What is Affirmative Action?

Policy Dimensions: 1. Monitoring - EEO-1 reports 2. Recruitment - Pre-hiring/admission stage 3. Preferential treatment at hiring/admin. stage 4. Training/Promotion-post-hiring stage 5. Mentoring 6. Government contracts to Minority or Women owned businesses 7. Voluntary: eligible for federal grants; broaden customer base 8. Involuntary: regulations, enforcement

2. DO WE NEED IT? Job Market Economic Theory - No, competition for labor will prevent wide spread discrimination in an efficient market Empirical reality – Yes, we do not have efficient markets

Question How do you observe or measure discrimination? In the Labor Market? In Education?

Type of Studies/Evidence: Wage regression - 10% wage gap unaccounted for by human capital differences: human capital measured by education, experience, test scores, etc. Audit - Matched pairs of individuals Employer studies - small establishments less likely to hire blacks.

Do We Need It In Education? Admissions – No, minorities are underrepresented but applicants are often given preferential treatment Resources – Yes, evidence that in primary/secondary education, minorities attend schools with lower resources

DOES IT WORK? Employment: modest positive effects for women and minorities. Effects weakened in the 1980s due to lack of enforcement Wages: helped reduce wage gap

Education Admissions: Sharp gains in enrollment (causal effect unclear); evidence of modest preferential treatment (may occur even without involuntary regulations. Contracts: clear evidence that the growth in minority and women owned companies getting more contracts was due to affirmative action

Lowering standards = underperformance = inefficiency in production? Employers spend more time in hiring = better fit. Discrimination leads to underutilization of skills and labor Affirmative action: hiring a minority of women with less observable qualification leads to inefficiency when the cost of mismatch (correct person for correct job) is high. Empirical evidence of inefficiency is ambiguous

A more macro-level perspective Discrimination leads to inefficiency: Blacks in the NBA Even if inefficiency can be observed at the individual or company level there may be some benefits of Affirmative action that off set these. Reduction in poverty and inequality Lower crime, lower welfare costs = more money to invest (at the individual, company and government level).

Affirmative Action in Education Matching student to university Is the grade/score matching the most effective? No – price matching is the most effective. Those who value the admission the most would pay the most and most likely do best. Is this socially optimal? Is SAT scores and GPA a good predictor in success in college? Are these scores fair?

Diversity in Education Does diversity provide a value or benefit? Prepare students for life in the 21 st century globalization Why did educated, smart NBA team owners believe that black were not as good as white players? Educated in an isolated environment. Why are male doctors less likely to correctly diagnose women heart problems and see warning signs?

Stigma “evil of preferential treatment [is that it] perpetuates the impression of inferiority” Charles Murray (1994) Creates a backlash against other race policies (welfare, etc.) Lower expectation = lower performance

Contracts Little empirical evidence on the inefficiencies of preferential treatment Theory: discrimination = preferential treatment, therefore, without affirmative action, the old boy network, places contracts with companies that are not always the cheapest or most qualified. Affirmative Action could lower costs (theoretically).

Summary of findings Significant labor market discrimination against minorities and women persist Affirmative Action redistribute employment, university admissions, and government contracts from white males to minorities and women, although this redistribution is not large Although qualifications between white males and minorities are observable, actual performance in the labor market is much less frequently observed

Future of Affirmative Action? Over the last several years, there has been a slow decline in the number of minority applicants. In 2005, African- American applicants were down 8.2% from 2004 and Latino applicants fell by 8.7%

Policy Alternatives Need based scholarships Increased Recruitment –Job advertisement –K-12 minority guiding California top 4%; Texas 10; Florida 20% Taking race into account?