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Study: eliminating racism and sexism would boost US workers' output by 10 percent or more

Making offices more diverse made workers way more productive.
Making offices more diverse made workers way more productive.
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It's easy to see how American workers became so much more productive in the past few decades: computers have shrunk tasks that once took hours or even days to complete into a matter of seconds. And workers are far more educated than they used to be: as of 1960, less than 10 percent of American adults 25 and over had bachelor's degrees. Today, it's more than 30 percent.

But that's not the full story. Researchers from the University of Chicago and Stanford's business schools have found that up to one-fifth of the labor force's productivity growth between 1960 and 2008 came from simply making it easier for women and minorities to get better jobs.

What they studied

Chicago's Chang-Tai Hsieh and Erik Hurst and Stanford's Charles Jones and Peter Klenow discovered a massive "convergence" in many highly skilled occupations after 1960 — that is, those occupations grew less dominated by white men as women and minorities moved into them.

The researchers started from the assumption that different people's unique, innate abilities shouldn't differ by demographic group. So when women and minorities were dissuaded from taking high-skill jobs in the 1960s, that meant the economy wasn't growing as fast as it could because its workers weren't fulfilling their full potential. (The researchers point to Sandra Day O'Connor, the first woman appointed to the US Supreme Court, as one example — even after graduating third in her Stanford law school class, she could only find work as a legal secretary at first.)

So the researchers assumed that removing occupational barriers like discrimination naturally makes the workforce more productive, by putting people into occupations to which they are better suited — if Sandra Day O'Connor has a comparative advantage at being a lawyer, then it makes sense for her to pursue that. Whether it's through active discrimination or indirect routes, like fewer educational opportunities, it affects more than just one person. And if there are enough of these barriers, it can keep the entire economy from its highest potential growth.

The researchers used data on the changing numbers of white women, black men, and black women in different occupations, plus changing wages, as a way to approximate the size of occupational barriers and the economic benefits to removing those barriers. To measure this, they treated discrimination and other barriers to employment as a sort of "tax." Those "taxes" are measures of inefficiency in the labor market — they represent workers or firms paying unnecessarily for inequality.

What they found

This chart shows what the productivity growth rate — that is, economic output per hour worked — looked like in the US from 1960 to 2008, the time period researchers covered:

FRED productivity

On the whole, productivity rarely declines for long, and it was particularly fast-growing during the booming 1990s and early 2000s. American workers on the whole have over time gotten more and more efficient at contributing to economic growth. The researchers concluded that 15 to 20 percent of the productivity growth per worker in the US economy since 1960 has been due to the decline of barriers to employment like discrimination and systemic inequality. That's up to 40 percent bigger than simple calculations based on wage gaps would imply.

Most of that growth in productivity is due to women entering high-skill occupations, the researchers write. In addition, black men and both black and white women experienced massive wage gains.

"We infer that changes in occupational barriers may have raised real wages by roughly 40% for white women, 60% for black women, and 45% for black men," they write. In addition, white men's wages declined as a result, by 5 percent.

Of course, women and minorities still face some of the same hurdles that they did back in 1960 — women famously face a "motherhood penalty" right now, for example, that prevents them from advancing in their careers once they've had children. And nearly everyone has subconscious racial or ethnic biases — one illustrative example is a study in which lawyers rated otherwise equal legal memos more poorly when the author was nonwhite. If those remaining barriers were removed, output would grow even more, by 10 to 14 percent, the researchers estimate.

What it means

In this study, economists are trying to make an equation out of concepts that are impossible to truly quantify: the levels of a person's natural talents, for example, not to mention how a person chooses a job. In the process, they make assumptions that it's easy to quibble with, like the idea that people will always pick the job they are suited to that will also bring them the biggest financial return.

For a variety of reasons, the researchers caution that their calculations aren't exact, and that they instead "should be viewed as only an illustration of the potential magnitude of the effect of declining occupational barriers."

So however rough the estimates, the real point is that when society keeps someone from being a doctor when that's what she's good at — whether it's through active discrimination or indirect routes, like fewer opportunities — it affects more than that one person. And if there are enough of these systematic barriers, it can keep the entire economy from its highest potential growth. The question is exactly where those barriers are — to what degree they come from either discrimination or, conversely, from more systemic barriers — and the researchers write that they'd like to figure that out next.

[h/t Noah Smith]