Prosperity Watch Issue 61, Number 4: Allowing discrimination is bad economics

May 24, 2016
We all suffer when biases are given unchecked rein over who gets hired, promoted, fired, and served — even if we don’t know it at the time. Discrimination is inherently irrational in an economic sense, and when it is allowed to pervade private sector decisions, North Carolina’s economy is less efficient and competitive. By rolling back many workplace protections, House Bill 2 will sap our state’s economic vitality, often in subtle ways that don’t create headlines.
The challenging reality facing LGBTQ communities in North Carolina is a reminder that the ills of discrimination persist in our state. As shown here, fully three-quarters of transgender workers have experienced mistreatment or harassment on the job, and roughly half of transgender North Carolinians have lost out on a job altogether. Of course, stories like these remain far too familiar to North Carolinians from many backgrounds that deal with discrimination on a daily basis. The resulting economic losses of persistent discrimination against people of color and women for example is well documented in earnings differentials and artificial limitations placed on career progression.
In the parlance of economics, discrimination is an irrationality that makes markets less efficient and competitive. Discrimination prevents workers from making full use of their skills, talents, and worktime.  If someone with strong manufacturing skills is forced to work in a different trade because of irrelevant factors like their sexual orientation or gender identity, North Carolina loses out to competitors in other states that are more focused on finding the best talent. And when discrimination makes it difficult to find any kind of work at all, people can be forced out of the economy altogether, again undermining North Carolina’s collective productive potential.
Then there are the workers who find a job that suits their skills, but suffer workplace harassment and abuse. If abuse ultimately forces people to switch jobs in search of a healthy environment, the business that lost a worker has to shoulder the cost of finding a replacement. In 2007, the cost of replacing employees who left because of workforce unfairness totaled $64 billion nationally, or about the revenue of Google, Goldman Sachs, and Starbucks combined.
The perverse economic effects of discrimination don’t impact us all in the same way, but they touch us all sooner or later.

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