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A foundational text introduces a paradigm, a school of thought, or a theory in a longer article. In our orientation section, you can learn about and compare ten different perspectives of Pluralist Economics in even more detail.
Authors: Tanita Lewis | Nyamekye Asare | Benjamin Fields
Academic Reviewers: Prof. William Darity | Prof. Samuel Myers Jr. | Kirsten Mullen
Stratification economics is defined as a systemic and empirically grounded approach to addressing intergroup inequality. Stratification economics integrates economics, sociology and social psychology to distinctively analyze inequality across groups that are socially differentiated, be it by race, ethnicity, gender, caste, sexuality, religion or any other social differentiation.
Table of contents
Stratification economics is defined as a systemic and empirically grounded approach to addressing intergroup inequality. Stratification economics integrates economics, sociology and social psychology to distinctively analyze inequality across groups that are socially differentiated, be it by race, ethnicity, gender, caste, sexuality, religion or any other social differentiation. It examines the role of relative group position and group action in determining individual life outcomes. It highlights the structural and intentional processes that generate and maintain hierarchy within and between these groups. It consciously rejects that intergroup inequality is a function of collective dysfunction, cultural practices, deficits in personal responsibility, or biological determinism (Darity Jr, 2005).
Group identity and group action are core elements of stratification economics. In stratification economics, an individual’s group identification is necessarily a complex mix of ascription by others and personal choice. Currently, stratification economics predominantly analyzes racial and ethnic intergroup inequality with a particular focus on the situation of Black Americans. Social groups are motivated by collective self-interest in order to maintain or improve their relative group position in social hierarchy. Stratification economics recognizes that the dominant group seeks to actively maintain their relatively superior position through exclusionary and discriminatory practices and the intergenerational transfer of wealth.
Stratification economics is an emerging field with varying definitions and applications; some scholars use it in the context of race, intergroup inequality or global inequality. It has been predominantly applied to the following domains:
Immigration and socioeconomic assimilation
Economic inequality: Income inequality is often the central focus of mainstream economic analyses of racial inequality, whilst the importance of wealth inequality in determining socioeconomic outcomes is neglected. Stratification economics understands that wealth is a critical determinant of family well-being, and wealth inequality has far-reaching effects in interconnected domains such as economic inequality, homeownership, employment and education. Stratification economics highlights the iterative nature of wealth generation; wealth inequality is largely attributed to intergenerational transmission effects, structural discrimination and systemic deprivation, which prevent wealth accumulation in disenfranchised families.
Income inequality is directly linked to labor market stratification and wage inequality. Stratification economics recognizes that institutional racism and employment discrimination funnel Black people into low-status and low-income occupations resulting in occupational segregation. For example, a stratification perspective is relevant to understanding the socioeconomic outcomes of the COVID-19 crisis: there is simultaneously a high concentration of minoritized ethnicities in ‘essential’ professions and disproportionate death rates for these groups in both the US and the UK.
Intergroup discrimination: Discrimination is relevant to understanding both group action, economic inequality and socioeconomic assimilation. It should be noted that there are various legal notions of what constitutes discrimination (see Rogers, 2006). Discrimination is legally defined as either differential treatment (intentional) of socially-differentiated individuals or as disparate impact (unintentional). Stratification is grounded in both but goes beyond these myopic legal definitions in recognizing the historical, institutional and structural factors and context that lead to disparities. There is a necessary distinction between how stratification economists view discrimination and how conventional mainstream economists view discrimination. In failing to recognize the wider context of discrimination, mainstream economics often ignores the many factors that predate discrimination. An example of illegal discrimination evaluated in stratification economics is that of discriminatory and predatory lending practices (see Myers, 1993 and Borooah and Myers, 2014 for more on discrimination).
Intragroup discrimination: It is also necessary to highlight how discrimination functions within social groups, with skin tone being an ascriptive marker that can determine the degree of discrimination. Colorism, the discrimination and structural oppression against dark-skinned people, plays an essential role in determining both intragroup and intergroup inequalities. As a form of in-group stratification, colorism creates a scale of social and economic opportunities across the world in which lighter-skinned people’s proximity to white-identified appearances is an advantage, while darker-skinned people, on average, report lower levels of socioeconomic well-being (see Darity Jr. and Mason, 1998). This discrimination is also represented in the treatment of the Dalits of India’s caste system. Stratification economics was developed with the Dalit community in mind as another example to illustrate the conditions and circumstances of this discrimination. Nevertheless, stratification economics is a general theory of inequality that can be employed wherever there are disparities between and within socially-differentiated groups.
