Product Market Structure and Labor Market Discrimination

8. Regulatory Reform and Racial Employment Patterns

Chapter 8 Regulatory Reform and Racial Employment Patterns Kaye Husbands Fealing and James H. Peoples Introduction Economic regulation of transportation and public utilities helped create an environment allowing labor to share industry rents with owners.1 The Wharton research series The Racial Policies of American Industry indicates that prior to the enactment of equal employment opportunity guidelines targeting the transportation sector, blacks were highly unlikely to share industry rents. Empirical research reveals that even with the passage of equal employment opportunity policies, some of these industries failed to employ blacks in high-paying occupations or in lucrative industry sectors (Heywood and Peoples, 1994; Husbands, 1998). Thus, even though telecommunications firms and airlines faced governmental pressure to employ minorities in high-skilled, high-paying occupations , compared to whites, blacks remained less likely to be employed in those occupations. One possible reason for the continued racial employment disparity is economic regulation that blocked entry and sheltered transportation and telecommunications industries from vibrant competition (Becker, 1957). Deregulation that fostered competition made it more costly for firms to continue exercising discriminatory preferences. Previous research shows that following deregulation there was a significant increase in the share of jobs going to black workers in the more lucrative trucking sectors and in higher-paying railroad industry occupations (Husbands, 1998). Moreover, black workers maintained their prederegulation employment shares in high-paying telecommunications and airline occupations following deregulation. Studies utilizing multivariate techniques 155 confirm increased black employment following deregulation in trucking and airlines (Agesa, 2001; Heywood and Peoples, 1994). However, these techniques have not been used to examine employment patterns for other network industries. In addition, with the exception of trucking, past research does not compare racial employment patterns in deregulated network industries with that of other industries in the service sector . Making the sectoral comparison is critical to determining whether racial employment patterns in deregulated network industries are unique or part of a broader trend. This chapter contributes to the analysis of regulatory reform (changes in market structure) and employment discrimination by using probit estimations to examine deregulation’s effect on racial employment. Racial employment findings for trucking, rail, airlines, telecommunications, and utilities are then compared to employment estimates for the remainder of the service sector. Competition and Employment Discrimination Gary Becker (1957) formalized the hypothesis that is the foundation of this study.2 His model suggests that increased market competition following deregulation will have the unintended effect of reducing employment discrimination. When regulation hinders competition between firms in the product market, discriminatory employers have greater latitude to exercise their preferences. For example, they might choose to hire white workers instead of black workers, or men instead of women. In a competitive product market, however, the cost of discrimination places discriminatory employers at a competitive disadvantage. In practice, many employers may operate in markets that exhibit noncompetitive behavior. In the absence of competition, government legislation such as nondiscrimination laws can create a disincentive to engaging in discriminatory hiring practices. The choice of whether the market or government should correct market inefficiencies—such as employment discrimination—is a critical economic and policy issue. Examining network industries provides the unique opportunity to address this issue, since such industries have experienced both government policies encouraging stepped-up competition and antidiscrimination legislation. Prior to regulatory reform, rate and entry regulation might have allowed employers at network industries to exercise discriminatory preferences . Evidence reported in the Wharton series on The Racial Policies of American Industry shows that immediately preceding the 1960s civil rights legislation in the United States, black workers in network indus156 Kaye Husbands Fealing and James H. Peoples tries were nearly exclusively employed in low-wage occupations. For instance , very few black truck drivers were in the lucrative long-haul segment of the trucking industry. Even among nondriver occupations, blacks were mainly employed as laborers and service workers (Leone, 1970). Blacks were also disproportionately employed as laborers and service workers in the airline, rail, and energy sectors during the pre–civil rights era.3 In contrast, black telecommunications workers were mainly employed as telephone operators prior to the civil rights movement. While this clerical occupation paid more than laborers and service jobs, blacks in the telecommunications industry were not well represented in high-wage occupations. Only 2.8 percent of black workers were officials and managers and only 1.6 percent of black workers were categorized as professionals in the telecommunications industry (Wallace, 1976). During the 1960s and...