White House, Review of Federal Affirmative Action Programs, July 19, 1995

White House, Review of Federal Affirmative Action Programs, July 19, 1995.

3. EMPIRICAL RESEARCH ON AFFIRMATIVE ACTION AND ANTI-DISCRIMINATION

Modern affirmative action, then, was established as policymakers groped for a way to address continuing problems of discrimination. Has it worked to help eradicate or prevent such discrimination? In a fundamental sense the question must be posed for the broader society-wide effort of which federal programs are only an element and, ideally, a model.

3.1 Review of the Empirical Literature, in Summary

Over the past three decades, minorities and women have made real, undisputable economic progress. Before the Civil Rights Act of 1964, the median black male worker earned only about 60 percent as much as the median white male worker; (10) by 1993, the median black male earned 74 percent as much as the median white male. (11) The male-female wage gap has also narrowed since the 1960s: median female earnings relative to median male earnings rose from about 60 percent during the 1960s to 72 percent in 1993. (12)

This section of the Report addresses three issues: (1) Why has there been an earnings gap between black and white workers, and what role did anti-discrimination legislation and affirmative action play in the reduction of that gap? (Earnings gaps for Hispanics and Asians also exist which have been linked to discrimination. The wage gaps for African Americans and women are examined here in detail in order to illustrate the relationship between the problems and historic solutions.) (2) Why has there also been an earnings gap between men and women, and what role did government policies play in the reduction of that gap? (3) Is there any evidence that affirmative action boosted minority or female employment?

3.2 Effect on Earnings

3.2.1 Anti-Discrimination Policy, the Minority-White Earnings Gap

The ratio of the average black workers' earnings to the average white workers' earnings increased significantly in the 1940s, increased slightly if at all in the 1950s, increased significantly between 1960 and the mid 1970s, and declined somewhat since the late 1970s. (13)

Hispanic men earn 81 percent of the wages earned by white men at the same education level. Hispanic women earn less than 65 percent of the income earned by white men with the same education level. (14)

There has not been an improvement in the employment-population rate of black workers relative to whites since the 1960s. If anything, there has been a deterioration in the relative employment-population rate. (15)

Education and work experience are the two most reliable predictors of a worker's earnings. Black workers historically have had much lower education than white workers. Adjusting for racial differences in education and work experience can account for about half of the wage gap between black men and white men, and about one-third of the gap between black women and white women. Additionally, holding constant differences in individuals' test scores leads to a further reduction in the black-white earnings gap. For example, in one study, in 1991, black males earned 29 percent less than white males without any adjustments, 15 percent less after adjusting for education and experience, and 9 percent less after additionally adjusting for test scores. For women, the gap declines from 14 percent to almost zero after making these adjustments. (16) There is some controversy as to how to interpret the black-white wage gap after holding constant differences in education, test scores, and other variables. In particular, differences in education or test scores may themselves represent the discrimination. Thus, the reduction in the racial gap after controlling for these factors may not mean that discrimination is any less, but it may mean that attention should also focus on discrimination prior to entry into the labor market.

Historically there have been great differences in the quality of education between black and white students. In South Carolina in 1920, for example, black students attended schools with class sizes twice those of white schools. Partly as a result of the Civil Rights Act of 1964, the Elementary and Secondary Education Act of 1965, and the Green decision, schools became increasingly integrated in the late 1960s. The improvement in the quality and quantity of education of black workers since the 1960s accounts for about 20 percent of the gain in black workers' relative earnings. (17)

There is near-unanimous consensus among economists that the government anti-discrimination programs beginning in 1964 contributed to the improved income of African Americans. Nevertheless, it is difficult to draw conclusions about which specific anti-discrimination programs were most effective. And it may well be that the programs collectively helped even though no single program was overwhelmingly effective. (18)

3.2.2 Anti-Discrimination Policy and the Male-Female Earnings Gap

The female-to-male ratio of earnings of full-time, year-round workers was roughly stable at around 60 percent from the early 1900s until the mid 1970s. In 1993, earnings of women who worked full-time, year-round had risen to 72 percent as much as men. After adjusting for differences in education, experience, and other factors, the wage gap is reduced by about half (i.e., the adjusted ratio is approximately 85 percent). (19)

An increase in women's work experience and a shift into higher-wage occupations are the major causes of their improved economic position relative to men. The decline in higher-paying manufacturing jobs, which is partly responsible for the decline in the earnings of less-skilled men, has also contributed to the narrowing of the male-female wage gap. Nevertheless, a substantial part of the improved earnings of women cannot be explained by these factors, and probably reflects a decline in discrimination. (20)

