Affirmative action, a set of race-based policy interventions designed for equity, has been instrumental in addressing historical discrimination and structural racism, aiming to correct market failures and remove barriers to mobility in the labor market. Affirmative action paves the way for individuals who have encountered systemic barriers due to their race to better access higher education and improve employment prospects, which results in placement by merit and ability rather than placement determined by biases against underrepresented minorities or lost opportunities due to otherwise insurmountable barriers. Between 1972 and 2003, an affirmative action mandate increased the shares of employment in technical occupations among federal contractors by 7.7 percent for Latina women and by 4.2 percent for Black men.
The current state of racial inequality indicates there is still a need for race-conscious policies in the labor market and beyond. Recent data show that workers are often employed in different occupations by race and gender; this employment segregation remains a significant concern for equity as it hinders career advancement and contributes to wage disparities based on race, gender, and their intersections of identity. Racial equity is worsened by the transmission of disadvantages across generations and by limited access to resources and educational opportunities for children whose parents have had less success in these areas.
Persistent segregation within the US occupational structure exposes certain groups to economic shocks and results in a double pay penalty for women of color. Black workers in particular bear a disproportionate burden of layoffs during economic downturns and face heightened scrutiny, rendering them more susceptible to termination. These ongoing negative consequences are a direct result of past discrimination, which affirmative action aims to address and rectify.
However, a recent Supreme Court decision struck down affirmative action in higher education, weakening an important tool in advancing racial equity at a critical stage of human capital development. This article delves into the economic effectiveness of affirmative action, exploring its achievements and critiques, as well as the implications of race-neutral policies in promoting equity in the labor market.
Labor Market Achievements of Affirmative Action
Across the economy, affirmative action has achieved several significant outcomes. Studies find that firms that implement affirmative action measures engage in extensive recruitment practices, employing a larger number of methods to hire workers. They also screen candidates more intensively and pay less attention to stigmatizing characteristics such as welfare recipiency or limited work experience. These firms also provide more training to their employees and evaluate their performance more carefully, indicating a commitment to investing in their productivity.
Affirmative action has also been found to reduce employment segregation, with Black and Native American workers achieving more representation in firms subject to affirmative action obligations during the 1970s and early 1980s relative to those that were not. Furthermore, affirmative action played a role in the occupational advancement of historically marginalized workers, including Black men and women, Latina women, and white women, by creating new pathways to higher-paying managerial, professional, and technical positions. This access to better jobs has contributed to the narrowing of wage gaps between different groups in the US labor market.
Critiques of Affirmative Action
Critics of affirmative action argue that discrimination, whether present or past, plays a minimal role in educational and employment disparities among different racial and gender groups. Instead, they attribute these disparities to deficiencies in early family and school environments that result in lower skills among underrepresented groups. Critics also contend that affirmative action leads to the selection of less-qualified people of color, ultimately resulting in poorer performance and perpetuating negative stereotypes, a theory known as the “mismatch hypothesis.” They assert that affirmative action focuses on equalizing outcomes rather than providing equal opportunities, which ultimately harms everyone involved.
The mismatch hypothesis lacks empirical support, and there are ongoing debates regarding its applicability in different contexts. While workers of color may hold relatively weaker educational credentials, evidence of weaker performance in the labor market is limited. Companies can offset potential performance shortfallsthrough improved recruitment, training efforts, and evaluation activities. Additionally, affirmative action is found to produce positive external benefits, such as more physicians from underrepresented populations providing care to communities that share similar identities.
The Economic Effectiveness of Affirmative Action
Affirmative action is an effective economic policy because it corrects for market failures like discriminatory biases and the persistence of racially disparate outcomes. The benefits of a market economy, like maximizing economic growth, depend on minimizing barriers to opportunity. However, legacy admissions, wealth inequality by race, and obstacles faced by first-generation college students (who do not have a parent who attended college and who are disproportionately non-white) all make college less accessible for Black, Latinx, and Native American students, regardless of aptitude or interest in completing higher education.
