New Economist

You can't train for diversity

Time reporter Lisa Takeuchi Cullen explains why Employee Diversity Training Doesn't Work

Some decades ago, the powers that be declared that employee diversity was a good thing, as desirable as double-digit profit margins. It's proving just as difficult to achieve. Companies try all sorts of things to attract and promote minorities and women. They hire organizational psychologists. They staff booths at diversity fairs. They host dim-sum brunches and salsa nights. The most popular--and expensive--approach is diversity training, or workshops to teach executives to embrace the benefits of a diverse staff. Too bad it doesn't work.

A groundbreaking new study by three sociologists.  ...Their analysis found no real change in the number of women and minority managers after companies began diversity training. That's right - none. Networking didn't do much, either. Mentorships did. Among the least common tactics, one - assigning a diversity point person or task force - has the best record of success. "Companies have spent millions of dollars a year on these programs without actually knowing, Are these efforts worth it?" Dobbin says. "In the case of diversity training, the answer is no."

The law is one reason that employers favor diversity training. In the wake of whopping settlements in race-discrimination suits against large companies, including Texaco and Coca-Cola, over the past decade, employers believe that having a program in place can show a judge that they are sincerely fighting prejudice. But this too is a myth, says Dobbin: "I don't know of a single case where courts gave credit for diversity training."

Social psychologists have many theories to explain why diversity training doesn't work as intended. Studies show that any training generates a backlash and that mandatory diversity training in particular may even activate a bias. Researchers also see evidence of "irresistible stereotypes," or biases so deeply ingrained that they simply can't be taught away in a one-day workshop.

The piece is based on a recent American Sociological Review  article by Alexandra Kalev of UC Berkeley, Frank Dobbin of Harvard, and Erin Kelly of the University of Minnesota: Best Practices or Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies (PDF). This is a good example of policy-relevant empirical analysis. Here is the abstract:

Employers have experimented with three broad approaches to promoting diversity. Some programs are designed to establish organizational responsibility for diversity, others to moderate managerial bias through training and feedback, and still others to reduce the social isolation of women and minority workers. These approaches find support in academic theories of how organizations achieve goals, how stereotyping shapes hiring and promotion, and how networks influence careers.

This is the first systematic analysis of their efficacy. The analyses rely on federal data describing the workforces of 708 private sector establishments from 1971 to 2002, coupled with survey data on their employment practices. Efforts to moderate managerial bias through diversity training and diversity evaluations are least effective at increasing the share of white women, black women, and black men in management. Efforts to attack social isolation through mentoring and networking show modest effects. Efforts to establish responsibility for diversity lead to the broadest increases in managerial diversity.

Moreover, organizations that establish responsibility see better effects from diversity training and evaluations, networking, and mentoring. Employers subject to federal affirmative action edicts, who typically assign responsibility for compliance to a manager, also see stronger effects from some programs. This work lays the foundation for an institutional theory of the remediation of workplace inequality.

So organisational responsibilty and accountability make a difference; diversity training and evaluation don't. One wonders why the EEOC didn't examine these issues years ago...

Doing research in China: constraints, conformity and self-censorship

Hong Kong-based economics professor Carsten A. Holz asks an important question in this month's Far Eastern Economic Review: Have China Scholars All Been Bought? Of course, you know the answer:

Academics who study China, which includes the author, habitually please the Chinese Communist Party, sometimes consciously, and often unconsciously. Our incentives are to conform, and we do so in numerous ways: through the research questions we ask or don’t ask, through the facts we report or ignore, through our use of language, and through what and how we teach.

Foreign academics must cooperate with academics in China to collect data and co-author research. Surveys are conducted in a manner that is acceptable to the Party, and their content is limited to politically acceptable questions. For academics in China, such choices come naturally. The Western side plays along.

China researchers are equally constrained in their solo research. Some Western China scholars have relatives in China. Others own apartments there. Those China scholars whose mother tongue is not Chinese have studied the language for years and have built their careers on this large and nontransferable investment. We benefit from our connections in China to obtain information and insights, and we protect these connections. Everybody is happy, Western readers for the up-to-date view from academia, we ourselves for prospering in our jobs, and the Party for getting us to do its advertising. China is fairly unique in that the incentives for academics all go one way: One does not upset the Party.

What happens when we don’t play along is all too obvious. We can’t attract Chinese collaborators. When we poke around in China to do research we run into trouble. ...China researchers across different disciplines may not all be equally affected. Economists and political scientists are likely to come up against the Party constraint frequently, and perhaps severely. But even sociologists or ethnographers can reach the forbidden zone when doing network studies or examining ethnic minority cultures.

