Misdiagnosing the basis for discrimination produces more than a difference in words. It can produce policies less likely to achieve their goals, or even policies that make matters worse, as in the case of forbidding employers from checking criminal records of job applicants. Moreover, higher costs are not just a problem limited to employers. Others are going to have to pay the higher costs that initially fall on employers, if those employers are to stay in business and continue to provide jobs. Many people do not like to hear economists say that there is no free lunch, but that does not change the reality.
Employment decisions are not the only decisions affected by discrimination of one sort or another.
Where there are real differences between groups, with potentially dire consequences, such as murder rates several times higher in one group than in another, Discrimination Ib may be carried to the point of “redlining” a whole neighborhood or group, even when a majority of the group avoided are not guilty of the behavior feared.
Even in a high-crime neighborhood, for example, most people are not necessarily criminals.* But the costs of sorting the local population individually can be prohibitively high. Therefore decisions are likely to be made through a cruder decision-making process, relying on empirically based generalizations—Discrimination Ib—rather than the more discerning, but costly, Discrimination Ia or an antipathy-based or bias-based Discrimination II.
One of the consequences of such situations is that a law-abiding majority in a high-crime neighborhood can end up paying a high price for the presence of a criminal minority living in their midst. Some businesses will not deliver their products—whether pizzas or furniture—to high-crime neighborhoods, rather than risk bodily harm, including death, to their drivers.
Taxi drivers may avoid taking passengers to such neighborhoods for the same reason, even when these are black taxi drivers refusing to go into black high-crime neighborhoods, especially at night. Supermarket chains and other businesses often avoid locating local stores in such neighborhoods, for similar reasons.
All this hurts law-abiding people in high-crime neighborhoods, who are, in effect, paying a price for what other people are doing. In addition to being the principal victims of criminals in their midst, they also literally pay a price in hard cash for the behavior of others, in the higher prices usually charged for goods sold in neighborhoods where there are higher costs of doing business, due to higher levels of shoplifting, vandalism, burglary, pilferage and robbery—and higher business insurance premiums because of these and other neighborhood disorders.3
A study titled The Poor Pay More saw the poor in general as “exploited consumers,”4 taken advantage of by stores located in low-income neighborhoods. This view was echoed in the media, in government and in academic publications.5 Yet, because many low-income neighborhoods are also high-crime neighborhoods, The Poor Pay More committed an all too common error in assuming that the cause of some undesirable outcome can be determined by where the statistical data were collected.
In this case, researchers collected price data in the neighborhood stores. But the causes of those high prices were not the people who posted those prices in the stores. Moreover, while prices were higher in inner-city, low-income neighborhood stores, rates of profit on investments in such stores were not higher than average but lower than average,6 despite some people who assumed that profit rates had to be higher, because of the higher prices.7
For people unaware of the economics of the situation, the higher prices may be seen as simply “price gouging” by “greedy” store owners—Discrimination II against minority neighborhoods—and a problem that the government could solve by imposing price controls, for example—as a Harlem newspaper suggested, during the 1960s furor over revelations that “the poor pay more.”8
If, however, businesses in these neighborhoods do not recover their higher costs of doing business there in the prices they charge, they face the prospect of being forced out of business by losses. There is often a dearth of businesses in low-income, high-crime neighborhoods, which would hardly be the case if there were higher rates of profit being made from the higher prices charged in such neighborhoods.
It may be no consolation to those law-abiding citizens in a high-crime neighborhood that the higher prices they have to pay are reimbursing higher costs of doing business where they live. Meanwhile, politicians and local activists have every incentive to claim that the higher prices are due to discrimination, in the sense of Discrimination II, even when in fact the community is simply paying additional costs generated by some residents in that community.
Those local residents who created none of those costs may be victims of those who did, rather than being victims of those who charged the resulting higher prices. This is not just an abstract philosophical point or a matter of semantics. The difference between understanding the source of the higher prices and mistakenly blaming those who charged those prices—which is especially likely when most of the local businesses are owned by people who are ethnically different from the people living in the neighborhood—is the difference between doing things to lessen the problem and doing things likely to make the problem worse by driving more much-needed businesses out of the neighborhood.
Although higher prices in low-income neighborhoods are often discussed in the context of racial or ethnic minorities, the same economic consequences have been found where the people in the low-income neighborhoods are white. As the Cincinnati Enquirer reported: “Residents of eastern Kentucky refer to the higher prices and interest rates common in their area as the ‘hillbilly tax.’”9
Among the things that might be done to reduce the burden of unfairness to law-abiding residents of high-crime neighborhoods could be stronger law enforcement by the police and the courts. But, to the extent that the public—both inside and outside the affected communities—sees the high prices as Discrimination II against the affected community as a whole, due to bias or antipathy by the larger society, the imposition of stronger law enforcement could be seen as just another imposition of injustice on the affected communities.
