Are Firms That Discriminate More Likely to Go Out of Business?

Devah Pager

Sociological Science, September 19, 2016
DOI 10.15195/v3.a36

Economic theory has long maintained that employers pay a price for engaging in racial discrimination. According to Gary Becker’s seminal work on this topic and the rich literature that followed, racial preferences unrelated to productivity are costly and, in a competitive market, should drive discriminatory employers out of business. Though a dominant theoretical proposition in the field of economics, this argument has never before been subjected to direct empirical scrutiny. This research pairs an experimental audit study of racial discrimination in employment with an employer database capturing information on establishment survival, examining the relationship between observed discrimination and firm longevity. Results suggest that employers who engage in hiring discrimination are less likely to remain in business six years later.

Creative Commons LicenseThis work is licensed under a Creative Commons Attribution 4.0 International License.
Devah Pager: Department of Sociology & Public Policy, Harvard University

Acknowledgements: Direct all correspondence to Devah Pager, Department of Sociology, Harvard University, Cambridge, MA 02138, The author is thankful for feedback from David Neumark, Larry Katz, Jeff Liebman, Ilyana Kuziemko, Bruce Western, and Mitchell Duneier. This research was supported by grants from NSF (CAREER0547810) and NIH (1K01HD053694).

  • Citation: Pager, Devah. 2016. “Are Firms That Discriminate More Likely to Go Out of Business?” Sociological Science 3: 849-859.
  • Received: June 29, 2016
  • Accepted: July 11, 2016
  • Editors: Jesper Sørensen, Kim Weeden
  • DOI: 10.15195/v3.a36

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2 Reactions to Are Firms That Discriminate More Likely to Go Out of Business?

  1. C. Bruce Hamburg October 2, 2016 at 8:52 am #

    Perhaps the companies that discriminated were in more instances marginal and/or poorly managed so failure was not a consequence of discrimination.

  2. Bernard Z. Friedlander October 2, 2016 at 7:42 pm #

    This is an extremely interesting research report.
    The uncertainty the author acknowledges in the Discussion, regarding the important challenge of explaining the phenomenon, suggests the following:
    In the world of business, as in many other human enterprises, the psychological variable, “openness to new information and new experience” is a very powerful determinant of success or failure in times of stressful change.
    In business, the sudden onset of a severe recession is certainly a major challenge to survival that calls upon top management’s capacity for innovations in thinking and action.
    In terms of probabilities, those who can meet new situations with new thoughts and new decisions and actions have a higher probability of survival than those who can’t or don’t.
    One aspect of discrimination in employment based on gender, group membership, etc, is the presence of the general trait of resistance to new ways of thinking and acting in response to changing social values, social standards, and changing patterns of decision making.
    Employers who cling to “old fashioned” criteria of personnel selection probably work within an internal institutional culture that resists other forms of adaption to surrounding social change.
    If that is true, then persistent patterns of resistance to change apply to other aspects of business decision-making in non-adaptive personnel practices. So failure of adaptation to changing personnel practices would be linked to other forms of failure to adapt to other requirements for maintaining business viability at a time of economic and other market stressors.
    I am a retired professor with a great deal of experience in designing experimental studies in various fields related to human development. That experience helps me think in terms of assessing relationships between independent variables, intervening variables, and relationships to outcome variables as seen in measurable behavior. In addition, I have had more experience than most professors in the world of business, but that was mostly a long time ago.
    However, I have no experience whatever in fields related to Devah Pager’s research. I wouldn’t begin to know how to create new hypotheses in this field, nor how to test them.
    If Dr. Pager wishes to correspond with me concerning this research I will welcome an inquiry. In fact, this study may very well find a place in a presentation I might develop with an experienced attorney in the field of intellectual property that would be targeted to the presidents of major corporations
    If you look me up in Google Scholar don’t be surprised by the low number of citations at the time of most of my publications. That work was done during a historical era when there were only a few dozen people interested in the innovations of my work. By the time the various fields caught up with what we had been doing in the 1960s & 70s, my innovations had been forgotten and were never rediscovered. For various reasons, “my” fields have expanded in recent years to include thousands of workers and aspirants. My last “at bat” in the major leagues in the 1990s was in an adjacent field, and my name is unknown there. I have no interest or need to try to publish my present work, and there is so much of that, I do it for small local audiences and don’t make any effort to publish in research-related publications.
    Cordially, Bernard Z. Friedlander
    Research Professor of Human Development (Emeritus)
    Department of Psychology, University of Hartford
    >>>Current Contributing Member
    Chaos & Complex Systems Seminar
    Department of Physics, University of Wisconsin-Madison