Immigration and socioeconomic assimilation: Socioeconomic assimilation denotes the extent to which ‘immigrants achieve levels of wealth, income, educational attainment and other dimensions of well-being that are on par with the host country’s dominant group’ (Darity Jr. et al., 2017). In both the US and the UK, the promise of upward mobility for ethnic minorities is strongly propagated to encourage conformity and model minority behavior. Because it is intrinsically a narrative of denial, stratification economics rejects that socioeconomic assimilation can be achieved through hard work and successful integration into society. Contrary to this metanarrative’s proposition of individual work ethic, in reality, the major determinants of socioeconomic assimilation are skin tone, pre-migration wealth and the relative social position in the home country of an ethnic group. The importance of pre-migration wealth and relative social position is explained by Darity’s lateral mobility hypothesis. This is closely linked to imported stratification, whereby when social groups move from one country to another, they carry the existing stratification from the former country to the new one (Darity Jr. et al., 2017). A prime example of this is caste discrimination in employment amongst Indian populations in the UK and the US.
Global inequality: Stratification economics analyses the reproduction of stratification across as well as within societies around the world. A key finding is that subaltern racial and ethnic populations suffer similar outcomes across the globe, demonstrating worldwide structural racial inequality (Darity Jr. and Nembhard, 2000). In regard to global inequality, the stratification economist recognizes colonialism as a critical factor in the origin of such inequality. The works of Gregory Price (2003) and Eric Williams (1944) can be referenced to explain the poverty status of many formerly colonized nations.
Stratification economics is a reaction to the inability of mainstream and orthodox economics to see, explain and point to remedies for intergroup inequality. Historically, mainstream economics has attributed racial and ethnic disparities to the fault of the group that is subjected to those disparities and inequalities. This ‘blaming the victim’ obscures the real factors that are producing intergroup inequalities (Ryan, 1971). This obscurity facilitates the persistence of racial and ethnic disparity by making it impossible to address the root cause of the most pressing social problems. For example, these narratives become a vehicle for denying the provision of public support to those in need. Stratification economics acknowledges that these kinds of deprivations are a consequence of structural factors and are not attributable to individual dysfunction or deficiencies. It responds to mainstream economics’ myopic view that individual agents if properly incentivized in markets free of discrimination, can achieve social mobility.
In neoclassical economics, intergroup discrimination has been confined to the domain of labor economics; stratification economics responds to this by extending analyses of intergroup inequality to wider arenas, including social welfare, wealth, political influence, health and social inclusion (Darity Jr, Hamilton and Stewart, 2014). The most prominent neoclassical labor analysis of discrimination, Gary Becker’s Economics of Discrimination, proposed the taste-based discrimination model and inspired statistical models of discrimination (1957). Both models deny and fail to explain the persistence of discrimination. This is in direct contrast to stratification economics which removes the focus from the decisions of an individual to concentrate on group decisions and behavior made in collective self-interest. Stratification economics treats identity as endogenous, where individuals will structure their identity in a certain way so that investing in their group identity can lead to economic returns and benefits. It recognizes that the functional role of discrimination is to preserve hierarchy. Thus, stratification economics identifies the structural and intentional processes that enable persistent discrimination and inequality.
Stratification economics diverges from mainstream economics in how it integrates approaches from different social science disciplines (Davis, 2019). Politics, social psychology and sociology are incorporated to understand how politics creates certain structures, how identity formation affects economic decisions, and how this manifests in social hierarchy. In summary, stratification economics directly challenges schools of thought that attempt to attribute intergroup economic disparity to personal responsibility or cultural practices; it examines and reveals the historical, institutional and structural factors that engender persistent inequality.
Colorism is a form of racism that allocates privilege or disadvantage on the basis of the lightness or darkness of one’s skin shade.
Economic inequality is the unequal distribution of income, wealth and opportunity between different groups in society; it includes wealth inequality and income inequality (IWA World of Labor, nd).
Endogeneity of race refers to the understanding that race is a social construct that itself might be malleable and is therefore contextual.
