Thursday, September 22, 2016

Is race discrimination bad for business?

Economics tells us businesses that discriminate based on race are at a competitive disadvantage against non-discriminating firms. Common sense tell us that the discriminators also face increased costs imposed by anti-discrimination statutes (assuming the enforcement mechanisms of EEOC, state agency, and private litigation impose higher costs on discriminating firms). Do we have empirical evidence to confirm these theories?

Yes! Well, we at least have a start. Economist Alex Tabarrok at Marginal Revolution (and faculty at my law school alma mater, George Mason!) blogs Firms that Discriminate are More Likely to Go Bust. He links to a paper published in Sociological Science (Are Firms That Discriminate More Likely to Go Out of Business?) and notes:
The author, Devah Pager, is a pioneer in using field experiments to study discrimination. In 2004, she and co-authors, Bruce Western and Bart Bonikowski, ran an audit study on discrimination in New York using job applicants with similar resumes but different races and they found significant discrimination in callbacks. Now Pager has gone back to that data and asks what happened to those firms by 2010? She finds that 36% of the firms that discriminated failed but only 17% of the non-discriminatory firms failed.
As noted above, this seems logical; but, it's nice to have some actual data.