The relative roles in this story of anti-discrimination laws and affirmative action, in education and the workplace, are unclear. The major equal opportunity laws covering women were passed in the mid-1960s, and the most rapid growth in women's earnings and occupational status did not begin for another decade. The lag between the change in law and the increase in earnings may be due to time it took for women to acquire education and training for traditionally male-dominated occupations. The rapid growth in the number of female graduates from professional schools coincided with increased anti-discrimination efforts. (21)

3.3 Effect on Employment

The Labor Department's Office of Federal Contract Compliance Programs (OFCCP) administers Executive Order 11246, which imposes nondiscrimination and affirmative action obligations on most firms that contract to do business with the Federal government. According to five academic studies, active enforcement by OFCCP during the 1970s caused government contractors to moderately increase their hiring of minority workers. (22) According to one study, for example, the employment share of black males in contractor firms increased from 5.8 percent in 1974 to 6.7 percent in 1980. In non-contractor firms, the black male share increased more modestly, from 5.3 percent to 5.9 percent. For white males, the employment share fell from 58.3 percent to 53.3 percent in contractor firms, and from 44.8 percent to 41.3 percent in non-contractor firms. (23)

The literature also finds that contractor establishments that underwent an OFCCP review in the 1970s subsequently had faster rates of white female and of black employment growth than contracting firms that did not have a review. (24)

Other than studies comparing employment records of government contractors with non-government contractors, it is hard to separate the effects of affirmative action from broader civil rights enforcement. Non-government contractors often took active steps to ensure diversity and compliance with equal opportunity laws, even though they were not covered by the OFCCP. Some, or perhaps much, of this behavior may be attributable to government anti-discrimination efforts. Also, the recruitment efforts of both contractors and non-contractors may have bid up the wages of minorities and women, reducing wage disparities regardless of the effect on occupational disparities.

OFCCP enforcement was greatly scaled back during the 1980s. For example, the real budget and staffing for affirmative action programs was reduced after 1980. Over the same period, fewer administrative complaints were filed and back-pay awards were phased out. Perhaps not surprisingly, available evidence suggests that OFCCP did not have a noticeable impact on the hiring of minority workers by contractor firms in the early and mid 1980s. (25)

Although the literature clearly shows that, when actively enforced, affirmative action can lead to an increase in minority employment in contractor firms, some have questioned whether this employment represents a net gain or merely a shift of minority employees from non-contractors to contractors.

The extent to which affirmative action has expanded minority employment in skilled positions is unclear. The academic literature suggests that before 1974, minority employment growth in contractor firms was predominately in unskilled positions. Since 1974, there is evidence of modest occupational advance in contractor firms. But some researchers think this may be the result of biased reporting. (26)

There is no systematic qualitative evidence that productivity is lower in contracting firms as a result of OFCCP. The one systematic study found that contractors do not appear to have lower productivity, suggesting that OFCCP has not caused firms to hire or promote less qualified workers. (27)

4. THE JUSTIFICATIONS FOR AFFIRMATIVE ACTION:

THE CONTINUING NEED TO COMBAT DISCRIMINATION AND PROMOTE INCLUSION

Affirmative action was established as part of society's efforts to address continuing problems of discrimination; the empirical evidence presented in the preceding chapter indicates that it has had some positive impact on remedying the effects of discrimination. Whether such discrimination lingers today is a central element of an analysis of affirmative action. The conclusion is clear: discrimination and exclusion remain all too common.

4.1. Evidence of Continuing Discrimination

There has been undeniable progress in many areas. Nevertheless, the evidence is overwhelming that the problems affirmative action seeks to address -- widespread discrimination and exclusion and their ripple effects -- continue to exist.

Minorities and women remain economically disadvantaged: the black unemployment rate remains over twice the white unemployment rate; 97 percent of senior managers in Fortune 1000 corporations are white males; (28) in 1992, 33.3 percent of blacks and 29.3 percent of Hispanics lived in poverty, compared to 11.6 percent of whites. (29) In 1993, Hispanic men were half as likely as white men to be managers or professionals; (30) only 0.4 percent of senior management positions in Fortune 1000 industrial and Fortune 500 service industries are Hispanic. (31)

Blatant discrimination is a continuing problem in the labor market. Perhaps the most convincing evidence comes from "audit" studies, in which white and minority (or male and female) job seekers are given similar resumes and sent to the same set of firms to apply for a job. These studies often find that employers are less likely to interview or offer a job to minority applicants and to female applicants. (32)

Less direct evidence on discrimination comes from comparisons of earnings of blacks and whites, or males and females. (33) Even after adjusting for characteristics that affect earnings (such as years of education and work experience), these studies typically find that blacks and women are paid less than their white male counterparts. The average income for Hispanic women with college degrees is less than the average for white men with high school degrees. (34)

Last year alone, the Federal government received over 90,000 complaints of employment discrimination. Moreover 64,423 complaints were filed with state and local Fair Employment Practices Commissions, bringing the total last year to over 154,000. Thousands of other individuals filed complaints alleging racially motivated violence and discrimination in housing, voting, and public accommodations, to name just a few.

