Kieran Healy

Auditing Employer Discrimination

Brad DeLong, CalPundit and others have pointed out Alan Kreuger’s piece about Bertrand & Mullainathan’s paper on employment discrimination based on race-specific names. They did an audit study, sending out a sample of skill-matched CVs to employers, varying the names of the applicants, and waiting to see who got called for an interview. The depressing but not terribly surprising main finding was that “applicants with white-sounding names were 50 percent more likely to be called for interviews than were those with black-sounding names.”

This reminds me of Deva Pager’s work. Pager’s a sociologist at Northwestern. Her dissertation was a similar audit study, this time focusing on the labor-market effects of having a criminal record. Here’s a pdf draft of a paper from it. This is the abstract:

Over the past three decades, the number of prison inmates has increased by more than 500 percent, leaving the United States the country with the highest incarceration rate in the world. With over 2 million individuals currently incarcerated, and over half a million prisoners released each year, the large and growing numbers of men being processed through the criminal justice system raises important questions about the consequences of this massive institutional intervention. This paper focuses on the consequences of incarceration for the employment outcomes of black and white job seekers. In the present study, I adopt an experimental audit approach to formally test the degree to which a criminal record affects subsequent employment opportunities. By using matched pairs of individuals to apply for real entry- level jobs, it becomes possible to directly measure the extent to which a criminal record in the absence of other disqualifying characteristics serves as a barrier to employment among equally qualified applicants. I find that a criminal record is associated with a 50 percent reduction in employment opportunities for whites and a 64 percent reduction for blacks. These findings reveal an important, and much under-recognized, mechanism of stratification. A criminal record presents a major barrier to employment, with important implications for racial disparities.

Pager found a similar race effect to the study Kreuger writes about, but because she also looked at incarceration it brings it into sharper focus. She found that blacks “are less than half as likely to receive consideration by employers relative to their white counterparts, and black non-offenders fall behind even whites with prior felony convictions.” In other words, even though race and prior incarceration both negatively affect one’s employment opportunities, controlling for education and skills you’re better off being a white male with a felony conviction than a black male with no criminal record. Further,

When we combine the effects of race and criminal record, the problem grows more intense Not only are blacks much more likely to be incarcerated than whites; according to the findings presented here, they may also be more strongly affected by the impact of a criminal record. Previous estimates of the aggregate consequences of incarceration may therefore underestimate the impact on racial disparities.

Finally, in terms of policy implications, this research has troubling conclusions. In our frenzy of locking people up, our crime control policies may in fact exacerbate the very conditions which lead to crime in the first place. Research consistently finds that finding quality steady employment is one of the strongest predictors of recidivism (Shover 1996; Sampson & Laub 1993; Uggen 2000). The fact that a criminal record severely limits employment opportunities particularly among blacks suggests that these individuals are left with few viable alternatives.

It’s worth reading the whole paper.

Let me put in a plug here for sociological approaches to discrimination, and its big brother, stratification. Studies like Bertrand & Mullainathan’s upset economists because, according to the prevailing view, only education and skill (ie, “Human capital”) differences should matter to employers, who after all are supposed to be rationally looking for the best workers for the lowest price in the labor market. Economists like Kreuger and DeLong, who will pay attention to evidence that market mechanisms are not working as they are supposed to, don’t like to see the market mechanism failing in this way. (This contrasts with the sort of economist who assumes ex hypothesi that markets work as they are supposed to, and who will therefore interpret evidence to the contrary as indicating, say, the revealed preferences of black workers to not take jobs at a given wage.) Human capital theories can’t fully explain structured variation in occupational wage rates or stable patterns of exclusion and inequality between social groups. Other, more structural processes are at work. Kim Weeden at Cornell has a very nice paper on this that’s forthcoming in AJS. It’s called “Why do Some Occupations Pay More than Others? Social Closure and Earnings Inequality in the United States.” Social closure theory is fundamentally a Weberian approach to stratification that looks at the ability of different occupations to control access to their ranks and thereby boost the wages they can command. But unfortunately she’s removed the draft from her homepage. (I used it in my graduate seminar this semester.)