Holz does not pull any punches, likening the Communist Party to the mafia. The examples he gives of 'doing research' are both fascinating and horrifying. Hat tip: China Challenges

Is economic recovery a myth?

Most recessions are temporary, as economies quickly recover ground. Or so I had thought. But a recent BIS working paper by Valerie Cerra and Sweta Chaman Saxena questions that assumption. Their paper, Growth dynamics: the myth of economic recovery, finds that "when output drops, it tends to remain well below its previous trend":

Using panel data for a large number of countries, we find that economic contractions are not followed by offsetting fast recoveries. Trend output lost is not regained, on average. Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth, whereas we find absolute convergence in expansions. The output costs of political and financial crises are permanent on average, and long-term growth is negatively linked to volatility. These results also imply that panel data studies can help identify the sources of growth and that economic models should be capable of explaining growth and fluctuations within the same framework.

The authors conclude that cross-country regressions can mislead by masking determinants of turning points: "panel regressions that control for the timing of shocks or policy changes offer a better chance of explaining sources of growth". The paper also highlights the costly impact of political and financial crises:

Crises contribute to half of the episodes of negative growth, and there is no evidence that they typically lead to economic reforms or policy adjustments that restore output to trend. Change to a more democratic government system, on the other hand, improves the rebound from a recession.

And they highlight an area for future research;

Countries that experience many negative shocks to output tend to get left behind and their long-term growth suffers. Thus, while standard growth theory may work well in explaining expansions, a fruitful direction for future research would be to explain the proclivity to wars, crises, and other negative shocks.

Worth a read.

Susan Athey

Harvard's Susan Athey has won the John Bates Clark Medal, which the American Economic Association awards every second year to the best economist in the United States under 40 years old. The AEA entry summarises her contribution thus:

Susan Athey is an applied theorist who has made important contributions to economic theory, empirical economics, and econometrics. She has built a research program strongly focused on using theory to understand substantive economic issues, especially in industrial organization. She has developed tools and techniques that provide the basis for empirical work strongly grounded in sound economic theory. She has made particularly important advances in developing and applying tools that replace strong functional form assumptions in models with more plausible conditions such as monotonicity, thereby facilitating the development of more robust empirical results.

You can read a prescient 1995 New York Times piece by Sylvia Nasar here: "The Top Draft Pick in Economics; A Professor-to-Be Coveted by Two Dozen Universities" (PDF), written when she was on the job market after completing her PhD at Stanford. 

David Warsh at Economic Principals has an appreciation:

For purposes of understanding Athey's place in present-day economics, then, never mind the rigorous theoretical/empirical orientation and econometrics, important though they may be. To glimpse her determination to influence the manner in which economics is done, by men and women alike, check out her advice to would-be graduate students and to faculty negotiating senior appointments. Contemplate her leaderly qualities:  to organize the winter Econometric Society meetings last year, she formulated a committee of sixteen female economists. Consider her habit of collaboration -- more than a dozen co-authors on important papers over the years. Meanwhile, there are the children. Last fall she was known to go home after teaching to nurse her baby, before returning to the office for the afternoon seminar.

Today's Economist also features a piece, Back to basics:

“Susan's work on the foundations of economic theory is of fundamental importance,” says Paul Klemperer, a professor at Oxford, “showing economists when they can have confidence in their 'equilibrium' theories and when they can't.”

For example, economists frequently make simplifying assumptions about mathematical form. Most commonly, they may suppose a linear relationship between variables: when one thing goes up, another goes up or down by a fixed amount. That makes results easier to get—but at a cost: often there is no good reason to assume linearity. Ms Athey has shown that strong results can still be obtained even if you assume much less.

Ms Athey's less abstract work includes an analysis of how firms in a cartel can maximise joint profits when they do not know each other's costs. Should they set “rigid” prices and split the market equally, or let the firm with the lowest cost supply most? The latter would be more efficient; the snag is that high-cost firms must have no incentive to pretend that their costs are lower than they are in order to sneak an increase in market share. Often, but depending on technical conditions, rigid pricing pays off. You may imagine, correctly, that all this is mathematically daunting. (Mercifully, Ms Athey provides a summary in plainish language on her homepage.)

Typical of modern economics? Not going by recent Clark awards, such as that to Steven Levitt, of “Freakonomics” fame, in 2003. Ms Athey perhaps represents orthodox theory better than any medallist has for some years. Back to basics, then? Yes, and what basics.

India's coming retail battle

I have posted before about Wal-Mart's planned retail foray into India, and Reliance's ambitious expansion plans. But there is plenty of resistance to these attempts to modernise retailing. The FT's Amy Yee reports today on The retail battle:

Labour groups and farmers’ advocates in India have found a new ally to resist Wal-Mart’s imminent entry into the country. At a conference this week in New Delhi the head of a major US community activist group spoke alongside leaders of labour and trade groups about the threat posed by Wal-Mart and big local retailers.