4.2 Results from Random Testing

The marked differences in economic status between blacks and whites, and between men and women, clearly have social and economic causes in addition to discrimination. One respected method to isolate the prevalence of discrimination is to use random testing, in which individuals compete for the same job, apartment, or other goal. For example, the Fair Employment Council of Greater Washington, Inc., conducted a series of tests between 1990 and 1992. The tests revealed that blacks were treated significantly worse than equally qualified whites 24 percent of the time and Latinos were treated worse than whites 22 percent of the time. Some examples document the disparities:

Two pairs of male testers visited the offices of a nationally-franchised employment agency on two different days. The black tester in each pair received no job referrals. In contrast, the white testers who appeared minutes later were interviewed by the agency, coached on interviewing techniques, and referred to and offered jobs as switchboard operators.

A black female tester applied for employment at a major hotel chain in Virginia where she was told that she would be called if they wished to pursue her application. Although she never received a call, her equally qualified white counterpart appeared a few minutes later, was told about a vacancy for a front desk clerk, later interviewed, and offered the job.

A black male tester asked about an ad for a sales position at a Maryland car dealership. He was told that the way to enter the business would be to start by washing cars. However, his white counterpart, with identical credentials, was immediately interviewed for the sales job.

A suburban Maryland company advertised for a typist/receptionist. When a black tester applied for the position, she was interviewed but heard nothing further. When an identically qualified white tester was interviewed, the employer offered her a better position that paid more than the receptionist job and that provided tuition assistance. Follow up calls by the black tester elicited no response eventhough the white tester refused the offer.

A GAO audit study uncovered significant discrimination against Hispanic testers. Hispanic testers received 25 percent fewer job interviews, and 34 percent fewer job offers than other testers. In one glaring example of discrimination, a Hispanic tester was told that a "counter help" job at a lunch service company had been filled. Two hours later, an Anglo tester was offered the job. (35)

The Urban Institute's Employment and Housing Discrimination Studies (1991) matched equally qualified white and black testers who applied for the same jobs or visited the same real estate agents. Twenty percent of the time, white applicants advanced further in the hiring process than equally qualified blacks. In one in eight tests, the white received a job offer when the black did not. In housing, both black and Hispanic testers faced discrimination in about half their dealings with rental agents.

Similarly, researchers with the National Bureau of Economic Research sent comparably matched resumes of men and women to restaurants in Philadelphia. In high priced eateries, men were more than twice as likely to receive an interview and five times as likely to receive a job offer than the women testers. (36)

The Justice Department has conducted similar testing to uncover housing discrimination. Those tests also have revealed that whites are more likely than blacks to be shown apartment units, while blacks with equal credentials are told nothing is available. Since the testing began, the Justice Department has brought over 20 federal suits resulting in settlements totaling more than $1.5 million. A particularly graphic case of discrimination occurred during a fair housing test performed by the Civil Rights Division in Wisconsin, which sought to establish whether discrimination existed against the relatively large East-Asian population there. When the Asian tester approached the apartment building, the rental agent stood between the tester and the door to the rental office and refused to allow the tester to enter the building. The tester was told that there were no apartments available and there would not be any available for two months. When the white tester approached two hours later, the individual was immediately shown an apartment and was told he could move in that same day.

4.3 Exclusion from Mainstream Opportunities: Continuing Disparities in Economic Status

Apart from the remediation of and bullwark against discrimination, a second justification offered for continuing affirmative action in education, employment and contracting is the need to repair the mechanisms for including all Americans in the economic mainstream. There is ample evidence to conclude that the problems to which affirmative action was initially addressed remain serious, both for members of disadvantaged groups and for America as a whole.

A recent study by the Glass Ceiling Commission, a body established under President Bush and legislatively sponsored by Senator Dole, (37) recently reported that:

- White males continue to hold 97 percent of senior management positions in Fortune 1000 industrial and Fortune 500 service industries. Only 0.6 percent of senior management are African American, 0.3 percent are Asian and 0.4 percent are Hispanic.

- African Americans hold only 2.5 percent of top jobs in the private sector and African American men with professional degrees earn only 79 percent of the amount earned by their white counterparts. Comparably situated African American women earn only 60 percent of the amount earned by white males.

