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What’s the deal with discrimination?


Have no illusions, discrimination is still alive and well. I’ve posted before on racism in the US. And a recent study on discrimination in the job market is particularly appalling:

Decades of racial progress have led some researchers and policymakers to doubt that discrimination remains an important cause of economic inequality. To study contemporary discrimination we conducted a field experiment in the low-wage labor market of New York City. The experiment recruited white, black, and Latino job applicants, called testers, who were matched on demographic characteristics and interpersonal skills. The testers were given equivalent resumes and sent to apply in tandem for hundreds of entry-level jobs. Our results show that black applicants were half as likely to receive a callback or job offer relative to equally qualified whites. In fact, black and Latino applicants with clean backgrounds fared no better than a white applicant just released from prison. Additional qualitative evidence from our testers’ experiences further illustrates the multiple points at which employment trajectories can be deflected by various forms of racial bias. Together these results point to the subtle but systematic forms of discrimination that continue to shape employment opportunities for low-wage workers.

Source: Discrimination in a Low-Wage Labor Market: A Field Experiment” from IZA Discussion Paper No. 4469, October 2009

 So should we just expect discrimination is going to happen? Actually, that can make it worse:

The paper explains how workers’ expectations of being discriminated against can be self confirming, accounting for the persistence of unequal outcomes in the labour market even beyond the causes that originally generated them. The theoretical framework used is a two stage game of incomplete information in which one employer promotes only one among two workers after having observed their productivity, which is used as a signal of their ability. Workers who expect to be discriminated against exert a lower effort on average, because of a lower expected return, thereby being promoted less frequently even by unbiased employers. This implies that achievements of minority groups may not improve when the fraction of discriminatory employers actually decreases, and such a mechanism is robust both to trial work periods and to affirmative actions like quotas.

Source: Can Workers’ Expectations Account for the Persistence of Discrimination?* from IZA Discussion Paper No. 4490, October 2009

 In fact, sometimes discrimination exists without any racia or gender hatred — it’s just done because it makes economic sense (however amoral):

When can you cheat some people without damaging your reputation among others?In a trust game between a firm and a series of individuals from minority and majority groups, the firm has more incentive to cheat minority individuals because trade with the minority is less frequent and the long-term benefits of a reputation for fairness toward them are correspondingly smaller. If the majority is sufficiently large it gains nothing from a solidarity strategy of punishing opportunism against the minority, so the firm can continue doing business with the majority even if it cheats the minority. When a small fraction of firms have a preference-based bias against the minority, the interaction with reputation effects gives all firms a stronger incentive to cheat the minority, and discrimination is the unique renegotiation-proof equilibrium for firms of intermediate patience.

Source: Opportunistic Discrimination∗” by Rick Harbaugh and Ted To, 8/2009

So does that mean that discrimination, economically speaking, is a good idea? Far from it:

Gender-based discrimination is a pervasive and costly phenomenon. To a greater or lesser extent, all economies present a gender wage gap, associated with lower female labour force participation rates and higher fertility. This paper presents a growth model where saving, fertility and labour market participation are endogenously determined, and there is wage discrimination. The model is calibrated to mimic the performance of the U.S. economy, including the gender wage gap and relative female labour force participation. We then compute the output cost of an increase in discrimination, to find that a 50 percent increase in the gender wage gap leads to a decrease in income per capita of a quarter of the original output. We then compile independent estimates of the female to male earnings ratio for a wide cross-section of countries to construct a new economy, in line with the benchmark U.S. economy, except for the degree of discrimination. We compare the level of output per capita predicted by this model economy with the actual output per capita for each country. Higher discrimination leads to lower output per capita for two reasons: a direct decrease in female labour market participation and an indirect effect through an increase in fertility. We find that for several countries a large fraction of the actual difference in output per capita between the U.S. and the different economies is due to gender inequality. For countries such as Ireland and Saudi Arabia, wage discrimination actually explains all of the output difference with the U.S. Moreover, we find that the increase in fertility due to discrimination is responsible for almost half of the decrease in output per capita, and equivalent to the direct decrease in output due to lower female participation. Our basic model suggests the costs of gender discrimination are indeed quite substantial and should be a central concern in any macroeconomic policy aimed at increasing output per capita in the long-run. 

