Racist Hiring Practices Hurt Employers Too

According to new research, racially discriminatory businesses were twice as likely to fail compared to those that were not identified as such.
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According to new research, racially discriminatory businesses were twice as likely to fail compared to those that were not identified as such.
A woman looks at a job listing board at the East Bay Career Center in Oakland, California.

A woman looks at a job listing board at the East Bay Career Center in Oakland, California.

Racist hiring practices hurt everyone involved. Victimized applicants, obviously, suffer because they are denied jobs based on an attribute unrelated to professional skill. But employers who judge applicants by the color of their skin suffer too. By narrowing the pool of potential hires by race, prejudiced employers are excluding viable applicants, and thus limiting the potential of their business’ strength. A new study from Harvard University, the first of its kind, shows just how much: Over a six-year period, businesses that had been identified as racially discriminatory were twice as likely to fail compared to those that had not been identified as such.

“The fact that so many businesses that we observed discriminating went out of business within a six-year window was quite a surprise,” says Devah Pager, a sociology professor at Harvard and lead author on the study. “This is something that economic theory has predicted, but we haven’t really had good measures of in the past.”

The concept that biased employers are shooting themselves in the foot has been widely accepted in economic theory for decades, first proposed in 1957 by Nobel Prize-winning economist Gary Becker in his seminal book, The Economics of Discrimination. Becker wrote:

If an individual has a “taste for discrimination,” he must act as if he were willing to pay something either directly or in the form of a reduced income, to be associated with some persons instead of others. When actual discrimination occurs, he must, in fact, either pay or forfeit income for this privilege.

This goes for race, gender, religion, and any other attribute unrelated to job productivity. Becker’s work informed and inspired a rich body of literature written in the decades since. However, most of this work has been theoretical because bias is difficult to quantify.

To quantify racial discrimination in the early stages of hiring, in 2004 Pager and her colleagues sent out teams of three men, one white, one black, and one Latino, to apply for the same jobs. Teammates were matched on the basis of age, physical appearance, and interpersonal skills. Over 12 months, teams applied to jobs at 170 firms.

In 2015 alone, the Equal Employment Opportunity Commission received over 31,000 charges alleging racial discrimination.

This audit found that white applicants were over two times as likely to be called back for an interview than their black counterparts. The Latino applicants were called back at a rate comparable to their white teammates, 15 percent and 31 percent respectively, so for their analysis researchers compared black vs. non-black applicants. By this indicator, nearly a quarter of the businesses tested showed racial discrimination.

Six years later, Pager’s recent study shows, the businesses that discriminated against black applicants had failed at a rate twice as high as those that didn’t. Thirty-six percent of the discriminatory business had failed, a rate over twice as high as the more equitable hirers, 17 percent.

Still, there is overwhelming evidence that racial bias, though toned down in recent decades, remains persistent. One-third of the black Americans surveyed in a CNN/Kaiser Family Foundation poll taken last year reported having employment or housing opportunities denied based on the color of their skin. In 2015 alone, the Equal Employment Opportunity Commission received over 31,000 charges alleging racial discrimination.

“I hope that what employers take from this study is that there are real costs that are associated with discriminatory decision making,” Pager says, adding that employers would benefit from implementing systems to prevent missing qualified applicants. For example, allowing recruiters to hire based on a “gut feeling” enables implicit bias — prejudice that the recruiter may not be outwardly aware of — to guide hiring choices.

“One of the things that I found encouraging about the findings is that typically issues of discrimination pit minority workers against employers, as antagonists,” Pager says. These findings, though, suggest that “both workers and employers pay a price for discrimination, and that the firm as a whole has a vested interest in rooting out bias wherever it may appear.”

Further study of this kind needs to be done to assess discrimination against other marginalized groups. The next on Pager’s list are people with criminal records. Her findings are not ready for publication, but “the overall story is that this is a group of people that seem to be doing well when given the opportunity to enter the workforce,” she says. “And if that’s true, then I think there may be cost to employers for dismissing them.”

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