A Hidden Cost of Affirmative Action: Muddying Signals about Women’s Ability

Abstract

Despite gains in female representation in early career stages, large gender gaps persist at
the higher ends of the income distribution. This paper uses an experiment to study whether
affirmative action, which has been used mainly in early career stages, could have a hidden
cost. Specifically, by manipulating the presence of affirmative action in an initial competitive environment, I test whether the presence of affirmative action decreases the strength of
the signal about a woman’s ability when she is successful and thus the likelihood of her being employed in an second stage. Consistent with the hypotheses from a simple theoretical
framework of employee tournament entry and employer hiring decisions, I find that qualified
women are significantly less likely to be hired when those qualifications were gained in the
presence of affirmative action. Additionally, I find empirical support that this decrease in hiring comes through muddied employer beliefs about the ability of these previously successful
women, explaining over 56% of the hiring difference. A welfare analysis shows that, while affirmative action has an overall positive effect for women in this experiment due to increasing
the number of women who enter and are successful in the first competitive stage, the welfare
improvement would be three times as large if there were not the cost in terms of muddying
signals about women’s ability.

Keywords: Gender Discrimination, Affirmative Action, Hiring Decisions, Promotion Decisions

JEL Classification: J23, J70, J71, J48, J78, K31, M51