The Unfairness Trap: A Key Missing Factor in the Economic Theory of Discrimination

37 Pages Posted: 21 Feb 2014 Last revised: 14 Jun 2014

See all articles by Jordan I. Siegel

Jordan I. Siegel

University of Michigan

Naomi Kodama

Government of Japan - Ministry of Economy, Trade and Industry

Hanna Halaburda

New York University (NYU) - Leonard N. Stern School of Business

Date Written: June 12, 2014

Abstract

Prior evidence linking increased female representation in management to corporate performance has been surprisingly mixed, due in part to data limitations and methodological difficulties, and possibly to omission of a fairness factor in the economic theory of discrimination. We introduce a new theoretical emphasis on unfairness traps, and we test our theory on a panel data set covering managerial demography, corporate performance, and individual compensation from a nationally representative sample of Japanese firms in the 2000s. We find that increases in the ratio of female executives, the presence of at least one female executive, and the presence of at least one female section chief are associated with increases in corporate profitability in the manufacturing sector. These results are not specific to Japanese firms only: North American multinationals operating in Japan also experience outsized benefits from hiring and promoting female managers. The results are robust to controlling for time effects and company fixed effects and the time-varying use of temporary and part-time employees. A very small part of the competitive benefit of employing female managers does flow from compensation savings, but a far larger part arises from direct productivity increases. Prior economic theory on discrimination is largely silent on the impact of discrimination on worker productivity and hence cannot explain these findings. We extend the theory by modeling this relationship, and test it empirically by showing that due to possible social comparison costs, only companies whose compensation of female talent compares well with compensation in the local labor market for similarly qualified males will see a significant performance benefit.

Suggested Citation

Siegel, Jordan I. and Kodama, Naomi and Halaburda, Hanna, The Unfairness Trap: A Key Missing Factor in the Economic Theory of Discrimination (June 12, 2014). Harvard Business School Strategy Unit Working Paper No. 13-082. Available at SSRN: https://ssrn.com/abstract=2390078 or http://dx.doi.org/10.2139/ssrn.2390078

Jordan I. Siegel (Contact Author)

University of Michigan ( email )

Ann Arbor, MI
United States

Naomi Kodama

Government of Japan - Ministry of Economy, Trade and Industry ( email )

Japan

Hanna Halaburda

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
108
Abstract Views
1,226
rank
255,694
PlumX Metrics