Group identity refers to a person’s sense of belonging to a particular group.
Group action typically refers to actions or decisions that are common to and generally undertaken by members of a group to preserve or augment the group’s interests.
Hierarchy is the structured order of status, wealth, or income into a spectrum with people situated at different positions within the given spectrum.
Lateral mobility hypothesis refers to the explanation that best explains ethnic group accession following immigration. It suggests that the relative social standing of the majority of the members of an ethnic group in their country of origin will play a critical role in determining the highest social status attained by the adult migrants in the receiving country and the social status of subsequent generations.
Relative group position refers to the way that groups understand their well-being in relative comparison to other groups defined by the same parameter, e.g. race, ethnicity.
Reparations is a process of repairing, healing and restoring a people injured because of their group identity and in violation of their fundamental human rights by governments, corporations, institutions and families (N’COBRA, n.d.). Reparations, in the context of stratification economics, refers to the duty of the state to compensate those descended from enslaved Black people and correct the resulting continued racial wealth inequities.
Social stratification typically refers to the hierarchical arrangement of social classes, castes, and strata within a society.
Stratification economics deals with the structural and intentional process of generating and maintaining a hierarchy (Darity, 2005), with a dominant group (based on a racial, gendered, or another demographic characteristic) arranging this process at the expense of a different, subordinated (demographic) group (Darity et al., 2014). Hierarchy is concentrated along the lines of economic or social outcomes that can be influenced by direct actions like policy or social ostracization, creating monumental differences across the spectrum of people in the form of inequality.
The four types of inequality that represent the structured order of hierarchy are:
Wealth inequality, or the occurrence of a particular group having a much larger and disproportionate share of capital; although capital is commonly considered to be money, it could be represented in real estate, business ownership, newspapers, or other valuable assets.
Income inequality is related to wealth inequality in that income generation contributes to wealth. More specifically, income represents wages earned from labor, or capital gains and returns; the latter is typically constrained to the dominant group in the contemporary global landscape, who has access to wealth opportunities as capitalists that the subordinated group/s do not. Income is stratified where the largest disproportionate share of income is earned by the dominant group and a smaller share by the subordinate group/s.
Status is another arena in which hierarchy manifests; positions in government, on Boards of Directors, in prestigious careers, and other venues are disproportionately concentrated amongst the dominant group compared to the subordinated group/s, even after accounting for population proportion. These positions of power and influence are used by the dominant group to recreate and maintain the system of inequality, i.e. stratification.
Life outcomes are another form of inequality, as there are differential levels of health, educational attainment, and other relevant outcomes.
Inequality is pivotal in stratification because it shows that the system is working the way it is designed and, therefore, validates the myth meritocracy. Positionality is also important because, within the hierarchy, there is a battle of people trying to either improve their relative position or maintain a higher position (Darity et al., 2014). Ultimately, one of the major reasons that positionality becomes important is because of human’s psychological want to compare their relative position within their own group instead of comparing their group’s position amongst other groups. Furthermore, they also view their position within the group as a proxy for their own group’s progress, ignoring some of the structural processes of the creation of stratified society.
There are four approaches a stratification economist would use (Darity 2005):
The first approach is to use grand macro-inequality theory at the international level. This approach involves measuring inequality between rich and poor nations, attempting to explain differences in their existence due to socially-constructed causes, rejecting the colorblind and discriminatory approach that is taken in mainstream economics. There are three orthodox nodes of explanation for global distributions of inequities based on racial/ethnic background: the people, the environment, and the global economic regime. Orthodox arguments in economics attribute international inequality to genetic and environmental/climatic differences, such as in the works of Jeffrey Sachs. (Sachs and Warner, 2001). Economists like Alberto Alesina reject these orthodox racist and discriminatory positions that hold international inequality as a phenomenon rooted in genetic differences (Alesina et al., 2016). Stratification economists recognize the economic arrangement of inter-governmental institutions, looking at patterns of trade laws, and other economic influences that cause particular groups of nations to underperform relative to others.
The second approach is to reject the theoretical notion that competitive processes in market economies drive discriminatory employers out of business as they are expected to, and instead recognize that discriminatory practices causing stratification are persistent. The theoretical notions of neglecting to recognize the systems of inequality are persistent in (1) holding assumptions about competitive equilibrium (2) subscribing to bounded rationality. Economists still continue to hold untenable assumptions, both in terms of classical economic principles and race under the labor economics framework. For example, the discriminatory belief that Black people do not have the ability to defer immediate monetary gains for future gratification.