In short, whether people believe that higher prices in low-income, high-crime neighborhoods are due to Discrimination II, or to empirically-based decisions (Discrimination I), matters in terms of which policies to reduce the unfair burdens on law-abiding residents are politically feasible. Community or ethnic solidarity can be a major obstacle to seeing, believing or responding to the facts.
SIDEBAR: FACTORS BEHIND PRICE DIFFERENCES
Crime is not the only reason why prices are higher in many low-income neighborhoods. To someone unfamiliar with economics, it may seem strange that a store in a low-income neighborhood can be struggling to survive, while selling a product for a dollar that Walmart is getting rich selling for 75 cents. But the costs of running a business are among the many things that are neither equal nor random. Walmart’s costs are lower in many ways, of which safer locations are just one.
Even if a local store charging a dollar is making 15 cents gross profit per item, while Walmart is making only 10 cents, if Walmart’s inventory turnover rate is three times as high, then in a given time period Walmart is making 30 cents selling that item, while the local store is making 15 cents. Walmart’s inventory turnover rate is in fact higher than that of even some other big box chain stores, and much higher than that of a local neighborhood store, where the same item may sit on the shelf much longer before being sold.
Delivery costs are also likely to be lower per item delivered to a Walmart store. For example, the cost of delivering 100 boxes of cereal to one giant Walmart store may be far lower than the cost of delivering ten boxes of cereal to each of ten different neighborhood stores scattered around the city. It is a hundred boxes of cereal in either case, but the cost of delivering them can be very different.
None of this tells us how much Discrimination I or Discrimination II exists in a given society—or how many disparities in outcomes are due to some other circumstances or some other de
cision-making process.
In some situations, there may clearly be costs deliberately imposed on a group by outsiders—Discrimination II—such as denying black American citizens the right to vote in many Southern states in times past. The racial segregation laws in those states, forcing black passengers to sit in the back of buses and trolleys, and denying them admissions to those state universities set aside for whites only, were obvious examples of clearly racial discrimination.
The original ghettos in centuries past, which forced Jews to live in a confined area and banned them from most European universities, were other examples of the same Discrimination II. Innumerable other groups in countries around the world—the “untouchables” in India being a classic example—faced even more and worse restrictions and oppressions.
These are all costs imposed by Discrimination II, and paid for by its victims. What also warrants analysis, in order to understand cause and effect, are the costs paid by the discriminators, because these costs are factors in how much Discrimination II can persist in particular circumstances and institutions. Such costs have no such moral, political or ideological attraction as the costs paid by victims, but the costs that discriminators have to pay, and the circumstances in which they do or do not have to pay those costs, can affect how much Discrimination II is in fact likely to be inflicted.
Understanding the costs paid by discriminators also presents opportunities for policies that can ensure that these costs cannot be evaded, as well as warnings that other policies may inadvertently free discriminators from these costs, if the circumstances are not understood.
COSTS OF DISCRIMINATION
Neither the amount nor the severity of Discrimination II is fixed permanently. It varies greatly from country to country and from one era to another in the same country. There was an era in which many American employers’ advertisements for some jobs said, “No Irish Need Apply” or “Whites Only.” There was a time when some shops in Harlem, back when that was an upscale white community, had signs that read, “No Jews, and No Dogs.”10
Nor were Americans unique. In many other places and times around the world, group discrimination—that is, Discrimination II—was so pervasive and so widely understood that no such signs were necessary. For a woman, a Jew or members of some other groups to apply for certain jobs would have been considered a presumptuous waste of the employer’s time.
Discrimination II in hiring and promotions raises questions about both causation and morality. Both kinds of questions deserve to be examined—separately.
Causation
In trying to understand the causes and the consequences of discrimination in hiring and promotions, it is necessary to again consider whether this is Discrimination I or Discrimination II. This is not always an easy question to answer, and in fact easy answers such as automatically equating statistical disparities in outcomes with Discrimination II can be a major obstacle to getting at the truth.
An employer who judges each job applicant individually, without regard to the applicant’s group membership, can nevertheless end up with employees whose demographic makeup is very different from the demographic makeup of the local population.
One major demographic fact that is often overlooked by those who automatically equate statistical disparities in outcomes with Discrimination II is that different ethnic groups have very different median ages. Japanese Americans, for example, have a median age more than two decades older than the median age of Mexican Americans.11 Even if every individual of the same age had the same income, regardless of which group that individual was part of, nevertheless there would still be serious disparities in income between Japanese Americans and Mexican Americans—as well as between many other groups.
