Markets and Minorities
Have the government’s attempts to stop discrimination through “affirmative action” been a help or a hindrance to blacks? What is in question here is Title VII of the 1964 Civil Rights Act, which outlawed all forms of employer discrimination against blacks and other minorities, and Executive Orders 11246 and 11375, which required federal contractors to establish “affirmative action” plans for complying with Title VII. Since most large American firms do some business with the government, most now have affirmative action plans monitored by the federal government.
One of the Reagan administration’s avowed objectives over the past two years has been to make these programs less “burdensome.” In practice this has meant exempting many firms from their requirements, loosening the standards a firm must meet for its program to be acceptable, and failing to investigate or punish firms that fail to make good on their initial promises.
Thomas Sowell, the black laissez-faire economist, has long been a critic of affirmative actionâ€”in both the narrow and the broad senses. (Narrowly construed, affirmative action refers only to federal programs designed to increase minority employment among federal contractors. Broadly construed, it embraces all federal efforts to close the economic and social distance between blacks and whites.) In the last issue I dealt with Sowell’s historical and economic reasons for thinking affirmative action unnecessary.1 In this article I turn to Sowell’s claim that affirmative action is not just unnecessary but actually harmful.
According to Sowell, affirmative action plans have “produced little overall pay or employment changes for blacks relative to whites, as measured empirically by a number of economists.” In fact, four studies have tried to estimate affirmative action’s impact on minority employment among federal contractors. One concluded that affirmative action had had no effect, while the other three concluded that it had increased minority employment by 6 to 13 percent. Whether this change is large or small is obviously a matter of opinion, but if all firms were to increase their black employment by 6 to 13 percent, black unemployment would fall to about the same level as white unemployment.
The effect of Title VII on minority wages is less clearcut. The ratio of black to white wages in 1969 was higher in industries that did a lot of business with the federal government than it was elsewhere in the private sector. But the black-white wage ratio in industries that did a lot of business with the government was lower in 1969 than it had been in 1959, before affirmative action.2 This suggests that high-level jobs with federal contractors went mainly to whites during the 1960s, and that when federal contractors created new jobs for blacks, these jobs were not as well paid as those for whites.
While the ratio of black to white wages fell in industries doing a lot of business with the federal government, it rose elsewhere in the private sector. This is not as surprising as it might seem. Title VII outlawed discrimination even in firms that did no business whatever with the government, and legal action forced many firms with a history of discrimination to make sweeping changes in their hiring and promotion practices. Fear of legal action led many other firms to make such changes. Since industries that did little business with the federal government started the decade in a much worse position with regard to black employment than federal contractors usually did, it is not surprising that these were the industries in which blacks made the greatest gains. Sowell does not even consider these effects of Title VII on firms that were not federal contractors.
The rapid increase in blacks’ relative wages after 1964 could, of course, have causes other than Title VII. But if one compares the rate of increase in black wages after 1964 to the rate of increase during the 1950s and early 1960s, one finds that the black-white gap narrowed much more rapidly after Title VII passed than it had before then.3 Furthermore, if one calculates the impact of the other major factors that helped blacks to catch up with whites after 1964, namely migration from the rural South to the urban North and the narrowing of the educational gap between blacks and whites, they account for only a modest fraction of the change.
In light of all this I do not see how Sowell or other free-market economists can deny that Title VII increased black workers’ earnings. The most they can argue, it seems to me, is that while Title VII improved black workers’ earnings, it may also have made it harder for some blacks to find jobs.
Employers know that if they fire a black worker, he or she can appeal to the Equal Employment Opportunity Commission (EEOC), which is expensive for the employer. If an employer is considering high-risk applicants, many of whom will have to be fired, this could make high-risk whites look more attractive than high-risk blacks. In addition, EEOC investigations often focus on promotion rates. This could make employers reluctant to hire blacks they did not think likely to earn a promotion. Indulging such preferences is illegal, but that does not necessarily mean it is unusual.
Since Title VII increases both the potential cost of hiring the “wrong” blacks and the potential cost of not hiring any blacks at all, it has forced employers to intensify their search for the “right” blacks. The beneficiaries of Title VII have thus been young blacks with educational credentials and mature blacks with steady work histories. Young blacks with neither educational credentials nor good work histories have gained little. Employers have bid up the wages of black college graduates, for example, but not the wages of black high school graduates. Among whites, by contrast, high school graduates’ wages have been rising faster than college graduates’ wages since 1969. By the same token, employers have bid up wages for black high school graduates over 35, but not for young black high school graduates. No such difference is found among whites. Unemployment statistics tell the same story. In 1964, when Title VII was enacted, unemployment was twice as common among non-white men between the ages of twenty and twenty-four as among those between thirty-five and forty-four. By 1979 the younger group was experiencing three times as much unemployment as the older. Again, no such trend is apparent among whites. All these statistics suggest that while most blacks have gained significantly from Title VII, young, poorly educated black men have not. They may even have lost ground, either because of Title VII or for other reasons.
