Book Forum: Harford and Caplan on Statistical Discrimination

The Logic of Life contains an excellent chapter explaining statistical discrimination but does the theory hold up?  Bryan Caplan says no

…[Tim] heavily emphasizes a few experiments showing that statistical
discrimination could be a "self-fulfilling prophesy." For example, he
describes a resume experiment where otherwise identical fake resumes
with "black names" were less likely to get a response. "High-quality
applicants were more likely to be invited for an interview, but only if
they were white. Employers didn’t seem to notice whether black
applicants had extra skills or experience." If that is how employers
treat black applicants, what’s the point of trying? As Tim asks, "Why
bother to get a degree or work experience if you are young, gifted, and
black?"

But is it really true that the market fails to reward blacks for
getting more education? Is it even true that the market rewards them
less? I tested these claims using one of the world’s best labor data
sets, the NLSY.  The results directly contradict Tim’s self-fulfilling prophesy story.  Blacks actually get a substantially larger
return to education than non-blacks! The same goes for experience,
though the result is not statistically significant. The real lesson of
the data is that if you are young, gifted, and black, you should get a
ton of education, because it has an exceptionally large pay-off.

Why would this be so?  I’m not sure, but one simple story is that counter-stereotypical
behavior stands out. When my sons were young, my wife was working a
lot, so I often took my kids places on my own. Funny thing: Time and
again, strangers came up and said, "Wow, you’re such a great dad!" But
there were moms of young kids doing the same thing in plain sight, and
the strangers rarely praised them.  Why not?  Because a dad taking care of two babies is counter-stereotypical, which grabs people’s attention. 

Purely anecdotal, yes. But it is consistent with the small academic
literature on counter-stereotypical behavior. If you clearly violate
expectations, people not only notice; they often over-react.

The upshot is that stereotypes may actually be self-reversing
rather than self-fulfilling. The marginal payoff of distinguishing
yourself from the pack is high if people think poorly of the typical
member of the pack.

Bryan has much more on the unpleasant truths about discrimination.  Read the whole thing.

Comments

Caplan doesn't tell us exactly what his work on the NLSY found.

It is certainly possible that blacks get a higher return to education than whites, but are nonetheless discriminated against in the labor market. All that has to happen to make this so is that the gap between high-school and college-educated blacks has to exceed the the gap between high-school and college-educated whites.

There is no reason this can't be the case in a labor market that discriminates against blacks. Indeed, unless college-educated blacks earn more than whites the greater return suggests that less-well-educated blacks are discriminated against by comparison with their white peers.

Small nit to pick: isn't the excerpted truth a pleasant one? So far as I'm convinced that education pays off for young blacks, that's good news. (It does seem that the rest of Caplan's post is rather unpleasant in the relevant sense).

Bernard
As I understand Caplan, he does not deny that discrimination exists, but he doubts that only the
"self-fulfilling" vicious circle works. His study shows that blacks have even higher incentives to
invest in education than whites. If it is the case, then discrimination should self-reverse.

One thing to keep in mind is that fewer jobs are gotten by submitting a resume in response to a want ad than through personal connections (not even counting very indirect connections like those of a college job placement office). It may be that the return to education for African Americans comes in other places than during the 15 seconds that someone screening resumes spends assessing their qualifications while reviewing a resume. It seems reasonable to expect rules of thumb (which might include discriminatory assumptions) to be more prevalent when the vast majority of candidates are going to be unqualified (as has usually been the case in piles of resumes that I've seen).

I couldn't find any refereed article by Bryan supporting his claim that he tested the story using NLSY data, or any article or working paper at all, for that matter. All I found was this http://www.gmu.edu/departments/economics/bcaplan/e321/lab7.htm which has some correlations he apparently ran on these data. He reports that black earned $6200 less than whites, and that the difference was $5300 when he controlled for education and experience. He doesn't provide standard errors, but elsewhere he says that $900 is not a statistically significant difference. Thus, I could find no support for his claim that "Blacks actually get a substantially larger return to education than non-blacks!" [emphasis in the original].

More significantly, such correlations really don't answer the question because they are rife with problems of unobserved heterogeneity, missing variables bias and selection bias. For instance suppose the educated blacks live disproportionately in high wage, high education states. Then a correlation between wages and education in this population is not a measure of the "returns to education".

Likewise, the (published) resume experiment shows that things as trivial and subtle as one's name can affect employment prospects. This suggests numerous confounding variables that make simple inferences from NLSY data problematic. Methodologically, retrospective correlations are much less convincing than controlled experiments.

Unless Bryan or one of his defenders can point to better evidence, I'd have to conclude that his claims, while consistent with his ideology, are unsubstantiated by the evidence.

Among the 1979 National Longitudinal Survey of Youth group of 12000 or so young people, as of 1990 when they were 25-33 years old, blacks were earning 98% as much as whites with the same scores on the military's heavily g-loaded Armed Forces Qualification Test.

Source: Herrnstein and Murray, 1994.

As a more general point, the government has been running these amazing longitudinal studies tracking thousands of people's lives for decades that can answer countless social science questions. The 1979 NLSY is particularly interesting because in 1980 the U.S military paid to have the NLSY panel of youths tested on the military's entrance exam, the AFQT, which is essentially an IQ test (it correlates at a high level with the classic Wechsler IQ test). We now have a remarkable amount of data on this nationally representative sample of people, including IQ scores for about 6000 of their children! I would encourage economists to familiarize themselves with these longitudinal resources.

