Is Discrimination Bad for Business?

There’s an old, optimistic hypothesis, credited to economist Gary Becker, that discrimination in the workplace is doomed because companies that discriminate based on irrelevant things like gender and race will cut themselves off from talented potential employees. Of course, discrimination is still very much in evidence. Naturally, Becker could only have intended his hypothesis to apply with full force in a perfectly competitive market; in real markets, his hypothesis only suggests an effect to look for, something that might have some effect to a greater or lesser degree. And interesting evidence cited in the article below suggests that real world markets do manifest the phenomenon Becker suggested it should, to at least some degree. >>>

LINK: Companies That Discriminate Fail (Eventually) (by Noah Smith for Bloomberg)

…An interesting new piece of evidence comes from a sociologist — Harvard University’s Devah Pager. Back in 2004, Pager conducted a field study of companies in New York City to find out which ones engaged in more racial discrimination. Research assistants of various racial backgrounds were sent out with identical resumes to apply for jobs at companies. Overall, white and Latino applicants got far more callbacks than their black counterparts. So discrimination was fairly widespread.

Pager then kept track of which companies discriminated the most, and checked back with them in 2010, after the financial crisis. She found that companies that had showed signs of racial discrimination were almost twice as likely to have gone out of business. That was true even after controlling for things like company size….

What do you think?

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