“It is important to learn lessons that other countries in the world have learned,” Wade Rathke, head of US community group Acorn, warned participants at the dramatically titled ‘National Convention to Resist the Corporate Hijack of Retail’. “We need protection and regulation to prevent the kinds of abuses that are customary from businesses of this size.”

In a curious example of the globalisation of anti-globalisation, Acorn is helping Indian labour groups and farmers’ advocates strategise against Wal-Mart’s entry into the country, adding fuel to a brewing movement against the expansion of big retailers in India.

Acorn ...has spearheaded a campaign that has blocked Wal-Mart from opening stores in Florida. Mr Rathke cites several allegations that have made Wal-Mart a lightning rod in the US and other countries, including the dislocation of local businesses and low wages for employees.

...The audience consisted of several hundred small hawkers, traders and village delegates from across India who spoke little English (a Hindi translator conveyed Mr Rathke’s warnings). “A year ago hardly anyone here had heard of Wal-Mart. That’s changing now,” said Mr Rathke.

Speakers at the conference also included leaders of the Confederation of All India Traders, the National Hawkers Federation and the Centre for Indian Trade Unions among other groups who are busy honing their campaign against big retailers, which include not only Wal-Mart but also local players such as Reliance and Pantaloon, owner of stores such as Big Bazaar and Central.

This coalition for “retail democracy” is meeting with politicians in Delhi and planning a nationwide rally this summer. It contends that big retailers in India threaten the livelihoods of 40m people involved in small businesses.

But not everyone is opposed to large stores:

Welcome Dani

Good to see that leading development economist Dani Rodrik has started a blog. Typically, it's called Dani Rodrik's weblog. He is Professor of International Political Economy at the JFK School of Government at Harvard University, and a bit of a gadfly. I've always found his research topical and well written, and have cited his work in previous posts:

* China's exports: adding more value (4 July 2006)
* "Hindu growth"? The mystery of India's productivity surge (13 September 2005)
* Democracy pays off in the long run... (15 March 2005)

It is still early days for his blog, but I'd expect the same. The blog's subtitle is: "Unconventional thoughts on economic development and globalization." Happy reading.

Hat tips: Greg Mankiw and Tyler Cowen.

Replication: enough of the cheap talk

Most economists agree that replicating other's work is worthwhile. But it's just "cheap talk", according to Daniel Hamermesh:

The cost of pure and scientific replication in economic research has diminished over the past forty years. At the same time our verbal nods toward the need for replication have increased... Despite the declining costs and despite our expressions of preferences, both pure and scientific replications are very rare in leading journals; and even within-study scientific replication is unusual.

Our expressions of preference are cheap talk. The profession provides few incentives for most active economists to produce replications of others’ research, and similarly few to increase the believability of one’s own research by testing ideas on multiple sets of data. Any demand for replication must arise from the profession as a whole, as intermediated by the actions and decisions of the editors of the most visible professional journals.

What is to be done?

Editors need to take the lead by providing sufficient incentives for top-flight authors of empirical work to engage in pure and scientific replication, and by insisting on within-study scientific replication in many more articles. Without these changes occasional paeans to the virtues of replication are as likely to enhance the scientific soundness of empirical research in economics as programmes that urge abstinence are to reduce teenagers’ sexual activity.

These quotes come from his new IZA discussion paper, Replication in Economics, forthcoming in the Canadian Journal of Economics. These issues matter, so it's good to see someone of Hamermesh's stature raising them.

(See also my previous post: Does empirical economics follow the scientific method?)

The road to India

More evidence of the global relocation of white collar labour today. The week before last, Citigroup announced it was to cut 17,000 jobs, and relocate 9,500 to India and other "lower cost locations". Today we read of another bank slashing jobs in the west and offshoring others: Barclays to Shift 10,800 Jobs to India, Elsewhere to Cut Costs, according to Bloomberg reporters Subramaniam Sharma and Chitra Somayaji:

Barclays Plc plans to shift 10,800 jobs to India and other low-wage countries, betting reduced costs will help win support for its acquisition of ABN Amro Holdings NV, the world's largest financial services takeover. Barclays, Britain's third-largest bank, will also slash about 12,800 jobs to pare expenses by 2.8 billion euros ($3.8 billion), the banks said in a statement today.

Barclays, based in London, today agreed to buy ABN Amro for 67 billion euros. Salaries in insurance, banking and finance in India may rise 16.5 percent this year, driving the fastest wage growth in Asia, according to Hewitt Associates Inc. Aviva Plc, HSBC Holdings Plc and Standard Chartered Plc have hired back-office staff in India, where a financial analyst costs as little as a quarter of counterparts in Europe, Paul Abraham, managing director of ABN's global support unit, said last month.

