Large-scale, government-directed discrimination against a group of people is extremely damaging to those being targeted. It also permeates every aspect of society, including business. For example, talented people are often excluded from leadership positions if they belong to the group that faces discrimination. What are the costs of this, beyond stifling or ending the careers of thousands of people? Do corporations become less profitable when they adopt discriminatory attitudes and exclude highly qualified individuals from leadership roles? And how much do entire economies suffer when governments enact discriminatory policies against certain groups?
What We Can Learn About the Economics of Discrimination from a Chilling Study of 1930s Germany
Talented people are often excluded from leadership positions if they belong to a group that faces discrimination. Of course, this type of discrimination is extremely damaging to the individuals. But is it also costly in other ways? Do corporations become less profitable when they adopt discriminatory attitudes and exclude highly qualified individuals from leadership roles? And how much do entire economies suffer when governments enact discriminatory policies against certain groups? Research on discrimination against Jewish managers in Nazi Germany reveals that, after 1933, the number of Jewish managers dropped precipitously. So did stock prices, dividend payments, and returns on assets. A back-of-the-envelope calculation suggests that excluding the Jewish managers reduced the aggregate market valuation of firms listed in Berlin by 1.8% of German gross national product, a first-order economic loss.