The third approach is measuring the effects of structured disadvantage over generations through policymaking and economists purposefully ignoring the maintenance of the status quo (themselves contributing through implementing hurtful instead of evidence-based interventions). There is an alleged competitive nature in business that will push out discriminatory practices because people would not support these firms and they would not be able to recruit this labor, etc. However, throughout the centuries following events like the 1964 Civil Rights Act in the United States, things have not changed in the manner they were meant to. Things like redlining, opposition to affirmative action policies, proxy restrictions that target different groups - e.g. not allowing “unprofessional hairstyles'' - and more have contributed towards systematically excluding specific sects of people. There are still workplace discrimination matrixes based on race, gender, and other demographic characteristics, and some of the disparities are growing worse, such as, such as Black representation in the technology industry. This phenomenon is not unique to the American context, as there are differences seen across different geo-spatial areas - for example comparing in Brazil or Europe - and these are even after taking into account differences in education, economic status, and more.
The fourth and final approach is showing that intergroup disparity is an explanation of the variations in ethnic/racial group outcomes within a country, most saliently in the United States. This essentially means that we must recognize intergroup disparity as the outcome, and then explain why it comes to be. Using evidence, we can test whether or not it is based on pseudo-scientific racial processes that are exemplified in some types of research, or whether it is due to structural processes outside of the control of the groups being disproportionately affected in the negative sense.
Stratification economics is a diverse field that uses multiple analytical techniques and methods. However, usually the analyses involve measuring disparities under two frameworks:
Studying of intra-group disparities within a group
Studying of inter-group disparities between groups
Depending on the question, there is a broad and diverse array of techniques to use that are both quantitative and qualitative. Quantitative work currently dominates stratification economic research with a particular emphasis on the disaggregation of data (Stanfield et al 1993). For example, there is great value in accessing digitized census records, quantifying racist historical events such as lynchings over time, and more. The tools used are traditional regression models, causality tests, dynamic modeling, panel data, and econometrics. However, with a strong relationship to sociology and other social sciences, mixed-method approaches are becoming more common in the discipline, and stratification economists are including more narratives and archival research in their work.
Stratification economists will find experimental methods from social psychology important in being able to induce or prompt certain types of behaviors or attitudes from people that cannot be done in a strictly economic framework. A prime example is Devah Pager’s work on fictitious job applications and racist hiring outcomes (Pager et al., 2009). As an emerging field, stratification economics will no doubt see newer adaptations in methodology in the years to come.
Lastly, stratification economists are realizing there are alternate ways of approaching stratification economics problems. Historically, research in educational settings has been focused on the dysfunctional behavior of students, but have never looked at the role of teachers, staff, and administrators in perpetuating the behavior that students are having. There is research at the intersections of economics, sociology, and education that show adult figures play a significant role in the types of behavior differences that come out in the classroom. This is indicative of not having an individualistic focus as most economics literature does, but taking a more structural approach; this is necessary because the people in power represent a system that creates inter-group disparities.
The belief of mainstream economics teaches us that economic inequality between groups can be explained by gaps in human capital, i.e., education. Policymakers, public figures, and economists from the liberal and conservative sides of the political spectrum hold this viewpoint (Darity, 2005). However, claims of these group-based deficits are inconsistent with empirical evidence. Stratification economists believe that the defectiveness of a group is an ideological mask that absolves the social system and those from privileged groups from criticism over their role in maintaining intergroup inequality. They see that the world is filled with “self-interested tribes engaged in a persistent dance of negotiation and conflict where conflict often includes acts of dehumanization and repression by the dominant group” (Darity, 2009).
Naturally, stratification economists argue for policies that address the role of the social systems and the dominant groups in maintaining intergroup inequality. They believe that policy intervention is needed to decrease discrimination over time. The political goals of stratification can be demonstrated through the policy proposals and recommendations made by the discipline.