While Title VII may have made it harder for young, high-risk blacks to find work, this seems a modest price to pay for a law that has dramatically improved the annual earnings of most other blacks. The most important negative effects of Title VII have, I think, been political and psychological, not economic. They derive not from Title VII’s ban on discrimination against blacks but from the fact that it has sometimes led to discrimination against whites. Some whites resent having been denied jobs or promotions that they think went to less qualified blacks because of affirmative action. Many others assume that every surly or incompetent worker they encounter who is black owes his or her job to federal pressure, while they blame surliness or incompetence among whites on permissive child rearing, drugs, or God.
Reverse discrimination has also reinforced white prejudices about black incompetence. In some cases a double standard in hiring leads to clear differences in performance between blacks and whites doing the same sort of work. Even when this doesn’t happen, the fact that well-intentioned personnel officers and hiring committees contemplate using a double standard reinforces white prejudices about black competence.
The same thing happens in elite private colleges that admit marginal black students. The presence of such students convinces many white students and faculty that blacks just aren’t very bright. The logic is precisely the same as the logic that convinces students and faculty that athletes, who are also admitted even if they are academically unpromising, aren’t very bright. The difference is that encouraging the nation’s future professional and managerial elite to think athletes are nitwits does no serious social harm, whereas encouraging the belief that blacks are nitwits does incalculable harm.
How did Title VII, which was supposed to forbid discrimination on the basis of race and ethnicity, end by encouraging it? The answer is partly political and partly legal. The ground rules for interpreting Title VII were established at a time when cities were burning and violent racial conflict was omnipresent. Public officials, lawyers, and judges almost all assumed that the roots of such conflict lay at least partly in black economic troubles, and that these troubles derived partly from past discrimination. Eliminating racial violence thus seemed to require an employment strategy that not only promised to treat black job applicants fairly in the future but somehow to offset the effects of past discrimination as well.
This posed two problems. First, good jobs usually demand information, skills, personal contacts, and work habits that can only be acquired in other jobs that are almost equally good, or to a lesser extent in school. Since blacks had been denied access to most good jobs and had had great difficulty attending good schools, colorblind hiring rules would exclude those already in the labor force from good jobs forever. Second, most good jobs carry an implicit guarantee of tenure so long as you continue to perform at whatever level your employer had judged acceptable in the past. Since most good jobs had been filled under Jim Crow rules, and since turnover in these jobs was often quite slow, even a system that guaranteed blacks fair access to jobs that fell vacant would not guarantee them their fair share of all good jobs for at least a generation.
The compromise that emerged gave whites almost everything they wanted, but blacks did get something. Firms were allowed to retain all their old employees, no matter how unfair the procedures used to hire them. Firms were also allowed to consider education and work experience in filling future vacancies so long as they could demonstrate that these factors were actually relevant to job performance. But firms also had to estimate the proportion of nonwhites they would hire if fair rules prevailed, and in some cases they had to hire disproportionate numbers of non-whites until these goals were reached. If, for example, a firm agreed to a goal of having 20 percent black workers in a given job, and if none was currently black, it might have to offer half its openings to blacks for several years in order to meet its goal. This often meant offering jobs to blacks whose credentials were less impressive than those of whites who were turned down.
NYR, March 3.↩
James Smith and Finis Welch, "Black-White Male Wage Ratios: 1959-69," American Economic Review, June 1977.↩
See Richard Freeman, "Black Economic Progress after 1964: Who Has Gained and Why?" in Studies in Labor Markets, edited by Sherwin Rosen (University of Chicago Press, 1981). Unpublished work by Jonathan Leonard, an economist at the School of Business Administration at the University of California at Berkeley, suggests that this trend was reversed during the 1970s. From 1974 to 1980, blacks moved up the occupational ladder faster in firms with federal contracts than in firms without such contracts. Leonard also finds that affirmative action continued to increase black employment during the late 1970s.↩
NYR, March 3.↩
James Smith and Finis Welch, “Black-White Male Wage Ratios: 1959-69,” American Economic Review, June 1977.↩
See Richard Freeman, “Black Economic Progress after 1964: Who Has Gained and Why?” in Studies in Labor Markets, edited by Sherwin Rosen (University of Chicago Press, 1981). Unpublished work by Jonathan Leonard, an economist at the School of Business Administration at the University of California at Berkeley, suggests that this trend was reversed during the 1970s. From 1974 to 1980, blacks moved up the occupational ladder faster in firms with federal contracts than in firms without such contracts. Leonard also finds that affirmative action continued to increase black employment during the late 1970s.↩