The Efficiency of Affirmative Action with Purely Historical Discrimination

Abstract

When there has been past discrimination, minorities will be more able conditional on class than non-minorities. Because ability and class both affect educational attainment, however, higher ability minorities will earn less even after discrimination ends. Thus, the discrepancy in the ability of minorities conditional on class persists after discrimination ends. This implies that minorities remain more able than non-minorities of similar educational attainment, so non-discriminatory firms will voluntarily practice affirmative action when there has been past discrimination. This suggests that the recent laws and court decisions restricting governmental affirmative action impede the government's ability to act efficiently. Moreover, when ability and qualifications are production complements, there can be positive externalities from affirmative action when it causes firms to favor more able workers over more qualified ones. This suggests that governmental incentives for even more affirmative action may be optimal.

Keywords: Affirmative Action, Discrimination, Racial Preferences

JEL Classification: D80, J15, J18, J71, J78