Equal rights and the U.S. economy
Are equal rights good for the economy? Campaigns against discrimination, like the battles for women’s rights and civil rights in the 1960s and the fight for gay marriage equality today, are usually framed as struggles for justice.
We think of these issues as entirely separate from economic concerns and sometimes as even running counter to them. Equal pay legislation and rules against discrimination have often been opposed by business on the grounds they would raise costs.
But there is actually a powerful economic argument for equal rights. If you believe that talent isn’t determined by gender, race or sexual orientation, but is instead a roll of the genetic dice, then the most productive society will be the perfectly fair one. A society that is blind to gender, race and sexual orientation will choose the best person for the job – not just the best white, straight man.
That logic sounds good, and if you support equal rights for moral reasons, you will want it to be right, too. But is it? A draft paper by four U.S. economists makes the strong empirical case that it is. Fairness, they contend, has made the economy more productive. Chang-Tai Hsieh, Erik Hurst, Charles Jones and Peter Klenow argue that as much as 20 percent of the growth in productivity in the United States over the past 50 years can be attributed to expanded opportunities for women and blacks.
“Changes in things that have affected women or blacks specifically have yielded a sizable impact on overall U.S. earnings growth,” Hurst told me. “That is a big effect.”
“If we believe in a world where there was discrimination faced by women and blacks, then not having women and blacks as lawyers and doctors, for example, was costly for society, if we think they are born with the same distribution of talent as white men,” Hurst said.
Richard Florida, a professor at the Rotman School of Management at the University of Toronto and a long-standing advocate of the view that diversity is a driver of economic growth, cheered the results.
“Places that are segregated really don’t grow.”
In case you are behind in your viewing of Mad Men, the paper by Hurst et al. is a reminder of how truly supreme white men were in the United States half a century ago. In 1960, 96 percent of lawyers were white men, 94 percent of doctors were white men and 86 percent of managers were white men. The subsequent 50 years were a revolution. By 2008, white men accounted for just 61 percent of lawyers, 63 percent of doctors and 57 percent of managers.
Few women or blacks would describe the United States today as a perfectly color- or gender-neutral economy. But that huge shift over the past 50 years is a testament to the lowering of discriminatory barriers, which the economists term “a reduction in frictions.” Overall, the change was tremendously beneficial to the economy – the paper attributes as much as 20 percent of increased productivity over the past half-century to greater equality and “the resulting improved allocation of talent.”
Naturally enough, female and black workers have felt the change directly in their paychecks. According to the paper, the reduction in frictions since 1960 increased real wages for white women 39 percent; those of black women, who suffered double discrimination and therefore got a double boost, 57 percent; and those of black men 44 percent.
But while the economy as a whole benefited, there was one group that lost out. The paper calculates that the “reduced friction” for women and blacks meant that the real wages of white men were 4.3 percent lower than they would have been without the increased competition.
That result explains a political reality that we often don’t like to admit: Gains for women and blacks have come at a price for white men, and that is surely why some of them still resist the rights revolution.
“The decline in frictions had some cost for the white men,” Hurst said. “This is why majorities tend to construct barriers to minorities – you can extract rents.”
Hurst told me that he hoped to publish the research, which was still a preliminary draft, as a National Bureau of Economic Research working paper in a couple of weeks. At the end of their paper, he and his three colleagues reveal the tantalizing next direction their research will take.
The story in their draft paper on women and blacks is positive – the United States has become fairer and therefore richer. But the four economists suspect that for one category of Americans, the poor, the external barriers to professional success have actually increased.
“We suspect that similar barriers facing children from less affluent families and from regions of the country hit by adverse economic shocks have worsened in the last few decades,” the economists write. “If so, this could explain both the adverse trends in aggregate productivity and the fortunes of less-skilled Americans over the last decades.”
Hurst made sure I understood that this final point was just a hypothesis. The economists plan to run it through their model over the next few months and report on their results later this year. But if their theory pans out, their work will tell a story about America over the past 50 years that many of us intuitively will feel to be true – a country that discriminates less and less on the basis of gender, race and now sexual orientation, but where the class divide is becoming so stark as to constitute a new form of discrimination.