[LINK] "The Law and Economics of Employment Discrimination"

[rfmcdonald]

Towleroad's legal issues contributor Ari Ezra Waldman defends the logic of employment anti-discrimination laws against the arguments of opponents who argue that such laws are unnecessary, since workplaces which unfairly discriminate against people for reasons unconnected to their work performance will suffer relative to workplaces which don't. False premises, he argues; even excluding neo-classical economics' lack of connection with reality in assuming that people will always act rationally, this assumes that the workplace will be able to identify these costs and care about them. The employer may not.

First, the revenue drop must be sufficiently significant to cause an employer to change his behavior, and second, the loss of utility (or, happiness) caused by the loss of revenue must be higher than the utility the employer gains by discriminating. I address the first below in point 2; the latter point once again assumes that an employer would act rationally when comparing utilities and ignores the special animus that one might hold toward a victimized group. That is, what if hate overpowers money? Let's say my business, Super Straight, Inc., wants to make more Very Straight Widgets, so I need to hire more people. Even though Les B. Ian can make one thousand VSWs per day, causing a 100 jump in my revenue, I would be 200 points angrier just knowing that Ms. Ian is around. A rational actor would still discriminate. But, even if the change in utilities were equal, or even reversed, a rational model assumes fungibility where some people might value their adherence to bigotry stronger than any increase in mere money.

More to the point, relatively smaller minorities will plausibly lack the demographic heft that would get larger minorities noticed.

Gay, lesbian, and bisexual employees are, on average, just as productive as their heterosexual counterparts. But, there are a lot fewer of them. This means that even assuming the veracity of the rational behavior model discussed above, discriminating against such a small minority may not have the kind of negative economic effects that would drive a discriminator to change his behavior or close up shop. In fact, in order to push a discriminator into economic ruin (or, even, a statistically significant loss of revenue or market share), the group victimized by discrimination must be large enough to have its best and brightest, a small subset, have enough of an impact. If you discriminate against women, you exclude 50 percent of your applicant pool; if you discriminate against African-Americans or Latinos, you exclude roughly 13 and 17 percent of your applicant pool, respectively. But, gays make up only about 1.7 percent of the US population. Discriminating against the 2 percent of Americans that are natural red heads is more likely to negatively impact your business than discriminating against gays.

The free market forces incentivizing nondiscrimination, therefore, do not exist with respect to small minority populations. So, even assuming the truth of the economic premise, the market fails when it comes to gays. That is the exact moment when the law should step in.

And, of course, anti-discrimination laws play important roles as norm-setters.

[T]he free market hypothesis discounting the need for anti-discrimination laws ignores the cultural and expressive impact of non-discrimination laws. Before discrimination against women was taboo or before discrimination against African-Americans was taboo, it may not have occurred to businesses that women and blacks could offer them competitive advantages. That is, again even assuming the truth of the economic theory, if the zeitgeist of the time accepts discrimination, the first step toward non-discrimination may only happen at the whim of a pioneering iconoclast. Equality should not be left up to such luck.

Most laws have an expressive angle. Some are simple: a law banning murder expresses society's view that your rights to do what you want end at someone else. Some are more subtle: a progressive tax regime shows that society is interested in equality and fairness.

Employment non-discrimination laws are not exclusively about ending the trappings of insidious bias in the workplace; they also enshrine a progressive society's commitment that members of minority groups are not second-class citizens. They help change the mind of society as a whole about the value and rights of those that are different. Sure, true reform may take a generation or more; but, non-discrimination laws create a background of fairness, equality, and respect in which we raise our future business owners, future workers, and future policy makers. This long run cultural impact may qualify as what economists call "social welfare," but it is absent from the free market theory in employment discrimination.

Go read the post in full, and the comments.