As discussed earlier, one of the expectations held by stratification economists is that material benefits contribute greatly to the efforts of the dominant group to maintain their privilege. The intergenerational transmission effect is highly dependent on the transfer of material resources across generations. The racial gaps in wealth in the US is much larger than the racial gaps in income or earnings. To explain the gap between black and white wealth, the mainstream view is that Black people are uninformed investors who array their portfolios such that they earn lower rates of returns and that they are reckless spenders. However, Gittleman and Wolff (2004) find that after income is controlled for, the savings rates for Black people are just as high as that for white people. Stratification economists would attribute the wealth gap to the long-term effects of property dispossession on the current generations instead of “Black behaviour deficiencies” (Darity, 2005). Inheritance, marriage, purchase of a new home are examples of key wealth dimensions.
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A political goal of a stratification economist would be to advocate for policies that would reduce/close the wealth gap. Inheritances, bequests, and intrafamily transfers account more for the racial wealth gap than any other socioeconomic and demographic indicators such as education and income (Hamilton and Darity, 2010; Gittleman and Wolff, 2004). Thus, a stratification economist would advise policymakers to come up with a program that would bridge this gap through policy intervention and advocate a shift from income means testing to wealth means testing (see Hamilton and Darity, 2010). Hamilton and Darity (2010) and Hamilton et al. (2016) proposed universal child trust accounts or “baby bonds” for newborns as a way to reduce the wealth gap and provide an opportunity for asset development regardless of the family’s financial position. Under this program, each American would be given a wealth grant which can be accessed at the age of 18. The amount received would depend on the wealth of the child’s family. Up to $60,000 (or an average of $20,000 per child) would be given to children with less than the median wealth meaning that about 77% of Black American families would benefit from this program.
Thanks to stratification economics, the US government finally giving African American descendants of slaves reparations owed to them would be a policy goal that can close the black-white wealth gap (See Darity, 2005; 2009 for more on reparations). The US government promised ex-slaves forty acres and a mule after the Civil War (Darity 2005; Darity 2009; Hamilton and Darity, 2010). However, that promise had been broken. Black people being systematically deprived of property, especially between 1880 and 1910 because of fraud and seizures by white nationalists and government complicity and successful Black communities destroyed by white looters. With smaller inheritances and intrafamily transfers, Black Americans are less likely than their white counterparts to pass on wealth to the next generation. Inheritance and bequests and intrafamily transfers account more for wealth inequality than education and income (Hamilton and Darity, 2010). Thus, a policy intervention such as reparations which is owed to African-American descendants of enslaved people, can reduce wealth inequality.
Another political goal would be to use policy intervention to reduce the employment inequality between members of a dominant group and that of the subordinate group. For example, Darity (2010) proposed the formation of “a National Investment Employment Corps”, which would provide a job guarantee for all citizens capable and willing to work (also considered as full employment). This program would not be dependent on the state of the economy. Thus, Black people who face, on average, higher unemployment and are more likely to lose their jobs during bad times than their white counterparts can benefit from this program. Furthermore, the benefits of this job guarantee would include providing the necessary work to improve the US physical and human infrastructure, placing a floor on employment conditions provided by the private sector, eliminating working poverty, and overcoming mental and physical illness associated with prolonged unemployment (Darity, 2010).
In order for policies advocated by stratification to be made possible, policymakers must implement inclusionary rules to address the past and present rules and inequities that shape the lives (Flynn et al., 2017). However, this is dependent on who writes the rules. Flynn et al. (2017) identified several guiding principles for rewriting racial rules to be made possible. One of them is to ensure that there are people from various racial, ethnic, and economic backgrounds in power. This includes people from marginalized communities. Stratification economics focuses on dominant groups maintaining intergroup inequality. Thus, if those who write the rules are predominantly from a dominant group, then it is likely that economic exclusion would continue. History has shown that whenever there is a power imbalance, then black disenfranchisement and economic exclusion persist (Flynn et al., 2017).
Changing demographics in the US, the COVID-19 pandemic, and the racial reckoning may provide an opportunity for policymakers to consider political positions taken by stratification economists and to build support for policies that make the economy more inclusive.
Examples of current debates in stratification economics are presented in this section.
Darity et al. (2017) has pointed out that stratification economics is a form of real conflict theory in which competition over material resources lies in the heart of the persistent group affiliation and attachment. Opposing claims to resources lies at the core of emerging ethnocentrism. Flynn et al. (2017), like the stratification economists, reject the notion that deficits in personal responsibility and cultural practices are also considered as explanatory for inequality between groups. Although they heavily rely on work from Darity et al. (2017) to construct racial rules that can make the economy more inclusive, they do not argue that racial inequality arises from material privilege.