...Barclays Chief Executive Officer John Varley today said the London-based bank will move staff to "low-cost'' locations including India, without elaborating. Barclays's acquisition of Amsterdam-based ABN Amro will create a bank with about 217,000 employees and 47 million customers stretching from India to Brazil.

Barclays plans to slash almost 6 percent of the combined workforce, excluding Chicago-based LaSalle Bank...."Part of the expected staff reduction will be through establishing shared services and offshoring those positions to low-cost locations, such as India where new staff will be recruited at ABN Amro's existing'' operations, the banks said in the statement. "The reduction in staff is a necessary part of the envisaged synergies from the combination of the two banks.''

ABN Amro, which employs about 4,000 back-office workers in six offices in Mumbai, Chennai and New Delhi, plans to hire as many as 2,000 more people in India by March, Lars Gustavsson, global head of the services unit, said on March 15.

Global banks have been ripe for restructuring, with many 'back office' jobs in particular not needing to be done in the same location as sales or trading. Some banks and insurance companies have been quietly shifting those jobs to India and elsewhere for years, of course. But relocation seems to be accelerating, as Indian expertise improves and capacity to deliver grows apace.

More pursuit of happiness

Will Wilkinson, keeper of the Happiness and public policy weblog, has published a new Cato Institute report (Policy Analysis no. 590): In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?

Like his posts, it is thought provoking. Here is the excutive summary:

"Happiness research" studies the correlates of subjective well-being, generally through survey methods. A number of psychologists and social scientists have drawn upon this work recently to argue that the American model of relatively limited government and a dynamic market economy corrodes happiness, whereas Western European and Scandinavian-style social democracies promote it. This paper argues that happiness research in fact poses no threat to the relatively libertarian ideals embodied in the U.S. socioeconomic system. Happiness research is seriously hampered by confusion and disagreement about the definition of its subject as well as the limitations inherent in current measurement techniques.

In its present state happiness research cannot be relied on as an authoritative source for empirical information about happiness, which, in any case, is not a simple empirical phenomenon but a cultural and historical moving target. Yet, even if we accept the data of happiness research at face value, few of the alleged redistributive policy implications actually follow from the evidence. The data show that neither higher rates of government redistribution nor lower levels of income inequality make us happier, whereas high levels of economic freedom and high average incomes are among the strongest correlates of subjective well-being. Even if we table the damning charges of questionable science and bad moral philosophy, the American model still comes off a glowing success in terms of happiness.

If you want to hear Will in full flight, you can hear him interviewed by ABC Radio's Counterpoint programme, and his latest Cato podcast with Anastasia Uglova.

The anglo-saxon union blues

Recent months have seen further evidence of union decline in the anglo-saxon countries. Rates of union membership have fallen further in 2006, as trade union recruitment efforts fails to keep pace with a growing workforce.

In Canada, union membership levels increased by 62,000 in 2006, while union density fell from 30.0% in 2005 to 29.7% in 2006. "Those in the public sector ...were four times as likely as their private-sector counterparts to belong to a union (71.0% versus 17.5%)", writes StatsCanada.

In the United States, the BLS reported in January that 12.0% percent of US employed wage and salary workers were union members in 2006, down from 12.5% a year earlier. "The union membership rate for government workers (36.2 percent) was substantially higher than for private industry workers (7.4 percent)." Less than one in twelve private sector workers are in a union!

The latest Australian union membership data, released earlier this month, reported that the proportion of employees who were trade union members slumped from 22.4% in August 2005 to 20.3% in August 2006. By my calculations (see Excel time series), this was the largest percentage point decline since 1999.

Yesterday saw a similar trend reported in the United Kingdom. According to the latest annual statistical report:

The rate of union membership (union density) for employees in the UK fell by 0.6 percentage points to 28.4 per cent in 2006, down from 29.0 per cent in 2005. This was the largest annual percentage point decline since 1998.

UK public sector union density (58.8) was again much higher than private sector (16.6%). Roland Gribben reports the numbers in today's Telegraph. His piece included this rather upbeat interpretation from British unions:

...but the TUC said the figures in a Trade and Industry Department publication represented a "success story" because membership had almost stabilised since the Thatcher years.

Margaret Thatcher left office in 1990, when union density amongst British employees was 37.8% It is now 28.1%, a decline of one-quarter. That's a rather sanguine interpretation of 'stability'.

Note: Government statistical estimates on union membership are not available from Statistics New Zealand, although the Industrial Relations Centre at Victoria University do publish annual estimates.