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Using Becker's ‘taste for discrimination’ model, the chapter analyzes the current legislation against wage discrimination and finds it counterproductive. Using a costly apparatus of auditing, detecting and fining violators does not deliver results. If a fine is levied on discriminators and reimbursed to the disadvantaged workers in order to undo the discrimination, it affects equally the demand for and the supply of those workers, because their expected wage includes the fine, and has no real effect. If the fine is collected and kept by the government, it shifts employment away from the workers it seeks to help, to others, depressing the total employment. In contrast, levying a tax on the favored workers effectively curbs discrimination in the labor market. A quota is a possible substitute for a tax with questionable side effects. Affirmative action is in essence a sort of tax on employing favored workers, only administered in an indirect, clumsy and costly way. Yet, the chapter explains its humble impact in the right direction. An explicit and direct tax would do much more and with a negative cost. Alternatively, subsidizing the disfavored workers is a costly but as effective policy that, in addition, boosts total employment.

Early models of the functional distribution of income assume constant labor productivity among all individuals. Not until human capital theory developed did scholars take into account how productivity varied across workers. According to early human capital models, this variation came about because each individual invested differently in education and training. Those acquiring greater amounts of schooling and on-the-job training earned more. However, these models neglected why one person would get training while another would not. One explanation is individual heterogeneity. Some individuals are smarter, some seek risk, some have time preferences for the future over the present, some simply are lucky by being in the right place at the right time, and some are motivated by the pay incentives of the jobs they are in. This volume contains 10 chapters, each dealing with an aspect of earnings. Of these, the first three deal directly with earnings distribution, the next four with job design and remuneration, the next two with discrimination, and the final chapter with wage rigidities in the labor market.