Que? As I pointed out in the long comments thread on DeLong, economists have long modelled racial discrimination as a form of market failure (caused by asymmetric information and search costs) – Joe Stiglitz (currently a reluctant hero of the anti-globalists) got a Nobel in part for his work in this field. These models precisely model the stratification that your sociologists are so keen on (they set up a self-reinforcing process where what is in individuals’ interests diverges from what is in society’s interests), and testably predict the circumstance in which it will appear and disappear. It’s much more sophisticated stuff than any of the sociological explanations I’ve seen.

Might I also add that claimng that economists assume ex hypothesi that “markets work as they are supposed to” is almost the reverse of the truth – if that was all economists had to do the subject would lack both intellectual and empiric interest. In fact, economists spend most of their time studying market failure – that is, why markets don’t work perfectly and what, if anything, can be done to make them work better. Free-market economists (of whom I’m not one) generally argue for non-intervention on the grounds that in real life the cure of intervention carries unintended consequences which are worse than the disease – they parody Churchill’s defense of democracy in saying that the market is the worst system possible except for all the others.

Que? As I pointed out in the long comments thread on DeLong, economists have long modelled racial discrimination as a form of market failure
… It’s much more sophisticated stuff than any of the sociological explanations I’ve seen.

Whether that’s the best way to think about this is exactly what’s at issue. It may be right that these processes are market failures. Or it may not. You can think about the problem without conceptualizing it either as a market that’s failing to happen or as a process driven by rational individual choices under perverse circumstances. Doing so lets you ask different questions, and focuses your attention on different issues.

claimng that economists assume ex hypothesi that “markets work as they are supposed to” is almost the reverse of the truth

Actually, I didn’t claim that at all. I said that a certain sort of economist tends to think that way. And other economists (like the ones I was explicitly contrasting that sort with) don’t do this. In my experience, the closer an economist is to the data, the less likely they are to want to make heroic assumptions about markets. (It’s an unfortunate fact about economics that being closer to the data also tends to be bad for one’s status, though. E.g., labor economists.)

Free-market economists (of whom I’m not one) generally argue for non-intervention on the grounds that in real life the cure of intervention carries unintended consequences which are worse than the disease

The gap between this view and the tendency to think markets work as they should is small: if you believe intervention hardly ever does any good, you will be more likely to try to identify ex post what set of rational choices might have brought a particular situation about. (Incidentally, my original post didn’t make any claims about free markets vs intervention.)

As a labor economist, I’m not sure whether I should be pleased (we respect data) or displeased (we are of lowly status) with your characterisation. But I know enough to say that statements like:

“Studies like Bertrand & Mullainathan’s upset economists because, according to the prevailing view, only education and skill (ie, “Human capital”) differences should matter to employers, who after all are supposed to be rationally looking for the best workers for the lowest price in the labor market.”

are misleading at best. Only estimated education and skill (potential productivity, actually – which is not quite the same) should matter to employers. In the economic model of discrimination this difference is what leads to individually rational, but socially sub-optimal, decisions by employers.

Its true you didn’t put all economists in the ‘market fundementalist’ category – but my point is that you have mis-characterised even these fundamentalists. Whatever their views, no-one likes to see markets fail because it means a loss of human welfare. But I know no working economist, even the most right-wing ones, who would deny the fact that markets do fail – they are never perfect and sometimes very imperfect. People mainly differ (albeit strongly) on what can be done about it.

To fail to understand this is to risk setting up straw men – something that is, alas, all too popular in political debate.

Incarceration and the Labor Market

Devah Pager won this year’s Dissertation Award from the American Sociological Association. (I wrote about her work last year, and it’s worth mentioning again.) Devah studies the effect of incarceration on labor market outcomes, a topic whic…