A group with a median age in their twenties will obviously not have nearly as large a proportion of their population with 20 years of work experience as a group whose median age is in their forties. One group may therefore have a disproportionate number of people in high level occupations requiring long years of experience, while the other group may be similarly over-represented in entry-level jobs, in sports or in violent crimes, which are all activities disproportionately engaged in by the young.
Such disparities in outcomes are not automatically evidence of either outsiders’ biases or internal deficiencies in the groups. Either or both may be present or absent, but that requires specific empirical evidence going beyond gross statistical differences in outcomes.
In short, conditions prior to job applicants’ reaching an employer can have a “disparate impact” on the chances of someone from a particular group being hired or promoted, even if the employer judges each applicant on that applicant’s own individual qualifications, without regard to the group from which the applicant came.
Age is just one of those pre-existing conditions. As already noted, children raised in families where the parents have professional occupations hear nearly twice as many words per hour as children raised in working-class families, and more than three times as many words per hour as children raised in families on welfare.12
Can we believe that such differences—and others—compounded over many years while growing up, make no difference in individual abilities and social outcomes when those children become adults seeking employment? All these individuals may have been very similar at birth, but many things happen between birth and applying for a job or for college admissions. And it seldom happens the same for everybody. As we have seen, it happens differently for children born and raised in the same family, who happen to have been born earlier or later.
Not only differences in child-rearing, but also decisions made by individuals themselves, affect their outcomes. When more than three-quarters of all college degrees in education go to women and more than three-quarters of all college degrees in engineering go to men,13 the statistical predominance of women in teaching and men in engineering cannot automatically be attributed to employers’ biases.
More fundamentally, the cause of a given outcome is an empirical question, whose answer requires untangling many complex factors, rather than simply pointing dramatically and indignantly to statistical disparities in outcomes, as so often happens in politics and in the media.
Costs and Their Effects
It is easy to understand how being denied an opportunity to be hired or promoted for some jobs can lead to some groups’ having lower incomes than others, and why that can arouse moral objections, not only from those denied jobs but also from others who find such practices morally repugnant.
From a causal perspective, other questions arise as to the reasons for such practices. Here the cost of discrimination to the discriminator plays a causal role in the outcome. There is also a cost for society at large. A society in which women are arbitrarily banned from many kinds of work can pay a huge cost by forfeiting the productive potential of half its population.
“Society,” however, is seldom a decision-making unit, except perhaps at election time or during a mass uprising. To understand decisions in general, or employment decisions in particular, requires understanding the incentives and constraints confronting the particular decision-makers in particular kinds of institutions, who cannot simply choose to do whatever they wish, without regard to the costs of their decisions to themselves.
In a competitive market for labor, or for the sale of the employers’ products, the validity of the beliefs behind a business owner’s decisions can determine whether that business operates at a profit or a loss, and whether it survives or is forced to go out of business. In short, we cannot simply go directly from attitudes to outcomes—even if these attitudes involve racism or sexism—as if there were no intermediate factor of costs for decisions made in a competitive market. A systemic analysis of markets cannot proceed as if there were no other factors involved besides what individual decision-makers happen to prefer.
Economists who have recognized this have ranged from followers of Adam Smith to followers of Karl Marx. The point was perhaps best expressed b
y Friedrich Engels, co-author with Marx of The Communist Manifesto. Engels said: “what each individual wills is obstructed by everyone else, and what emerges is something that no one willed.”14 An analysis of systemic causation is concerned with what emerges.
Adam Smith, patron saint of free-market capitalism, likewise had a systemic analysis of causation. He did not attribute the benefits of a capitalist economy to good intentions by capitalists.15 On the contrary, a case could be made that Adam Smith’s view of capitalists as individuals was even more negative than that of Karl Marx.16 Smith and Marx reached opposite conclusions as to the benefits or harm done by free-market capitalism, but neither based his conclusions on the intentions of capitalists. Each based his conclusions on the systemic incentives and constraints of economic competition.
Too many other observers, including some academic scholars, reason as if intentions automatically translate directly into outcomes. Thus, in his book The Declining Significance of Race, sociologist William Julius Wilson pointed out the various organized ways in which white Southern landowners and employers in the post-Civil-War South sought to keep down the earnings of black workers and black sharecroppers.17 But there was no reference in that book to empirical evidence on how those intentions actually turned out—in other words, on “what emerges,” as Engels put it.
By contrast, economist Robert Higgs, who researched the actual consequences of those efforts of white employers and landowners in the postbellum South, found that such organized efforts often collapsed, as a result of competition among white employers and landowners for black workers and sharecroppers.18 It might seem as if newly freed blacks—desperately poor, often illiterate and unfamiliar with working as free people in labor markets—would be easy prey for whites united to enforce whatever wage and sharecropper conditions they wanted. But to expect such opportunities to prevail continuously ignores the inherent, systemic competitive pressures in a market economy.
Discrimination and Disparities Page 4
