Skip to Content

Stanford GSB News

 

Politicians Guess Wrong on Civil Rights Bill

February, 2003

STANFORD GRADUATE SCHOOL OF BUSINESS—The debate around the passage of the Civil Rights Act of 1991 (CRA91) was heated and relentless. Many opponents claimed the bill would lead companies to hire people to fill racial and gender quotas, while proponents argued it would open opportunities to women and minorities in businesses that traditionally had been unwelcoming. The debate lasted into the 1992 presidential campaign, and still in 1994, conservatives who had served under the Reagan and Bush administrations justified their earlier attacks on the bill in a series of law review articles that presented CRA91 as both quota legislation and a lawyer's bonanza. The bonanza claim was based on the fact that the law greatly increased the potential penalties and legal costs of firms accused of dismissing employees on the basis of race or gender.

Now, two economists have analyzed industry hiring practices and related legal costs before and after CRA91. Paul Oyer, associate professor of economics at the Business School, and Scott Schaefer of the Kellogg School at Northwestern University, provide evidence that the law had the opposite of a quota effect: It stopped and perhaps reversed the trend during the 1970s and 1980s toward industries becoming more integrated along race and gender lines. "The evidence," says Oyer, who specializes in human resource issues, "is consistent with firms thinking that the easiest way to avoid a lawsuit is not to hire certain protected workers."

A protected worker who was fired in 1990 might be able to bring a case asking for $50,000 to $100,000 in legal damages. That same worker had a $200,000 to $400,000 case in 1992, Oyer says. "CRA91 increased the costs of employing any individual protected worker because it increased expected legal costs. However, an additional protected worker has an offsetting benefit of making it more difficult for other employees to sue. The more diverse a firm is, the more difficult it is to successfully sue that firm," Oyer says. This is the reasoning used by those who predicted the law would lead to hiring "by quota."

The study was based on protected worker employment data from the 1988-96 Annual Demographic File of the Current Population Survey at the industry level, which the researchers divided into three timeframes-a historical sample from 1983 to 1986, a pre-CRA91 sample from 1988 to 1991, and a post-CRA91 sample from 1993 to 1996. Oyer and Schaefer looked at the most segregated and the most integrated industries from the pre-CRA91 sample to the post-CRA91 sample to see if they moved toward each other in terms of the levels of integration, as one would expect in a world of hiring by quota, or if they strayed farther apart, which would suggest that the law was sorting industries into those who hire protected workers and those who don't. Their analysis suggests that the sorting effect was stronger than the quota effect.

"Before CRA91, black and female employment shares had been increasing in industries in which those groups had been least represented, such as chiropractic offices, vehicle dealerships, and metal mining for black employees; and logging, railroads, and construction for women, and inter-industry variation in protected-worker employment shares had been on the decline," says Oyer. "Both trends ended after the act." Black and female employees continued to be sorted into stereotypical sectors: Blacks were most represented in household service, bus and urban transit, taxi service, and fabric mills; women in day care, household service, beauty shops, nursing homes, and libraries.

"The benefits so obviously overwhelmed the costs that no credible person would say that the Civil Rights Act of 1964 was a bad idea," Oyer says, "but the jury is still out on CRA91." On the positive side, the law raises the costs of being an "old school" employer. It should encourage firms to make investments in training managers to act in a way that is perceived as nondiscriminatory, he says. "Progressive firms can become even more diverse and draw from a larger potential labor pool." But a highly segregated firm is most subject to discrimination lawsuits, and if that firm tries to force its hand and hires just from certain quarters so that the "numbers come out right" without overhauling the whole firm strategy, that will only bring it more costs. In the long run, Oyer believes, successful firms properly balance this tradeoff. "They have to, or legal costs and bad press make them uncompetitive."

We will never know for sure what would have happened in the absence of CRA91, Oyer says. "We can safely say, though, that it did not have a quota effect. And there is no evidence that it helped integrate industries that had employed relatively few protected workers."

—by Mary Petrusewicz

Related Information

Sorting, Quotas, and the Civil Rights Act of 1991: Who Hires When It's Hard to Fire?
Paul Oyer and Scott Schaefer
Journal of Law and Economics,April 2002, 41-68. Abstract.

Layoffs and Litigation
Scott Schaefer
The RAND Journal of Economics, 31, Summer 2000, 345-358

Litigation Costs and Returns to Experience
Paul Oyer and Scott Schaefer
American Economic Review, June 2002

A Firing by Any Other Name
Paul Oyer
Business Week, July 31, 2000