Insight into the stratification economics approach can be found in a debate between Allport and Blumer (Darity et al., 2017). Allport (1954) has believed that prejudice is a matter of individual or personal psychology. For instance, people with authoritarianism beliefs are more likely to adopt and maintain stereotypical beliefs about others. He proposes that members of different groups should communicate under conditions in which they have the same common goals (Darity et al., 2017). Whether this is realistic is questionable. On the other hand, Blumer finds that prejudice beliefs stem from the collective concern about the relative group position among members of ethnic/racial groups. Further, Blumer believes that some of the feelings among members of the in-group considered prejudicial include superiority, the subordinate group is different and strange, and a sense of proprietary claim, which he strongly emphasizes (see Darity et al., 2017, Flynn et al., 2017 for more on the source of prejudicial beliefs). Stratification economics is consistent with Blumer’s view of the source of prejudicial beliefs. As a matter of fact, Darity et al. (2017) call the critical role that the relative group positions itself plays in developing and maintaining prejudicial beliefs about the other groups as a “signature feature of stratification economics.”
Flynn et al. (2017) write that race-neutral policies come with mixed results. Policies such as the New Deal and mandatory minimum sentences have led to more racially unequal outcomes, while the Affordable Care Act and increases in minimum wages have helped reduce racial disparities. They stress that race-neutral policies are in fact not colourblind as they are intended. According to Flynn et al. (2017), race-neutral policies stall and, in some cases, setback progress made by “racially explicit programs.” They advocate for race-focused policies in which they claim could close the black-white gaps in outcomes.
Myers and Ha (2018) neither argue for or against race-neutrality. They do stress that race-focused remedies such as affirmative action policies in hiring and college admissions suffer from legal challenges and opposition from a majority of Americans. Race-neutral remedies aim to help minorities (or those in the subordinate groups) without hurting members of the dominant group. However, in analyzing the policy effectiveness of race-neutrality, they find that these policies fail more than they succeed. Nonetheless, they recommend that policy analysts shift “focus on the underlying problem that the alternative remedies are attempting to resolve”, rather than focusing on whether the policy is race-neutral.
Hamilton and Darity (2010) believe that there is a lack of public support to directly address the racial wealth gap in a “post-racial society”. They argue that, in this case, wealth can be used as a race-neutral instrument. An example would be policies that shift from using an income means test to a wealth means test. This implies that using policies on wealth without referring to race can be beneficial in addressing wealth inequality given the lack of support from the general public.
Stratification economics, first coined by Darity (2005) in the J. Anderson Davis lecture, Academy of Economics and Finance annual meeting, is in itself an emerging sub-field. As mentioned by Darity et al. (2014), it expands on how economists analyze intergroup differences in terms of the “interplay between members of the social groups animated by their collective self-interest to attain or maintain relative group positions in a social hierarchy.” Even though wealth or net worth has a stronger relationship with an individual’s race or ethnicity than employment and earnings, race has been treated as a “peripheral object” in labour economics (Darity et al., 2014).
This emerging sub-field addresses the way race has been treated and challenges economists to take a different approach in analyzing intergroup inequality. As highlighted by Davis (2019), income and wealth are fundamental topics in economics, and discrimination manifests through price mechanism. He writes that this would mean that analyzing the persistent wealth differences across social groups, which is what stratification economics does, should be central in studying economics. This would mean that this subfield should be prominent in the economics discipline (Davis, 2019).
Stratification economics can intersect with other fields such as macroeconomics, microeconomics, labour, and financial economics. This is because it attempts to answer questions on various social stratification topics such as property rights in identity, human capital, financial capital, consumer surplus, health, and labor market outcomes (see Darity et al., 2014).
Journals: Many stratification economic texts can be found in the Review of Black Political Economy: https://journals.sagepub.com/home/rbp. Other texts may also be found in the Journal of Exclusion Studies based in India: https://www.indianjournals.com/ijor.aspx?target=ijor:jes&type=home and the Brandeis-based Journal of Exclusion Studies https://journals.library.brandeis.edu/index.php/caste/index
Institutions: Stratification economics is associated with the work of the National Economic Association: https://www.neaecon.org/
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