The costs of anti-discrimination laws

Posted by Marc Hodak on October 5, 2009 under Uncategorized | Be the First to Comment

Two stories popped up today in an employment blog I follow:

EEOC Accuses Pro-family Group of Pregnancy Discrimination and EEOC Sues Vanguard for Racial Discrimination.

Every knows the costs of job discrimination. The people discriminated against have their hopes and dreams thwarted by arbitrary and unfair judgments.  The owners or agents rendering these judgments remove their firms from pools of talent that might otherwise enhance their competitiveness.  It’s a system fraught with pain and economic inefficiency.

The government has attempted to eliminate such discrimination using the tools that governments have–moralizing and punishment.  Most governments are in no position to moralize, but that has never stopped politicians.  Unfortunately, democratic governments tend to reflect, rather than confront, the prejudices of their people, so moralizing is rarely anywhere near as effective in ending economically inefficient practices as market processes themselves in punishing the firms that most irrationally discriminate.

Government penalties, however, are downright counterproductive.  Once someone is placed in a legally “protected class,” whereby it becomes more difficult to fire them once hired, or where one must pay them regardless of their economic contribution, then the government makes these people more costly to hire.  This is clearly true for pregnant women and minorities.  In other words, the most enlightened businessman eager to hire the best, or even to bend over backward to hire someone from a disadvantaged background, is now penalized economically for doing so.   They risk having to be stuck with redundant employees in a downturn where letting go of someone from a protected class creates an almost automatic liability.  That may be one reason why minority unemployment is persistently higher than for whites, despite the overwhelming legal benefits to accepting and promoting qualified minorities.