- Women hold 3 to 5 percent of senior level management positions -- there are only two women CEOs in Fortune 1000 companies.

- The fears and prejudices of lower-rung white male executives were listed as a principal barrier to the advancement of women and minorities. The report also found that, across the board, men advance more rapidly than women.

The unemployment rate for African Americans was more than twice that of whites in 1994. The median income for black males working full-time, full year in 1992 was 30 percent less than white males. Hispanics fared only modestly better in each category. In 1993, black and Hispanic men were half as likely as white men to be managers or professionals. (38)

In 1992, over 50 percent of African American children under 6 and 44 percent of Hispanic children lived under the poverty level, while only 14.4 percent of white children did so. The overall poverty rates were 33.3 percent for African Americans, 29.3 percent for Hispanics and 11.6 percent for whites.

Black employment remains fragile -- in an economic downturn, black unemployment leads the downward spiral. For example, in the 1981-82 recession, black employment dropped by 9.1 percent while white employment fell by 1.6 percent. Hispanic unemployment is also much more cyclical than unemployment for white Americans. (39) Hispanic family income remains much lower, and increases at a slower rate, than white family income. (40)

Unequal access to education plays an important role in creating and perpetuating economic disparities. In 1993, less than 3 percent of college graduates were unemployed; but whereas 22.6 percent of whites had college degrees, only 12.2 percent of African Americans and 9.0 percent of Hispanics did.

The 1990 census reflected that 2.4 percent of the nation's businesses are owned by blacks. Almost 85 percent of those black owned businesses have no employees. (41)

Even within educational categories, the economic status of minorities and women fall short. The average woman with a masters degree earns the same amount as the average man with an associate degree. (42) While college educated black women have reached earnings parity with college educated white women, college educated black men earn 76 percent of the earnings of their white male counterparts. (43) Hispanic women earn less than 65 percent of the income earned by white men with the same educational level. Hispanic men earn 81 percent of the wages earned by white men at the same educational level. The average income for Hispanic women with college degrees is less than the average for white men with high school degrees. (44)

A study of the graduating classes of the University of Michigan Law School from 1972-1975 revealed significant wage differentials between men and women lawyers after 15 years of practice. While women earned 93.5 percent of male salaries during the first year after school, that number dropped to 61 percent after 15 years of practice. Controlling for grades, hours of work, family responsibilities, labor market experience, and choice of careers (large firms versus small firms, academia, public interest, etc.), men are left with an unexplained 13 percent earnings advantage over women. (45)

ative Action Report: Footnotes

Section 3

10 Bureau of Labor Statistics, Current Population Survey.

11 Bureau of Labor Statistics, Current Population Survey.

12 Bureau of Labor Statistics, Current Population Survey.

13 Bureau of Labor Statistics, Current Population Survey. For a time-series discussion of black/white earnings rations, see Donohue, John and James Heckman, 1991. "Continuous versus Episodic Change: The Impact of Federal Civil Rights Policy on the Economic Status of Blacks," Journal of Economic Literature, 29:1603-43. See also, Bound, John and Richard Freeman, 1989, "Black Economic Progress: Erosion of Black Americans" in The Question of Discrimination.

14 EEOC, Office of Communication, The Status of Equal Opportunityin the American Workforce (1995). For a discussion of empirical evidence on earnings gaps and discrimination for Hispanics, see Gregory DeFreitas, Inequality at Work: Hispanics in the U.S. LaborForce (New York: Oxford Press, 1991).

15 Bureau of Labor Statistics, Current Population Survey.

16 Rogers, Bill, 1994,"What Does the AFQT Really Measure: Race, Wages, Schooling and the AFQT Score," mimeo., William and Mary. The figures cited here adjust for racial geographic differences.

17 See Card, David and Alan Krueger, 1992, "School Quality and Black-White Relative Earnings: A Direct Assessment." The Quarterly Journal of Economics, p.151-200.

18 An important study that points out the near unanimous opinion among economists of the positive impact of government anti-discrimination programs on improved income of African-Americans is Donohue, John and James Heckman, 1991, "Continuous versus Episodic Change: The Impact of Federal Civil Rights Policy on the Economic Status of Blacks, "Journal of Economic Literature, 29:1603-43. Freeman, Richard, 1973, "Changes in the Labor Market for Black Americans, 1948-72," Brookings Papers on Economic Activity, vol. 1 was among the first to identify government anti-discrimination programs as a source of progress.

19 See Blau, Francine and Marianne Ferber, 1992. The Economics of Women, Men and Work, Englewood Cliffs: Prentice Hall, p.129.

