We May Have Taken Too Much Credit for Easing Workplace Segregation

 
 
Racial integration of American businesses hasn't improved much despite 40 years of trying. Rembrand Koning discusses the unexpected reason why.
 
 
by Dina Gerdeman
Hroe

Large American companies are less racially integrated today than a generation ago—in fact, businesses have returned to the bleaker segregation levels of the 1970s, new research shows.

This racial division among companies was a startling, unexpected finding—one that caught the researchers off guard—largely because it flies in the face of other studies and anecdotal evidence showing that, within many businesses, the employee pool has grown more racially mixed over time.

“There’s this assumption that firms are more diverse,” says Harvard Business School Assistant Professor Rembrand Koning, who co-wrote Firm Turnover and the Return of Racial Establishment Segregation with Stanford University Assistant Professor John-Paul Ferguson. “I’ve had people say, ‘How can this be the case? It can’t be true. My workplace is so much more diverse.’”

In a way, they might be right. Racial diversity has indeed increased at certain workplaces, particularly ones dominated by white workers, as more minorities have been hired at these firms over time. But as Koning and Ferguson zoomed out and looked at a large number of workplaces across the United States, they found a much different picture, with racial diversity decreasing across businesses as a whole.

“We may be overstating what progress has been made on employment integration,” the authors write.

The reason for the step backward? Firm turnover is creating a racial divide. New businesses entering the market don’t employ a racially mixed workforce as they are getting off the ground. Instead, many tend to start off with all-white, all-Hispanic, or all-black workers. Meanwhile, more diverse firms that have been around longer are shrinking or shuttering.

“We may be overstating what progress has been made on employment integration”

“You can’t just look at one workplace over time,” Koning says. “You have to look at the entrance and exit of workplaces, and, when you do that, you find a much more segregated workforce.”

Koning believes the findings will come as a surprise to many business leaders who have been working hard on recruiting, hiring, and promoting minority workers, and he hopes the research will spur them to re-evaluate ways of reducing segregation.

“These research findings are depressing because we value integration as a social goal,” Koning says. “Americans spend a great deal of their waking hours in the workplace. Having segregated workplaces reduces our exposure to other races. That’s not good.”

Today’s segregation looks different than in the '70s

For a long time, racial segregation in American businesses was softening. It declined from the 1960s until the mid-1980s, with the biggest drop coming in the 1970s. But segregation began rising sharply again in the mid-1980s through the 1990s and then plateaued, making workplace segregation levels in 2014 comparable to 40 years earlier.

Researchers are trying to understand why integration seems to have hit a wall after early progress in the wake of the Civil Rights movement.

One reason may be that much of the previous research was relatively narrow in scope, zeroing in on racial profiles within occupations; studying to what extent diversity was concentrated in entry-level, non-supervisory positions; and charting the progress of minorities rising into management ranks.

Koning and Ferguson took a broader approach. They reviewed data collected by the Equal Employment Opportunity Commission between 1971 and 2014, determining the racial makeup of every large private-sector workplace in the United States.

The segregation picture they uncovered looks different today than it did in the 1970s. Back then, workplaces were dominated by white employees, with a smattering of minorities spread across companies.

The gains minorities made by joining large firms between the 1970s and 1980s aren’t being reversed today, Koning is careful to note. It’s not that workplaces started getting rid of minority workers in favor of whites. Instead, in the 1980s, more minority-only firms began emerging, and we now see a division of labor in terms of race: segregated workplaces that are majority-white, majority-Hispanic, and majority-black.

These new firms made up of mostly one race are tipping the balance of integration among all firms, creating a less segregated workforce overall.

“The turnover of organizations appears to have washed away progress on racial employment integration faster than such processes have built it up,” the researchers write.

The share of majority-white establishments has fallen from nearly 95 percent of large workplaces in the early 1970s to just over 70 percent in recent years. Meanwhile, the share of establishments employing a majority of minorities has grown.

So, whites aren’t imagining things when they say their companies have become more diverse: For white workers, exposure to nonwhite co-workers has steadily increased for 40 years. But the reverse isn’t true; during the same period, for nonwhite workers, particularly Hispanics and Asians, exposure to other races at work has tended to fall.

“For a firm that’s been around since 1980, that company has become more diverse over time, potentially due to improved HR policies, changes in hiring practices, and other efforts to diversify the workforce,” Koning says. “But our economy is not only made up of companies that have been around since 1980. We have a lot of new companies, and this is where we’re seeing more segregation. So, we made gains in some companies, but overall have seen a loss in diversity. That’s problematic.”

The connection between racial segregation and wage inequality

The authors are now investigating how outsourcing may be playing a role in racial segregation and could be contributing to growing wage inequality among workers in the last generation. Decades ago, companies employed their own janitors, cafeteria workers, and other low-wage support staff. Now, companies often look to save money in those areas by outsourcing.

A 2017 New York Times story showed the difference in pay, benefits, and career opportunities that can result from outsourcing. A woman cleaning floors for Kodak 35 years ago had a variety of benefits—paid vacation, tuition reimbursement, and an annual bonus payment—plus a shot at moving up to higher-paid positions.

In contrast, a woman cleaning floors for Apple today works for a service contractor. She can’t afford to take vacation time because of the wages she’d lose, going to school is financially out of reach, and no bonus is coming her way—plus she has little chance of being tapped for a bigger role at Apple.

“Having segregated workplaces reduces our exposure to other races. That’s not good.”

“If these occupations, like cleaning workers, used to exist within a single firm, you had Hispanics, whites, and blacks all working for the same employer,” Koning says. “Now, in the American economy, where we think there is much more domestic outsourcing, you might have an all-white firm outsourcing for work with an all-black firm. For these workers, there’s a downside to having separate labor markets divided along racial lines.”

Addressing workplace segregation

What can companies do to promote workforce balance? Collecting more race-related data on employees might be a good start, the authors say.

Between 1966 and 1983, to track compliance with the Civil Rights Act, the EEOC began collecting data on the racial makeup of firms with 50 or more employees—and in some cases for firms with 25 employees or more. But in 1983, the EEOC loosened that reporting regulation, requiring companies to turn in racial composition figures only when they had at least 100 workers on payroll.

Koning believes the threshold for reporting racial data should be lowered to 25 workers, since that might spur some business leaders to take an earlier look at the racial makeup of their workforce.

“If entering firms are more segregated, we need more data on them,” Koning says. “Making a firm more aware about the lack of diversity early in its life could make it adopt policies that allow it to become more diverse over time. You also want to start when they’re young, with fewer workers, because it’s harder to desegregate a workforce of 1,000 people.”

Koning says many firms intent on improving their hiring and promotion pipelines to reduce bias focus mostly on recruiting a diverse pool of candidates, but those efforts clearly aren’t going far enough to reduce segregation overall. Companies should start asking new questions: What work are they doing in-house and what work are they hiring contractors to do? And is the work they are contracting out affecting the diversity of the firm?

“The traditional way that regulation looks at diversity at firms is from an HR perspective: How are they promoting and hiring minorities to make sure it’s an equal opportunity workplace?” Koning says. “But we need to do more than improve management and HR practices. We need to think of more strategic questions. It’s going to take a mindset shift.”

Related Reading:

What Does 'Diversity' Really Mean?
Minorities Who 'Whiten' Job Resumes Get More Interviews
Will I Stay or Will I Go? How Gender and Race Affect Turnover at ‘Up-or-Out’ Organizations

What do you think about this research?

Do you see your workplace becoming more racially diverse, or less so? What should be done? Share your insights below.

About the Author

Dina Gerdeman is a senior writer for Harvard Business School Working Knowledge

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.