Recently, there was much talk in Belgium about the inactivity among 25- to 64-year-olds in Belgium with a non-EU27 nationality. With 44.2% of the 25- to 64-year-olds with a non-EU27 nationality neither working nor looking for work, Belgium is at the very back of the European rankings. This level of inactivity is a problem given the intention of the Flemish, Walloon and federal governments to get more people into work. In this blog post, I look at one of the possible explanations for this high level of inactivity on the employers’ side, namely hiring discrimination. More specifically, the scientific evidence for the mechanisms of hiring discrimination is discussed, and some solutions to counteract discrimination based on economics (as a science) are provided.
Hiring discrimination, the unequal and disadvantageous treatment of individuals based on ascriptive characteristics (such as national origin), is a well-documented phenomenon. In academic research, we typically study the presence of hiring discrimination by measuring the differences in positive responses to job applications of equivalent candidates who typically differ only on one discrimination characteristic. Based on worldwide research, we know that, on average, individuals of different ethnicities or origins receive one-third fewer positive responses. Depending on the specific origin or ethnicity, this difference even rises to an average of almost 50%. The figures for age discrimination are similar: older candidates receive, on average, about 40% fewer positive responses than equally suited but younger candidates.
Reduced hiring opportunities, in turn, impose economic and social costs. On the one hand, there is an increased risk of long-term unemployment and inactivity for prospective employees from various minority groups, which creates an underutilisation of talent. On the other hand, due to discrimination in the hiring phase, organisations may not be able to attract the most suitable candidates or recruit enough candidates. Above all, in tight labour markets, discriminating employers may find it more difficult to attract suitable talent, especially if they discriminate based on personal preference. In exceptional cases, this can even lead to (speeding up) the bankruptcy of companies, as has already been confirmed in American research.
Selection based on statistics
A first discrimination mechanism, statistical discrimination, relies on employers making selection decisions based on group information. An employer who believes, based on previous collaborations with employees from an ethnic minority group, that individuals from that group have a poorer command of Dutch can use this information to prematurely exclude an individual candidate with those same ethnic characteristics from the selection process. The reason for exclusion is then based on the fact that this candidate is statistically likely to have a poor command of Dutch. Only if the candidate does not speak the language and language is a relevant selection criterion can it be a justified decision; otherwise, it is almost always discrimination. Moreover, without subjecting the candidate to a language assessment, it is impossible to determine whether the decision was actually justified.
This mechanism is not limited to hiring discrimination based on ethnicity. We also see a similar justification mechanism when it comes to age discrimination. For example, there are several beliefs about older workers that frustrate their chances in the labour market: they are seen as less technologically proficient, less flexible, and less trainable. Moreover, the perceived high wage cost of hiring older workers is also an obstacle for some employers.
However, an important side note should be made about the above discrimination mechanism. It is not necessarily the case that one’s beliefs about a particular group in the labour market are accurate. Even economics research often starts from the assumption that the information that employers have about, for example, workers of different origins or older workers and use in the selection process is correct. However, one may also treat candidates unequally and disadvantageously based on incorrect beliefs about group characteristics.
Aversion in the selection process
An alternative discrimination mechanism that may also explain perceived labour market discrimination is the mechanism of taste-based discrimination. Taste-based discrimination is characterised by an aversion to working with individuals from a particular minority group. This aversion can originate from the employer itself but also from employees or customers who do not wish to work or interact with persons from a specific minority group. The employer’s (economic) sensitivity to the wishes of employees and customers can then give rise to reduced opportunities in the labour market.
Based on research, we see that both statistical discrimination and taste-based discrimination play a role in ethnic labour market discrimination. Although the mechanism of statistical discrimination is sometimes invoked to justify discrimination, it is certainly not always this mechanism that drives ethnic discrimination. Moreover, there is scientific evidence that suggests that ethnic discrimination in the recruitment phase is mainly motivated by employers’ personal preferences or their fear that their employees or customers would not work or interact with persons of different ethnicity or national origin.
Solutions to combat discrimination
From an economic perspective, there are some solutions to combat labour market discrimination. A logical counter-reaction to reducing statistical discrimination is to obtain more (accurate) information about the potential of the individual candidate. This solution should prevent the fallback on group characteristics or statistics from estimating the productivity of candidate employees. On the one hand, the candidate must provide sufficient information about himself in the initial phase of the selection process so that the employer can make an informed decision. On the other hand, it is in the employer’s interest to obtain this information so that the most suitable candidate for the job is chosen. This information-gathering can be done by structuring the selection process more or by training employers or recruiters to suppress stereotypes or focus on candidate characteristics relevant to the job.
An appropriate measure to combat taste-based discrimination is to raise the price of discrimination. Discrimination motivated purely by preference or aversion is a somewhat economically irrational form of discrimination. Increasing (or highlighting) the cost of discrimination should neutralise the perceived burden of working or interacting with persons from the minority group. Based on research from the lab, we see that punishing such a form of discrimination is slightly more effective than rewarding non-discrimination. The fact that the mechanism of taste-based discrimination presumably often plays out in hiring decisions suggests that, in clear-cut cases of discrimination for which there is sufficient evidence, one should also effectively be willing to impose sanctions if one wants to reduce discrimination in the hiring process. In practice, this means better application of the current discrimination laws in force.
This post also appeared via UGent @ Work in Dutch. This page was last updated on 29 November 2023.