Discriminatory outcomes persist in the labor market: in one meta-analysis of research on hiring discrimination against Black and Latinx workers, scholars found continued evidence that Black and Latinx workers are less likely to receive callbacks on their job applications compared to equivalently qualified white workers. Similarly, job applicants with names of Asian origin and other signifiers of being foreign born are less likely to receive callbacks. From college to employment, these differences in outcomes mean that equally qualified people from disadvantaged and historically excluded backgrounds face significant barriers, reducing the pool of talent and limiting the ability for people to do what they are most interested in, and would be most productive at doing, across the economy.
In a hypothetical model of the economy, if people across demographic groups have an equivalent distribution of ability but one group faces systemic disadvantages, improving the access of those facing barriers improves overall outcomes. In one modeling simulation, researchers found that when education is costly but there are many options, giving preference to those from disadvantaged groups who have fewer resources to improve further ability leads to overall positive welfare outcomes. Review of the empirical literature reinforces this theoretical work and finds little evidence that affirmative action is inefficient. Thus, it appears in sum that affirmative action may be a useful tool for correcting for the market failures resulting from discrimination and systemic disparities by demographic group.
Examining the Alternative: Race-Neutral Policies in Higher Education
The alternative to affirmative action is the implementation of race-neutral policies. Color-blind affirmative action, which focuses on social characteristics rather than race, can lead to biases by placing disproportionate importance on nonracial traits, potentially affecting the performance and matching of students and schools1. Additionally, race-neutral policies may not result in racial equity if racial segregation exists among communities, as equal opportunity alone may not address the intergenerational effects of race.
A recent study examines the impact of California Proposition 209, which prohibited race-based affirmative action in public universities in 1998. The results reveal that the ban resulted in lower degree attainment for Black, Latinx, and Native American applicants who were denied admission and, as a consequence, enrolled in colleges and universities of comparatively lower quality, particularly in STEM fields. Between the ages of 24 and 34, these applicants earned an average of 5 percent lower annual wages in the absence of affirmative action, with this impact being more pronounced among Latinx workers. The study suggests that the net wage benefits of affirmative action for underrepresented students outweigh the potential net costs for their white and Asian counterparts: while some on-the-margin applicants in the latter group may have seen enrollment shifts due to affirmative action, their average wages remained unaffected.
Conclusion
Affirmative action has been a powerful tool for addressing historical discrimination and promoting equity in education and in the labor market. It has led to significant labor market achievements, with firms that implement affirmative action measures showing more inclusive hiring practices and increased investments in employee productivity. Affirmative action policies have also contributed to reducing employment segregation and creating new pathways to higher-paying positions for historically marginalized workers, helping to narrow wage gaps between different groups.
However, the absence of affirmative action may lead to a backslide. Colleges and universities may face more difficulty recruiting and enrolling a diverse student body. Employers will have little incentive to voluntarily adopt equitable practices and ensure equal participation for people of all backgrounds in the labor market and in historically exclusionary positions. Without affirmative action, disparities in occupational crowding and wage divides based on race and gender are likely to persist, perpetuating the barriers faced by historically underrepresented groups.
In conclusion, the economic effectiveness of affirmative action lies not only in its achievements thus far but also in its role as a necessary safeguard against regression and a catalyst for progress toward a labor market that truly offers equal opportunities to all, regardless of their background or history of marginalization. As we move forward, thoughtful policy considerations, employer recruitment and retention, and continued research are essential to advancing equity and dismantling the barriers that have long hindered equal participation and representation in the workforce.
[1] Color-blind policies operate by giving more weight to nonracial characteristics during the evaluation of all applicants. This approach creates a scenario where students are motivated to develop traits that may not align with their actual importance in a college's assessment of post-admission performance. In states implementing top-x-percent policies, students are incentivized to attend high schools or specific courses within high schools where they anticipate performing better. Consequently, these policies are likely to change the dynamics of how students and high schools of different qualities are matched with each other in the long run.