levels will rise faster for minorities, while this will only be true in the tastes model if discrimination is decreasing. Education levels have been rising faster for blacks and women than for whites and men, even though there is little evidence that discrimination against women is decreasing.

VI. THE EVOLUTION OF SPEECH COMMUNITIES

Within the framework of a static model, government can promote equality goals only at the cost of efficiency. Occupational segregation occurs in such a way as to minimize transaction costs. Thus, affirmative action laws must decrease total income. Equal pay laws will, due to occupational segregation, have no effect unless they incorporate the somewhat nebulous concept of equal pay for equal work.

It is possible that government could reduce transaction costs



378 Q UAR TERLY JOURNAL OF ECONOMICS

by promoting "black capitalism." In the model presented in this paper, interaction between different speech communities occurs because capital is relatively scarce in one community. By trans- ferring capital from one community to another, government could reduce the need for interaction, thereby lowering language costs and increasing total output.

However, in a dynamic model there may well be a wider role for government policy and minimizing short-run transaction costs may not be desirable. In an overlapping generations framework, the lingua franca chosen need not be efficient. Thus, French re- tained its dominance in diplomacy long after French power had waned simply because anyone wanting to become a diplomat had learned French. If it were possible for generations yet to be born to pay the existing diplomats to learn English, they might have chosen to do so. At the same time, it may not be worthwhile for the generation entering the diplomatic service to pay the cost of the transition from French to English themselves. In fact, given that the new generation is always small relative to the number of incumbents, while the number of future generations is large, it may frequently be the case that the lingua franca is nonoptimal.

The model presented in this paper assumed that either people can communicate or they cannot. It is more reasonable to assume that there are degrees of communication. As two people's under- standing of a mutual language improves, the probability of a costly misunderstanding decreases. It is consistent with economic reasoning to assume that the marginal cost of mastering a language is increasing in the level of mastery. Transactions costs will therefore be minimized if the lingua franca is some combi- nation of participants' languages. In Quebec where the most common language is French but a substantial proportion speak En- glish, some people have suggested that it is cheaper to learn to understand a language than to learn to speak it. The cheapest way of arranging intergroup communication is through passive bilingualism in which each person understands the other's language but uses his primary language when he speaks. An alter- native is that everyone speak "franglais."

The possibility of the development of such a lingua franca provides a justification for affirmative action policies. Common languages evolve. Presently the dominant language of business is derived from the language of white males. Women and blacks are at a disadvantage. As more women and blacks enter higher




level positions, the language is likely to evolve. Gumperz [1971] documents the tendency of languages to converge. This also suggests that promoting black capitalism may be less desirable in the context of a dynamic model than it is in the static model. By promoting black capitalism, government would improve the status of blacks but would also promote segregation. This, in turn, might impose higher long-run costs on blacks.

School integration can also be justified as promoting a more socially desirable lingua franca. However, if in integrated settings new languages tend to develop that are not the language of business, whites coming from integrated schools will be at a disadvantage. Consequently, we would expect strong opposition to integration, from success-oriented parents.

Since, in the United States, coeducational schools have been the rule for a long time, it may appear that mixing "linguistic" groups does not lead to the development of a common language. In fact, relatively little is known regarding the determinants of the type of lingua franca that arises [Samarin, 1968; Reinecke, 1964]. Clearly, there is a tendency for different groups not to interact unless obligated to do so, since communication across language groups is difficult. Casual observation indicates that there is strong segregation by sex even within coeducational schools. Thus, simple "integration" may be insufficient for the development of a common language.

Integration does appear to change attitudes regarding minorities. Sheatsley [1966] found a sharp decline in anti-black attitudes following desegregation. Similarly, a higher proportion of men are opposed to working with women before working with them than afterwards. One possible explanation is that bigotry evolves out of miscommunication or, more generally, a lack of familiarity with minority customs.

Nevertheless, it is not the objective of this paper to explain all forms of discrimination by the language model. Clearly, goods (or bads) such as geographic and educational segregation (not provided through the competitive market), can be based on tastes. However, it appears that wage discrimination must be explained in other terms. One phenomenon that the language model can only partially explain is the "successful minorities," such as the Chinese in southeast Asia, the Lebanese in South America, and the Jews in North America. It is striking that these groups have been successful through entrepreneurship rather than rising




through the corporate hierarchy. They have accumulated capital that has allowed them to become net hirers, but this fact only raises the question as to why or how they accumulated capital.

VII. CONCLUSION

This paper makes use of the fact that communication is frequently not costless and that communication is more costly between dissimilar groups. It follows that the competitive market will tend to minimize intergroup communication (segregation). Small groups must bear the cost of communication so that discrimination can persist even in a competitive market. Although in a static framework, competitive equilibrium is efficient, there is a role for government in the context of overlapping generations. Government can affect the nature of the common language and thereby reduce transactions costs.

UNIVERSITY OF CALIFORNIA, IRVINE

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