And companies that discriminate get their due:

According to Becker’s (1957) famous theory on discrimination, entrepreneurs with a strong prejudice against female workers forgo profits by submitting to their tastes. In a competitive market their firms lack efficiency and are therefore forced to leave. We present new empirical evidence for this prediction by studying the survival of startup firms in a large longitudinal matched employer-employee data set from Austria. Our results show that firms with strong preferences for discrimination, i.e. a low share of female employees relatively to the industry average, have significantly shorter survival rates. This is especially relevant for firms starting out with female shares in the lower tail of the distribution. They exit about 18 months earlier than firms with a median share of females. We see no differences in survival between firms at the top of the female share distribution and at the median, though. We further document that highly discriminatory firms that manage to survive submit to market powers and increase their female workforce over time.

Source: “Competition and Gender Prejudice: Are Discriminatory Employers Doomed to Fail?”

Plus, things can and do change for the better. The NBA used to discriminate against black players and black coaches but that is now largely a thing of the past:

This Chapter reviews evidence on discrimination in basketball, primarily examining studies onrace but with some discussion of gender as well. I focus on discrimination in pay, hiring, and retention against black NBA players and coaches and pay disparities by gender among college coaches. There was much evidence for each of these forms of discrimination against black NBA players in the 1980s. However, there appears to be less evidence of racial compensation, hiring and retention discrimination against black players in the 1990s and early 2000s than the 1980s. This apparent decline is consistent with research on customer discrimination in the NBA: in the 1980s, there was abundant evidence of fan preference for white players; however, since the 1980s, these preferences seem much weaker. There appears to be little evidence of pay, hiring or retention discrimination against black NBA coaches, and while male college basketball coaches outearn females, this gap is accounted for by differences in revenues and coaches’ work histories. There is some dispute over whether these revenue differences are themselves the result of employer discrimination.

Source: The Economics of Discrimination: Evidence from Basketball*” from IZA Discussion Paper No. 3987, January 2009

It’s a shame more people don’t read research because then at least we might see much more selfishly motivated racial diversity in schools. Why? A study looking for how racially diverse friendships might improve academic achievement was only able to find a substantial benefit for one group — white kids:

This paper finds the effect of having friends of a similar race and who are involved in similar activities. It explores data which allows a peer group to be defined openly through self nominations. Using a strategy that corrects for the endogeneity of peer effects by instrumenting using variables at the “grade within school” level, it is shown that friendship diversity can help whites increase achievement. Although not much significance was found with other races, most of the strategies pushed towards the direction of racial diversity aiding achievement. Regarding extracurricular activities, it is found that there is a benefit in having friends in common individual academic activities, conditional on the respondent only belonging to academic or scholastic clubs. There are insignificant effects in having friends in common sports, conditional on the respondent only participating in sports.

Source: “The Effects of Racial and Extracurricular Friendship Diversity on Achievement”

A recent article in the Boston Globe says that all the diversity training that’s been going on isn’t working. I don’t dispute that but can we, as individuals, really stop being prejudiced if we try? Yes:

Internal motivation to behave nonprejudiced reduces automatic and controlled prejudice. The present studies examined the impact of internal motivation to behave nonprejudiced on reactions to one s failure to behave nonprejudiced. In Study 1 higher levels of internal motivation led to more negative self-directed affect when failing to behave nonprejudiced, but not when failing in other domains. In Study 2 higher levels of internal motivation led to less prejudice after failure to behave nonprejudiced, but not in a non-failure condition. These findings suggest that failure to behave nonprejudiced plays a key role for highly internally motivated individuals in learning to regulate prejudice successfully.

Source: “Willing and able: How internal motivation and failure help to overcome prejudice” from the Journal “Group Processes and Intergroup Relations”

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