Steven Levitt and Steve Dubner wrote in Slate in "Would a Roshanda by Any Other Name Smell as Sweet?" about those super-black names that black mothers started giving their babies during the Black Pride era:

"The typical baby girl born in a black neighborhood in 1970 was given a name that was twice as common among blacks than among whites. By 1980 she received a name that was twenty times more common among blacks."

Levitt and Dubner show strikingly little sympathy toward blacks who have a harder time getting called in for a job interview because, as shown by numerous "audit studies", employers are dubious of DeShawns and Darnells.

Levitt and Dubner scoff:

"Was he rejected because the employer is a racist and is convinced that DeShawn Williams is black? Or did he reject him because ‘DeShawn’ sounds like someone from a low-income, low-education family?"

Sure, as the authors imply, a boy named DeShawn may indeed be, on average, more likely to goldbrick or to rip off his employer than a boy named, say, "Dov" (the male name with the most educated parents according to the book).

Following their Naturist inclinations, Levitt and Dubner conclude:

"And that's why, on average, a boy named Jake [the whitest common male name] will tend to earn more money and get more education than a boy named DeShawn. A DeShawn is more likely to have been handicapped by a low-income, low-education, single-parent background. His name is an indicator—not a cause—of his outcome. Just as a child with no books in his home isn't likely to test well in school, a boy named DeShawn isn't likely to do as well in life."

There aren't too many people who make _me_ sound like a diversity-sensitive multi-cultist, but sometimes Levitt is one of them! The authors could at least have a little compassion for the poor kid. DeShawn didn't ask to be given his name.

And I must point out that a recent study by economist David Figlio calls into question Levitt's assumption that DeShawns aren't hurt by prejudice. Figlio cleverly looked at siblings, and found that the ones with the blacker names tended to get rated more poorly by their schoolteachers even when their test scores were the same.

If you clearly violate expectations, people not only notice; they often over-react.

Does this help explain the fact that even many non-lefties swoon over Obama? He's not Jesse Jackson. He must be ... wonderful.

The problem with Caplan's calculations is that he looks at returns to easily observed signals like education. Models of statistical discrimination that predict workers from the group facing discrimination will accumulate less human capital (e.g., Lundberg and Startz, AER, 1983) typically predict they will accumulate less hard-to-observe human capital. This type of statistical discrimination assumes groups differ in how accuately they can be evaulated. The result is that employers rely more on group averages and easily observed characteristics (like education) when forming expectations, and pay workers from groups facing this type of discrimination less by individual ability.

See my paper in the 2006 ILRR for a test of this idea, using the AFQT scores mentioned above:
http://digitalcommons.ilr.cornell.edu/ilrreview/vol59/iss2/5/

See Altonji and Pierret (2001) for a look at the "rational stereotyping" variety of statistical discrimination.

So, why did the Democratic majority in Congress shove through an anti-anti-statistical discrimination bill in 1991? Because the bigger employment problem for blacks and Hispanics is not that high IQ blacks are assumed to be of the average IQ for their group, but that the group averages are lower. So, the point was to make it harder for business to find smart workers by taking objective tools away from employers.

Similarly, the outgoing Jimmy Carter threw out the elaborately validated federal civil service exam, PACE, in January 1981. It was supposed to be replaced by a test that would have predictive validity but not have disparate impact on blacks and Hispanics. That has proven impossible to develop. It's like squaring the circle. So, the federal civil service has relied on a hodge-podge of hiring techniques ever since, typically emphasizing resumes, which may explain a lot about the weakening effectiveness of the federal government compared to its mid-20th Century peak when the civil service exam was finding high potential job candidates.

In contrast, simple racial quotas in which everybody is tested and then ranked within their own race and hired according to quotas would probably be better for the economy as a whole than the government's efforts to aid minorities by, in effect, increasing the randomness of hiring decisions.

By the way, it would be in best interests of everybody if whites made the effort to learn the variety of subtle clues that middle class black men have evolved in recent decades so they can show other blacks that they are middle class without being accused of "acting white." For example, after Spike Lee's 1992 movie "Malcolm X," it became a fashion for college educated black men to wear glasses, especially glasses with metal frames and small lenses. And there's a distinctive black college-educated male accent that has evolved as well.

I find many of the comments here deeply offensive.

Non-whites who I go to college with seem to have an equal, statistically insignificant, chance of obtaining a job through resume. In fact, among those who have applied to positions, I find are more likely to receive an interview than the white students. Especially a student with a non-white sounding name who has more than one expected degree. I think minorities in this manner have a high return on education, minus all the opportunity cost. Minorities are also more likely to be on financial assistance/scholarship, making the cost of education quite low. Also, during the interview process, all applicants are tested in an IQ based manner, from solving complex logistic problems to how much they know about the world. So I wonder, what kind of jobs are in question here? They must be jobs for people without college educations. So on the topic of the book, I trust the research is correct.

If Blacks have it so good with their education in the labor market, why is their such such a thing as an income gap between Blacks and Whites at every employment level? It is the case that Blacks with a college degree are often at no more of an advantage with Whites that only hold a H.S. education when compared as to income. According to the "Glass Ceiling Report" Blacks (with advance degrees) are far more likley to be stuck in none policy making jobs than Whites with similar education.

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