The Simple Economics of Affirmative Action Policies
Glenn C Loury
When choosing which students to admit, employees to hire, candidates to slate, or firms to patronize, the social identity of those selected can be a matter of great importance. As a consequence, regulations intended to achieve more diversity in the ranks of the chosen — policies going under the rubric of “affirmative action,” or “positive discrimination” — have been promulgated in many societies throughout the world. Affirmative action policies regulate the allocation of scarce positions in education, employment, or business contracting so as to increase the representation in those positions of persons belonging to certain population subgroups. Such policies are highly controversial. Consider a few examples. In nations with sharp sectarian divisions — Lebanon, Indonesia, Pakistan, Iraq – political stability can hinge on maintaining ethnic balance in the military ranks, or on distributing coveted political offices so that no single group has disproportionate influence. In the US, selective colleges and universities often feel obliged to alter their admissions standards to enhance the racial diversity of their student bodies. Amid rioting and civil unrest, France is designing policies to ensure more ethnic diversity in schools and in firms. Elsewhere in Europe, some political parties have mandated that female candidates be adequately represented on their electoral lists. In post-Apartheid South Africa, to ensure that wealth is distributed across a wider spectrum of society a policy of “Broad Based Black Economic Empowerment” has been enacted, setting minimum numerical standards of black representation that companies are obliged to meet. In Malaysia, in the wake of widespread ethnic rioting that erupted in 1969, a “New Economic Policy” was instituted, creating quotas and preferences for ethnic Malays in public contracting, employment, and education. In India, so-called “scheduled castes and tribes” enjoy preferred access to university seats and government jobs by constitutional mandate, though amid fierce controversy. Affirmative action policies entail the preferential valuation of social identity based on a presumption that, on the average, those being preferred cannot compete on an equal basis because of a pre-existing social handicap. But the stubborn realities of unequal development create some unavoidable economic problems: In the short-run, at least, enhanced access for a genuinely disadvantaged group to much sought-after productive opportunities cannot be achieved without lowering standards, distorting human capital investment decisions, or both. The relevant economic problem entails understanding how these costs should be conceptualized, and how they can be minimized. This lecture will survey what is known about the economic effects of such diversity-promoting public regulation. In so doing, we hope to illustrate the clarifying power of economic reasoning, when it is used with a healthy dose of common sense, to dispel some myths and misconceptions in the affirmative action policy debate.