Can Adam Smith challenge Manu? Caste and the free market in India

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Editor's note: Do you think the market is impersonal? Or oblivious to race or caste? For mainstream economists, the growth of free markets—via the development of capitalism—would ensure that all race- or caste-based discriminations fade away. A market does not distinguish between a white or a black worker, or an upper-caste or a lower-caste worker. So, if a wage difference exists between two workers of different races or castes (of course, after adjusting for all other differences), competition in the market should create a wage arbitrage and wages should ultimately equalize. However, evidence is to the contrary. There is no equal pay for equal work in most capitalist labour markets. In the US, Black and Hispanic workers have lower annual average earnings than white workers even when they are on the same job with the same experience and education. According to one study, the difference in pay attributable to race was about $1,400 per year. In India, too, about 33-50% of the raw wage differentials between upper-caste and lower-caste workers in regular wage employment are argued to be explained by caste identities. …