Double Affirmative Action

Transcription

1 Double Affirmative Action Parimal Bag Shiva Sikdar December 05, 2013 Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

2 Introduction Starting premise Not whether there should be affirmative action or not. To correct longstanding imbalances in economic opportunities due to race or caste, affirmative action seems a natural policy. The policy may be pursued over a period of time and then review its effectiveness. Obviously the policy will be divisive creating social tensions but then not implementing it is also divisive. Politicians will be swayed by vote counts. The economic costs, direct and indirect, have to be borne by the tax payers just like any other redistributive policy. Affirmative action is debated here in India (49.5% reservation for government jobs reserved for SC, ST & OBCs), in Malaysia (ethnic Malays and indigenous Bumiputeras are favored [New Economic Policy of 1969]), and the USA (inequalities between Whites and Blacks ). The question is, in what form: infant industry argument calls for ex-ante/early intervention, pro-market argument suggests late intervention at the job allocation stage. Our main point is, we cannot ignore early intervention. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

3 Introduction Two Types of Affirmative Action Job Reservation at the post-investment stage. (Prove yourself worthy first) Schooling subsidy lower the investment burden. (Infant Industry type argument) Questions/Issues How might different modes of preferential treatment (or positive discrimination) impact on human capital investment? What are the costs of different policies? (This aspect we haven t analyzed yet but we have to.) Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

4 Introduction Related Literature Weiss (1983, JPE): Sorting model of education. Wages depend on years of schooling and test grade. Fang and Norman (2006, IER): Effect of discrimination in government jobs. Discriminated group invests in skills while favored group slacks. Fryer and Loury (2013, JPE): Rationing of production slots. Social identity determines cost of effort. Laissez-faire: agents from disadvantaged group hold fewer slots. Affirmative action: subsidize skill acquisition or subsidize slot allocation? Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

5 The main message of Fryer & Loury (JPE) and intuition The main message: Preference should be given at the ex-post slot allocation stage. But what s the reasoning? Free market outcome = socially efficient outcome: π = π e (% of population who should invest = % of population who actually invest). But then πb e < πe < πa e σe b < θ < σe a, where π i and σ i are group-specific investment and slot ownership rates. (a advantaged; b disadvantaged) For fairness, the govt decides a target representation for the disadvantaged, σ b (σb e, θ], which requires improving the rate of investment to ˆπ b > πb e. But then the govt offers subsidy, t b, to the disadvantaged group for purchase of slots. This subsidy improves net return of investment to group b agents cut-off cost of investment for group b is increased on the margin more group b agents invest and less group a agents invest. Intuition: You have the carrot of better return hanging for you if you manage to invest, hence you should invest. Since agents know their own costs, the attraction of better carrot would guide the relatively less costly agents to invest, which would lower overall implementation costs than the strategy of subsidizing investment for all disadvantaged candidates. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

6 What is wrong with Fryer & Loury (JPE)? They assume that the agents know their types (i.e., abilities) before making the costly investment. Imagine the following: Suggest it to someone in the disadvantaged group with no positive examples to emulate or any knowledge of own ability that he has to invest in schools for 15 or 16 years before he gets to compete for slots (jobs) albeit at a slightly better odds. The person would ask: What is in it for me? Why should I give up my daily subsistence wage with which I assist my parents in feeding my siblings? Or how do I even manage surviving without the daily earnings? Even if subsistence wage is not an issue, just the psychological costs of 15/16 years of education when I am not guaranteed to get a job is a strong deterrent. It simply doesn t make sense. I would rather follow my father s trade (of selling sardis and lungis or vegetables or whatever) in my street corner. So we have a problem here: incentives of a better future isn t enough for the disadvantaged to think positively when they are not sure about their own potential. The above concerns lead us to model affirmative action differently from Fryer & Loury. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

7 The Model Our Approach Two-stage model of learning and investment in education. On completion of school education and a preliminary assessment of ability, one can engage in further education at own cost or drop out. Eligibility for white-collar public and private sector positions minimum necessary qualification: minimum necessary skills screening costly signaling device. Blue-collar jobs no higher education required. No a priori bias against candidates based on social background. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

8 The Model Our Approach (cont.) Candidate type: {ability (α), social identity (i)}. Difference in cost of education driven by ability and social background. Cost monetary and opportunity costs. The latter especially important for the disadvantaged and more so in developing countries. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

9 Model Schooling Education is a two-stage sequential process. Schooling costs higher for candidates from the disadvantaged background: S(D) > S(A). After schooling, candidates draw an imperfect private signal about own ability and update belief about own ability. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

10 Model Higher Education Candidates decide whether to pursue higher education based on updated belief. Monetary (pecuniary) cost: F (D) > F (A), α. Effort (nonpecuniary) cost: C(l) > C(h), i. During completion of higher education, candidates realize their actual effort cost. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

11 Model Jobs Public positions: Job Rationing: δ < p h,a mass of vacancies paying wage w. Threshold education and threshold expected ability requirements. Perfect screening at interviews. Private sector: Job-rationing and perfect screening at interviews. Threshold qualification requirement. High-ability: w H ; low-ability: w L. Unskilled sector: pays w < S(i) and no higher education requirement. Unorganized sector: no schooling requirement. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

12 Model Timing Nature privately draws α and candidates decide on schooling Ours No schooling Schooling Cost S(i) (12 years of schooling) Unorganized sector wage = 0 Private signal θ; Fryer & Loury (JPE) starts here Unskilled labor market Higher edu Cost (F(i),C(α )) wage = w > 0 Observe own ability (α ) Government interview Complete higher education Hired Rejected Wage = w Expected wage = ŵ Private sector Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

13 Model Dual Objectives Equity: Universal school participation. At least some high-ability candidates from the disadvantaged background should progress. We do not analyze political economy/vote motives a significant omission. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

14 No Reservation Benchmark Non-Participation of the Disadvantaged in Schooling all advantaged background candidates go through schooling and also pursue higher education; no disadvantaged background candidate enters school; all public and private sector positions with higher education as the minimum required qualification are filled with candidates from the advantaged background; all disadvantaged background candidates work for the low normalized wage of zero. Unfair distribution of jobs. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

15 Affirmative Action Responses Government jobs reserved according to population composition. Schooling subsidy for the disadvantaged group. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

16 Affirmative Action Affirmative Action Result 1: Double Affirmative Action Sometimes either policy on its own may not work. Combination of reservations and schooling subsidy may be needed. Induces school participation. Increases employability in the private sector although reservation is only for government jobs. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

17 Affirmative Action Relation to Fryer and Loury (2013) Fryer and Loury (2013) recommend preferential treatment: at the post-investment (i.e., job) stage rather than at the level of schools and colleges. Our result indicates the need for support at both stages. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

18 Affirmative Action Relevance of our model (India) and Irrelevance of Fryer & Loury model Poverty line monthly per-capita expenditure Rs. 672 (urban areas Rs. 859) Poverty rates relatively high among the disadvantaged 37.1% and 44.7% for Scheduled Castes and Scheduled Tribes Average wage (using the proxy of value-added per worker): Rs per month in agriculture High opportunity cost along with the monetary expenses related to schooling = Rs per month Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

19 Affirmative Action Source of figures Poverty line data all dollar equivalent figures are calculated at the current exchange rate of 1 : 00 = Rs poverty rates data average wage data child labor index.htm?year=2012&dlid=204399#wrapper schooling cost 1 tuition-fees-private-school-school-managements Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

20 Affirmative Action Result 2: Bifurcation within Advantaged Group Incentives of the advantaged group to pursue higher education weakened. Those drawing low signals at the schooling stage may drop out. Those drawing high signals might acquire additional skills (to improve their prospects in the private sector). Affirmative action may simultaneously push some in non-favored group to acquire additional skills while others drop out. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

21 Affirmative Action Relation to Fang and Norman (2006) Group discriminated against would seek to improve their prospects by investment in human capital whereas the favored group would slack. Our result complements theirs. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22

22 Summary Summary Results verified through numerical simulations. Extensive form analysis of education, career planning and job market outcomes. Education is not a one-time investment but a process of learning and gradual career building. Proactive role of the government with the sole objective of achieving equity. Bag & Sikdar (NUS; Keele Univ) Double Affirmative Action December 05, / 22