Fifty years of economic history proves that inclusive workplaces make us all richer

A more efficient job market is more diverse.
A more efficient job market is more diverse.
Image: Reuters/Keith Bedford
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“Consider the world that Supreme Court Justice Sandra Day O’Connor faced when she graduated from Stanford Law School in 1952.” Four economists from University of Chicago and Stanford University ask readers to consider the progress made since then in a fascinating study (pdf). O’Connor was among only 1% of law school students that were women, and “despite being ranked third in her class, the only private sector job she could get after graduating was as a legal secretary.”

Not only was this unfair, it was also economically inefficient, argue the authors. Whichever white man was given a lawyer position instead of O’Connor was almost certainly worse at the job than she would have been. As a result, that law practice was less productive, and because of lots of other firms made similar decisions, the US economy was worse off as a result.

Over the next half century, the country made great progress reducing barriers for women and people of color to enter high-skill professions and become managers. For example, while 94% of doctors and lawyers in 1960 were white men, this fell to just over 60% in 2010. Of course, there is still a ways to go when it comes to workplace inclusion.

As more Sandra Day O’Connors got the jobs they deserved, the economy has benefitted hugely. In their study, the Chicago and Stanford economists make what is perhaps the first attempt to quantify these benefits. They find that improved access to high-skill jobs for women and people of color accounts for around 25% of all economic growth from 1960 to 2010—GDP per person increased by about 2.5 times over that period. Their findings have not yet been published in a journal, but have been reviewed by top economists at multiple seminars.

The study relies on the simple fact that if you assume talent is equally distributed across genders and races, the only reasons white men have dominated high-skilled work are the following:

  1. White men had better access to education
  2. White men didn’t face discrimination from employers
  3. Women and people of color didn’t want high-skilled work

The researchers find that the first two reasons account for the differences in outcomes, with 80% of the gains from 1960 to 2010 from improved educational opportunities for women and people of color, and 20% from reduced employer discrimination. History has proven the third reason false. Given the opportunity, white women and people of color have moved into high-skilled jobs in droves.

The US still doesn’t allocate talent as well as it should, and this leaves a lot of economic growth on the table. For example, less than a fifth of C-suite executives at large publicly traded companies in the US are women. Only 24 of the CEOs at Fortune 500 companies are women, and only three are black. The researchers estimate that if access to education was fully equal across groups and discrimination were to disappear, US GDP per capita would grow by another 15-20%, making everyone better off.