The Enduring Effects of Affirmative Action

Controversy aside, federal affirmative action has had lasting impact on Black employment

The Enduring Effects of Affirmative Action

Although the Trump administration recently tossed out Obama-era guidelines on race-based university admissions, federal affirmative action regulations remain in place for a much larger group: government contractors who employ about a quarter of the U.S. population.

These affirmative action rules, adopted more than 50 years ago under an executive order by President Lyndon B. Johnson, are one of the most controversial labor market interventions in U.S. history. While the program has largely fallen under the radar in the current debate, a recent analysis by Asst. Prof. Conrad Miller has shown that for new contractors, it’s been remarkably effective in reducing the employment gap for Black workers.

Strikingly, Miller also found that Black employment gains continued long after firms ended their federal contracts, indicating that the companies made enduring changes to their hiring practices.

“If a firm is doing something without a regulation in place, presumably their behavior is consistent with their goals,” says Miller, a labor economist in the Haas Economic Analysis & Policy Group. “If the regulation ends, I would expect them to revert back to whatever they were doing. Instead, they continue to diversify their workforce, which would indicate that these new personnel practices served them well.”

Black employment gains continued long after firms ended their federal contracts, indicating that the companies made enduring changes to their hiring practices.

Miller’s paper, “The Persistent Effect of Temporary Affirmative Action,” recently won the 2018 Best Paper Award from the American Economics Journal: Applied Economics. The findings stand in contrast with previous work, including influential research by Berkeley Haas Prof. Jonathan Leonard, which found that while the federal affirmative action was effective in the early years, it effectively died in 1980 after being gutted by the Reagan administration. Miller’s new analysis found more enduring impact among new contractors.

The term “affirmative action” was first used by PresidentKennedy in 1961 and institutionalized by PresidentJohnson’s 1965 Executive Order 11246, which came on the heels of the Civil Rights Act and required federal contractors to “take affirmative action” to ensure nondiscrimination in hiring and employment. The program requires contractors and subcontractors with 50 or more employees and contracts over $50,000 to make a good-faith effort to employ minorities at rates at least proportional to the local qualified workforce (women were added to the list in 1967). Companies must make a plan and track their progress.

Miller analyzed employment data from 1978 to 2004 for companies ranging from defense contractors to janitorial outfits, totaling about 44,500 firms and establishments nationwide. He found that in the five years after they first became federal contractors, companies were, on average, able to reduce the gap between their share of Black employees and those in the local labor pool by 60 to 100 percent.

This expansion in Black employment continued at the same pace in the five years after businesses ended their contractor status. Former contractors continued to increase the share of African-American workers they employed even a decade after they fell under regulation.

This persistent effect is interesting because even among advocates, affirmative action was billed as a temporary measure to correct historical inequalities and reduce barriers by helping marginalized groups gain more educational and work experience. Miller found that a temporary program can instill long-term change–though not for those reasons.

“It’s unlikely that the changes these individual employers made were significant enough to influence the broader labor market and the overall education and skill levels among potential workers,” he says. “Instead, it seems that this is driven by changes at individual companies.”

Miller identified one of the drivers as improvements in what he calls screening capital–job tests, professional recruiters, new referral networks such as different schools or employment agencies, and any other tools employers use to improve how they find and choose the best job candidates. Affirmative action regulation increases the return on these investments, because employers must find a way increase the number of minority workers or risk losing their contracts. At the same time, better screening leads to higher-quality minority hires and reduces disparities in hiring rates, helping them meet their goals.

Once employers have invested in new recruiting and screening methods and are finding good workers, they would likely continue to use those methods even after regulation ends. The fact that previously regulated firms continue to diversify suggests they find it profitable to maintain their new hiring practices, Miller argues.

At a time when workforce diversity is top-of-mind for many corporations, yet the debate over affirmative action in government, business, and higher education rages on, Miller’s findings show minority workers face job-search frictions that can be at least partially surmounted by temporary intervention, which leads to persistent, long-term changes in hiring practices.