The effects of Affirmative Action policies against discrimination

No one denies that there exist some forms of discrimination in the labor market and in many other places of our societies. There is, however, debate about the cause or causes of this discrimination and about the best ways to deal with it. Does discrimination start with some sort of education or social pressure that makes women choose jobs that are worse paid? Or is it that employers prefer whites rather than blacks? If they do, why are they willing to pay more to hire whites? Is it because they just like them better or because they think, with or without reason, that whites work better or that customers prefer them?

Economic theory has studied different explanations for economic discrimination: it can be the result of preferences against some groups (Becker, 1971) ¹, the consequence of using information of the group to assess the skills of the individual (this is the statistical discrimination in Arrow, 1973) ² or it can be due to the existence of multiple equilibria in the labor market because of the presence of asymmetric information in such a way that in different groups prevails a different equilibrium (Spence, 1973) ³, among many others possibilities. Different causes imply different anti-discrimination policies, including doing nothing if discriminating is so costly that the employers that discriminate will be pushed out of the market. In this article I will review one of the most controversial policies implemented to limit discrimination: Affirmative Action (AA).

AA comprises anti-discrimination policies that require pro-active steps, and must be distinguished from other anti-discrimination measures. For instance, to require that, in case of identical qualifications, the person in the discriminated group must be chosen is an AA measure, while to punish the employer that refuses to hire a better qualified person because of her sex is not.

The first country to make extensive use of AA policies was the USA in the 70’s. The first analysis of their effects was due to Jonathan Leonard, who published his results in a series of articles (Leonard, 1984a ⁴, 1984b ⁵, 1984c ⁶ and 1990 ⁷).

Leonard compares the employment of minorities and women in the sector with obligations or incentives to participate in AA programs (like contractors working for the Administration) with employment in similar firms that do not participate in the program. The results for the 1974-1980 period show that the increase in employment in the discriminated groups in the sector implementing AA was higher than in the control group, with the highest incidence in black women, whose participation was a 2.13% higher.

One of the battlefields of AA is in the jobs that require some education. In these occupations employers are more sensible to the differences in productivity, and consequently, take greater care in the selection process. On the other hand, these types of jobs offer a greater potential gain for the discriminated groups. According to the works by Leonard, employers were able to meet the mandated goals by employing more minority workers mostly in non-specialized jobs. This is not necessarily bad news. One of the presumptions of a long-term implementation of AA policies is that protected groups will have more opportunities for promotion after they are more represented in the lesser jobs. Leonard (1984b) [5] indeed observes this effect in the data of the second half of the 70’s. Using the appropriate controls, he finds that AA programs affect all levels of education, and work better when accompanied with proper inspections, when implemented alongside other policies oriented to increase the specialization of the protected groups and when applied to growing firms.

After the 80’s these policies were discontinued in practice for most of the programs. In the period between 1980 and 1984 the employment of women and minorities grew more slowly in the sector affected by AA policies than in the control sector, as if employers went back to the growth path that was abandoned when the AA policies started to be implemented. One hypothesis, favored by those opposing these programs, is that AA has the effect of employing and promoting workers with a lower productivity level, as they are favored just because they belong to the protected group. Leonard (1984c) [6] specifically addresses these questions and finds no indications that a decrease of productivity occurred in the target sector during the application of AA. The hypotheses that the policies did not last long enough to overcome centuries of discrimination or that employers have preferences against the discriminated groups are more likely.

This last conclusion by Leonard was not widely accepted, as it was based in measurements of productivity that were not very precise. In particular, Leonard used aggregated data by sector, while a proper measurement requires the use of data at the firm level. This was corrected by Holzer and Neumark (1999, 2000) ⁸ and ⁹, who find that there are differences in the qualifications between the discriminated and non-discriminated groups under AA, again an argument used by those opposing AA, however the same differences were observed in the sector without AA. Productivity, based on salaries and on reports is also as good as in the control sector. The only reported exception is for Hispanic males, but few of them have been hired under AA.

In a later work, Holzer and Neumark (2006) ¹⁰ surveyed the most recent literature on AA, and, in particular, focused on both equity and efficiency. The authors not only reviewed the studies regarding the job market, but were also interested in university admissions, where AA policies lasted longer. The conclusions found one decade earlier are validated. AA has been helpful at redistributing jobs and university admissions, although modestly, while at the same time the efficiency losses, in case they exist, are very small. Furthermore, in some sectors they find that there is evidence for some positive externalities caused by AA (e.g., in terms of better medical services and labor market contacts), and suggest the hypothesis that these positive externalities extend to employers and universities as well.

It seems then that AA helps to increase the participation of discriminated groups in the labor market without paying a cost due to a reduction in productivity. But how does it compare to other types of policies? Kalev et al. (2006) ¹¹ reviewed the works that study different anti-discrimination policies and reported that structures establishing responsibility (affirmative action plans, diversity committees, and diversity staff positions) are followed by significant increases in managerial diversity, while programs that target managerial stereotyping through education and feedback (diversity training and diversity evaluations) are not followed by increases in diversity, and programs that address social isolation among women and minorities (networking and mentoring programs) are followed by modest changes. This study suggests that AA policies have a greater comparative impact on overcoming discrimination.

All the conclusions reviewed in these articles are based on the USA experiences. It should be clear that different countries could react differently to similar policies due to idiosyncratic characteristics. Research on these other experiences is limited to some countries and to very specific programs, mostly on political representation and college admissions. Some evidence is mounting on the success to increase the presence of historically discriminated groups, like some castes in India, but there are not yet many studies measuring efficiency.