Lecture Issues in economics today - Chapter 29

Chapter 29
Race and Affirmative Action

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Chapter Outline
• MEASURES OF INEQUALITY, AND
DEFINITIONS AND DETECTION OF
DISCRIMINATION
• DISCRIMINATION IN LABOR,
CONSUMPTION AND LENDING
• AFFIRMATIVE ACTION

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Measures of Social and
Economic Conditions
• African-American family income is rising.
• The relative position of African-American
family income to white family income has
risen slowly.
• Rates of poverty and unemployment are
much higher for African-Americans than
whites.
• More African-American men are in prison

than in college.
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M e d ia n fa m ily in c o m

White and Black M

60000

50000

40000

30000

20000

white

black

10000

0

1940 1950 1960 1970 1980 1990 2000
Year

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B la c k /W h ite M e d ia n F a m

Black/White Media

0.64

0.62

0.6
0.58

0.56
0.54

0.52

0.5
1947
1951
1955
1959
1963
1967
1971

1975
1979
1983
1987
1991
1995
1999
Year

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What is Discrimination
• Disparate Treatment Discrimination
treating two otherwise equal people differently
on the basis of race
• Adverse Impact Discrimination
doing something that is not necessarily
discriminatory on its face but that impacts
some groups more negatively than others
• Rational or Statistical Discrimination
discrimination that is based on sound
statistical evidence and is consistent with
profit maximization
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Measuring and Detecting
Discrimination
• Regression techniques
– Statistical methods which seek to determine if the
differences in treatment for whites and blacks
could have happened by random chance.

• Auditing techniques
– Sending paid actors into a situation to determine if
people with identical economic characteristics are
treated differently based on race.

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Labor Market Discrimination in
the Past
Chicago Tribune 1/3/1960
DOORMAN­WHITE age 30 to 45
married...Neat in appearance and at least
5'11" or taller in height

New York Times 1/3/1960
COOK, housekeeper, Negro preferred,
experience essential, prominent family,
permanent position, high salary

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Modeling Labor Market
Discrimination
SD

Wage

SND Wage

SND

SD

wwhite
wND
wblack
D

Labor market for jobs
only whites are allowed 
do.
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D

Labor market for jobs that 

blacks who work must do.
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Why Competition Would
Eliminate Discriminatory Pay
• Businesses that hired only whites at the
higher wage would have higher costs than
businesses that did not discriminate.
• Businesses that did not discriminate could
lower their prices and take the market share
of those firms that did discriminate.
• As this happened firms would see that
discrimination was not consistent with
maximizing profits and would stop
discriminating.
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Why Competition Would Not
Necessarily Eliminate
Discrimination
• In industries where there is economic profit,
firm owners may continue to discriminate and
consider it a price they are willing to pay so
as to not employ blacks.
• In industries in which the customer chooses
which business to patronize based on race,

firms may be willing to discriminate because
their profit maximizing interest and
discrimination are consistent.
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Consumption Market
Discrimination
• Blacks pay more for cars.
• Blacks are shown fewer homes and
those homes are in already integrated
neighborhoods.
• Blacks are more likely to be turned
down for a mortgage loan.

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Affirmative Action
• Affirmative Action : any policy that is
taken to speed up the process of
achieving equality

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History of Affirmative Action
But freedom is not enough. You do not wipe away
the scars of centuries by saying: Now you are free
to go where you want, do as you desire, and
choose the leaders you please.You do not take a
person who, for years, has been hobbled by
chains and liberate him, bring him up to the
starting line of a race and then say, “You are free
to compete with all the others,” and still justly
believe that you have been completely fair.Thus it
is not enough to just open the gates of opportunity.
All our citizens must have the ability to walk
through those gates.
Lyndon Johnson, 1965 at Howard University

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More History
• Nixon’s Executive order 11246 mandated
affirmative action in contracts with the federal
government.
• Set-asides were created so that 10% of all
federal highway contracts were “set aside” for
minority owned contractors.
• Various Supreme Court rulings have limited

the scope with which affirmative action can be
employed. It must now meet a high standard
of “strict scrutiny.”
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The Civil Rights Act of 1964 vs.
the California Civil Rights Initiative
• Civil Rights Act 1964
– The state shall not discriminate against any
individual or group on the basis of race, sex, color,
ethnicity, or national origin in the operation of
public employment, public education, or public
contracting.

• California Civil Rights Initiative
– The state shall not discriminate against, or grant
preferential treatment to, any individual or group
on the basis of race, sex, color, ethnicity, or
national origin in the operation of public
employment, public education, or public
contracting.
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Gradations of Affirmative Action

•
•
•

•

•

An equal opportunity to apply
– Requires employers to advertise in minority-seen outlets .
Race as a tie-breaker
– Race may break a tie between equally situated candidates.
Acceptance of all qualified minorities
– Used most often in university admissions to selective
schools. A standard is set and qualified minorities are
admitted and the remaining spots are filled with the best of
the non-minority pool.
Guidelines
– Targets are set for minority hiring and promotion and, if they
are not met, a justification must be given.
Quotas
– Strict percentages of minorities must be hired. This is
generally unconstitutional unless ordered by a court to
remedy past discrimination.

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