20 See Blau, Francine, and Lawrence Kahn, 1994, "Rising Wage Inequality and the U.S. Gender Gap." American Economic Review 84:23-28, for a discussion of the large decline in male-female wage differentials that occurred from the mid 1970s to the late 1980s.

21 Department of Education, National Center of Education Statistics.

22 The five studies are: (1) Leonard, Jonathan, 1984, "The Impact of Affirmative Action on Employment," Journal of Labor Economics, 2:439-463; (2) Leonard, Jonathan, 1984, "Employment and Occupational Advance Under Affirmative Action," The Review of Economics and Statistics; (3) Ashenfelter, Orley and James Heckman, 1976, "Measuring the Effect of an Anti-discrimination Program, in Estimating the Labor Market Effects of Social Programs, Eds: Orley Ashenfelter and James Blum. Princeton NJ: pp.46-89; (4) Heckman, James and Kenneth Wolpin, 1976, "Does the Contract Compliance Program Work? An Analysis of Chicago Data," Industrial and Labor Relations Review 29:544-64; (5) Goldstein, Morris and Robert Smith, 1976, "The Estimated Impact of Anti-discrimination Laws Aimed at Federal Contractors," Industrial and Labor Relations Review.

23 Leonard, Jonathan, 1984, "The Impact of Affirmative Action Regulation and Equal Employment Law on Black Employment," Journal of Economic Perspectives, 4:47-64.

24 See above studies plus Donohue and Heckman, Continuous versus Episodic, 29, Journal of Economic Literature, p.1631.

25 For a full discussion of the impact of weakened affirmative action enforcement during the 1980s, see Leonard, Jonathan, 1990, "The Impact of Affirmative Action Regulation and Equal Employment Law on Black Employment," Journal of Economic Perspectives, 4:47-64.

26 For a discussion of the impact of affirmative action on minority employment in skilled positions, see Leonard 1990, The Impact of Affirmative . . . .," 4 J. of Econ. Perspectives 47.

27 See Leonard, Jonathan, 1984, "Anti-discrimination or Reverse Discrimination: The Impact of Changing Demographics, Title VII and Affirmative Action on Productivity," Journal of Human Resources, vol. 19, No.2, pp.145-74.

Section 4

28 "Good for Business: Making Full Use of the Nation's Human Capital", A Fact-Finding Report of the Federal Glass Ceiling Commission, March 1995.

29 Bureau of the Census, Current Population Survey, "Income, Poverty and Valuation of Noncash Benefits 1993."

30 Bureau of Labor Statistics, 1994 Fact Sheet.

31 Federal Glass Ceiling Commission, Good for Business: Making Full Use of the Nation's Human Capital (March 1995).

32 See, e.g., Neumark, David and Roy Blank and Kyle Van Nort, 1995, "Sex Discrimination in Restaurant Hiring: An Audit Study," NBER Working Paper No. 5024.

33 Bureau of Labor Statistics, Current Population Survey.

34 EEOC, Office of Communications, The Status of Equal Opportunity in the American Workforce (1995).

35 U.S. General Accounting Office, Immigration Reform: Employer Sanctions and the Question of Discrimination, Report to the Congress, GAO/GGD-90-62, March 1990, p. 48.

36 David Neumark, et. al. Sex Discrimination in Restaurant Hiring: An Audit Study, Working Paper No. 5024, National Bureau of Economic Research, Inc. (February 1995).

37 Federal Glass Ceiling Commission, Good for Business: Making Full Use of the Nation's Human Capital (March 1995).

38 Bureau of Labor Statistics, 1994 Fact Sheet.

39 Gregory DeFreitas, Inequality at Work: Hispanics in the U.S. Labor Forces (New York: Oxford University Press, 1991), Chapter 4.

40 A Report of the Study Group on Affirmative Action to the House Committee on Education and Labor (1987).

41 Andrew Hacker, Two Nations: Black and White, Separate, Hostile, Unequal Ballantine Books (1992).

42 1990 Census data as compiled by the Office of Federal Contract Compliance Programs (1995).

43 U.S. Bureau of the Census, The Black Population in the United States: March 1994 and 1993 (1995); U.S. Bureau of the Census, Characteristics of the Black Population (1995).

44 EEOC, Office of Communications, The Status of Equal Opportunity in the American Workforce (1995) (Data supplied by the National Committee on Pay Equity).

45 Robert Wood, Mary Corcoran and Paul Courant, "Pay Differentials Among the Highly Paid: The Male-Female Earnings Gap in Lawyer's Salaries," Journal of Labor Economics (July, 1993).