Racism & Economics
by Dr. Doug Cardell
A reader has asked me to write about racism as an economic issue and how it affects employment and earning power. Racism and bias generally are a detriment to the economy. Free-market capitalism is opposed to racism and bias and, over time, tends to eliminate it. We'll pursue that further shortly, but before we do that, it makes sense to talk about isms or biases in general. Bias is a tendency to prefer certain things while racism is hate or active dislike for other races. True racism is relatively rare. Racial bias, however, while it is much more common, is not the most potent bias affecting an individual's economic well-being. In this discussion we will separate bias from outright racism since they are not the same thing. The question that is usually not asked when discussing bias is—where does it come from? Psychologists say that we all have in the back of our minds, at the edge of consciousness, images of the ideal man and woman. These form very early in life and are usually first based on our parents. They are generally racially similar to us; they are very tall (compared to us), and we see them as beautiful, kind, and powerful (intelligent and fit). As time goes on, We adjust these images to accommodate new realities. As we grow, we may see that our parents aren't as tall as we imagined, but we still carry the image of tallness as part of our ideal. We might begin to see that other folks are more beautiful than our parents, but we alter the appearance of our mental pictures to include beauty in our model persons. We might also imagine a warm smile. These 'pictures' may also include personality traits like a sense of humor, kindness, friendliness, and work ethic. These mental pictures we carry around in our heads substantially affect our reactions to others. The strength with which we are drawn to others is, to some extent, determined by their similarity to our internal images. It is crucial to understand that while these images may bias us positively toward some, they do not prejudice us negatively toward those dissimilar to our pictures. That is to say, we may tend to favor tall, fit, good-looking, kind, smiling Asians, but we do not dislike short, out-of-shape, unattractive, stern, white folks. How does all of this affect employment and wages? It means that people who resemble the internal images of those who hire, evaluate, promote, and assign tasks will have an advantage. Let's look at the statistics for a minute. The most substantial documented bias is physical fitness. Those who are fit have a 14-17 percent advantage in the workplace. This inclination makes sense in terms of pictures because when we are young, our parents are super-powered compared to us. Fitness results from exercise and studies show that average salaries are dramatically affected. Those who say they never exercise earn an average of $29,000 per year, those who say they engage in low-intensity exercise average $54,000 per year, those who perform medium-intensity exercise earn $67,000 per year and those who do high-intensity exercise average $83,000 per year. The obese earn 18% less per year than the non-obese. Furthermore, studies with women indicate that a 1% increase in BMI results in a .6 percent decrease in family income and a .4 percent decrease in occupational prestige 13 to 15 years later. So, an increase of a BMI of 20 to a BMI of 30, a fifty percent increase, would be expected to lead to a 30% decrease in family income and a 20% decrease in occupational prestige in the future. These results dwarf all the other biases. The next most significant factors are a tie at 15% advantage. The two are height and beauty. Tall people gain a 15% advantage in the workplace, and so do those who are attractive. Those who are tall and beautiful get a 30% boost. This bias makes sense since most people's mental image includes tallness and appealing features. The final factor we'll cover is race. Whites have a 10-11% percent advantage over other races. Since most of the population has white parents, this is not surprising. There are other documented factors, and the ones discussed are examples, not a comprehensive list. In addition, several undocumented biases are likely at play here. A warm smile, a positive attitude, a strong work ethic, a kindly manner, and possibly many others affect our perceptions. The result is that if all other factors are equal and Danny Devito and Michael Jordon go for a job interview tall, good-looking fit, Michael Jordan has a 45% better chance at getting the job. So far, in this article, I've attempted to show the origins and extent of many forms of bias. Interpreting this explanation as approval would not be correct. It would make the world a much better place if each of us examined our internal mental images and made an effort to not use them to judge others but as aspirational goals for ourselves. The biases described here, problematic as they are should not to be confused with the small percentage of 'true' racists, people who hate or actively dislike people of other races. Unfortunately true racists are unlikely to change, but, happily, are growing fewer in number every day as older racists die and are not replaced. Prejudice is detrimental to society and the economy. Free-market capitalism works best when biases are minimized. Free markets rely on competition, which works best with a level playing field. Capitalism relies on entrepreneurs and capitalists to create new enterprises and advance progress. If a capitalist chooses to invest in a less worthy project due to their internal biases, the economy as a whole loses. If entrepreneurs are discouraged from creating due to discrimination, the economy misses out on the next great idea. Since free-market capitalism works best when what people can contribute is more important than what they look like, over time, free markets reward the less biased and punish the less tolerant. It doesn't happen overnight but always works in the long run. This change occurs because, in free markets, success depends on results, and having a workforce that matches a CEO's mental image is not the prescription for getting outstanding results. The market doesn't care what your crew looks like; they care about the value a company can provide to them. Free-market capitalism wants a free, open, fair competition to produce the best goods and services for the American people.
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