Affirmative action in employment was introduced in the U.S. in 1965 as a corrective measure to tackle labor market failures stemming from discrimination. Discrimination negatively affects the employment prospects and wages of minority groups, leads to under-investment in human capital, and exacerbates the inefficiencies produced by misallocation of labor (Hsieh et al., 2019).

Fifty-five years after the introduction of affirmative action in the U.S., there are still significant gaps both in terms of employment and wages across racial groups (Lang and Lehmann, 2012). Moreover, there is a lack of consensus regarding the effect of this policy on workers’ careers (Holzer and Neumark, 2000). This project aims to fill this gap by building and analyzing a dataset that allows us to quantify the effect of affirmative action in employment on workers’ labor market outcomes.

We study the primary employment-based affirmative action regulation in the U.S.: Executive Order 11246. Broadly speaking, the policy mandates that any firm (and its establishments) that holds a contract with the federal government makes active effort to hire and promote minorities and women at rates that are at least proportional to the local and qualified labor force. Compliance with the regulation is monitored and enforced when both the size of the contract and the size of the firm exceed certain thresholds.

This paper circumvents prior data restrictions by constructing the first administrative database containing worker-level information (from the Longitudinal Employment Household Dynamics) as well as the federal contractor status of workers’ employers (from the Equal Employment Opportunity Commission Data and Federal Procurement Data). We estimate the causal effects of affirmative action on workers’ outcomes exploiting different features specified by the legal obligations of the regulation in a regression discontinuity setting. Additionally, motivated by our empirical findings, we will develop a model in order to identify the different mechanisms through which affirmative action may affect workers’ labor dynamics.

This project’s output will contribute to the goals of the Keynes Fund by analyzing the effect of the main public policy designed to address labor market discrimination in the U.S. The project will be the first to document the effect of the regulation on wages and employment. Importantly, it will shed light on the mechanisms through which the policy reduces the institutional failure it was set to correct. In doing so, our results may suggest important margins to consider when designing policies to address racial inequalities.

*Disclaimer: Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed.