Discrimination and Human Capital: A Challenge to Economic Theory & Social Justice

This article reports findings of a study using the National Longitudinal Survey of Youth (NLSY79) to test the rational choice theory that discrimination discourages investments in human capital. Nearly 60% of the study sample (N=5585) reported job-hiring discrimination (race, nationality, sex, or age) between 1979 and 1982 and they were found to invest more in job training programs and additional schooling between 1983 and 1998 than those reporting no such discrimination. White males were found to have the greatest advantage over black males and females in regard to job training and over black females in regard to additional schooling. Findings suggest that appeals to affirmative action policies and programs based on race and sex remain warranted. ********** This article assesses the effects of perceived discrimination on investments in human capital. It uses a nationally representative sample of youth ages 14-22 in 1979 to test the theory that in job markets containing discrimination, blacks and women will invest relatively less in programs designed to augment human capital, such as education and training. At issue is how market mechanisms or transactions of their own accord affect the stock of human capital upon which the country's productive capacity depends. To the extent blacks and women in general and blacks and women who experience job-hiring discrimination in particular invest less in education and training than whites in general and white males in particular, as this rational choice theory predicts, then a case can be made for non-market mechanisms such as affirmative action to ensure greater access to programs designed to increase human capital and thereby level the playing field. In the preceding scenario, markets fail to stop discrimination and may result in a vicious circle. Because of discrimination, members of the relevant groups perceive that their investments in human capital do not pay relative to others and they are less likely to invest in human capital; because of this lower investment, discrimination persists or increases because its statistical rationality increases; and because of this effect, investments decrease, and so on. There is a total net loss to society since less investment in human capital results in lower productivity. Intervention into the market is necessary to break the circle or end the spiral. Social justice makes economic sense to the extent affirmative action policies and programs or other such non-market interventions increase opportunities for investments in human capital that in turn enhance the productive capacity of the nation (Arrow, 1972; Lundberg & Startz, 1983; Sunstein, 1997). Method Data and Sample Data for the study were obtained from the 1979 cohort of the National Longitudinal Survey of Youth (NLSY79) which comprised a representative sample of 12,686 noninstitutionalized youth in the U.S. aged 14 to 22 in 1979 when first interviewed. Respondents were interviewed annually through 1994 and in 1996 and 1998 and asked a range of questions regarding labor market experiences and family characteristics. The NLSY79 sample was deemed particularly suitable for this study because employment-related discrimination questions were included in the 1979 and 1982 surveys, while the cohort was still relatively young. It thereby afforded an opportunity to assess the effects of discrimination on human capital investment as the cohort matured and careers developed. For the 1998 survey, 8,399 respondents were interviewed, a 66.2% unweighted retention rate (79% weighted). Respondents in 1998 differed on some sociodemographic measures from those in 1979, with the major difference in annual family income ($16,726 vs. $10,195). In 1979 they were also slightly younger (17.6 vs. 17.9 years old), less educated (10.3 vs. 10.5 years of schooling), from larger families (4.70 vs. …