Undercover Economist

A corporate own goal

Hillary Clinton and Barack Obama notwithstanding, the world still seems to be ruled by white men. Is this the result of racial and sexual discrimination in the workplace? Or are other factors more important – for instance, that few black kids go to good schools, or that women usually interrupt their careers to have children?

The answer is far from academic, because if we want to change a situation, it’s a good idea to work out what might be behind it.

Economists have been leading this investigation for longer than one might think. Contrary to popular belief, “the dismal science” did not acquire its name because of Thomas Malthus’s gloomy predictions.

The title was bestowed upon us by Thomas Carlyle, who in 1849 attacked John Stuart Mill and his fellow political economists for their “dismal” support for emancipation, and their insistence that former slaves, women, even the Irish, were all equal.

More recently, economists have turned their attention to the subtler question of how to detect discrimination in labour markets. That women or racial minorities are paid less suggests discrimination but does not prove it, even if the statisticians make every effort to adjust for other differences such as part-time work or different choices of job.

One solution to the ambiguity is a random audit. A recent example was carried out by the economists Sendhil Mullainathan and Marianne Bertrand. They generated about 5,000 fake job applications and used a computer to add, at random, distinctively black or white names. The employers who received the applications systematically favoured the Brendans and the Alices over the LaTonyas and the Jamals; perhaps even more perniciously, they paid attention to the qualifications of (apparently) white applicants but did not notice the difference between mediocre black applicants and excellent ones.

But discrimination should also show up in another way. Companies that prefer not to hire workers because of their sex or the colour of their skin are likely to lose money: employing stupid white men when you could be employing smart black women is not a profitable human-resources policy. Employers might nevertheless do this, either because they do not realise that their prejudices are costing them money, or because they do not care.

If so, discrimination is easy to detect in principle: just note that the profitable companies will be the ones employing more women or workers from an ethnic minority.

The economist Stefan Szymanski realised that the English football league was a perfect testing ground for this hypothesis. There was excellent data available as to which clubs employed black players; football has a very clear measure of success, and unlike some sports leagues, the English game does not go in much for redistributing money from successful clubs to minnows.

Szymanski studied the game between 1978 and 1993, a time encapsulated by the image of Liverpool’s Jamaican-born genius, John Barnes, backheeling away a banana that had been hurled at him from the stands. But Szymanski’s numbers suggest that it was the owners, not the fans, who were the worst offenders. Clubs that bucked the norm and fielded several black players did not suffer lower attendance or revenues as a result.

But they did enjoy a higher league position with a lower wage bill than the typical club – clear evidence that black players were underpaid on racial grounds.

As football has become ever more competitive and the financial stakes have become higher, racial discrimination becomes more expensive. I note that are now many more black players in the premiership. That is good news; it’s also no coincidence.

If only competition was as fierce, and talent as undeniable, in the world outside the stadium gates.

First published at ft.com.