Market structure and racial and gender discrimination: evidence from the telecommunication industry

American Journal of Economics and Sociology, The,  July, 1996  by James Peoples,  Rhoda Robinson

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I

Introduction

Economic theory suggests that the absence of price competition extends the latitude of firms to exercise discriminatory preferences because they are better able to pass the cost of this behavior onto the customer (Becker 1958).(1) The telecommunications industry before the break up of the American Telephone and Telegraph Company (AT&T) had such an absence of price competition. In support of Becker's hypothesis on product market structure and discrimination, several studies reveal that prior to the 1970s, the exclusion of minorities in telecommunications, and the restriction of women to low paying clerical jobs, was pervasive (Anderson 1970, Oaxaca 1976, Bergmann and King 1976, and Northrup and Larson 1979). These studies related to the Employment and Equal Opportunity Act (EEO) also show tremendous employment gains by minorities and women in the professional, managerial, and craft occupations following the implementation of affirmative action policies as stipulated by the 1973 AT&T-EEO consent decree. This radical change in AT&T's employment policy is consistent with alternative theory suggesting that large firms in highly concentrated industries are more likely to alleviate internal tendencies toward discrimination under government persuasion, since they are secure enough to take such "affirmative" steps (Shepherd 1969).

Research has not examined employment trends by race and gender in telecommunications following the 1979 termination of the consent decree. Such research is warranted not only to understand the effects of terminating the consent decree, but also to ascertain the effects of stepped-up product market competition in the 1980s. This study examines employment and earnings by race and gender during the implementation of the EEO consent decree, after its termination, and after the 1984 divestitures by AT&T. Current Population Survey Files are used to investigate employment and earnings trends in telecommunications covering the years from 1973 to 1991. Separate earnings equations are estimated for the three observation periods to determine the earnings effect of the termination of the EEO consent decree. These earnings equations are specified to distinguish a worker's occupation and race-gender identity. This allows for examining the influence of occupational trends on race and gender earnings differentials. Further, this analysis provides a unique opportunity to compare the effectiveness of affirmative action in a monopolistic and a more competitive product market without the need to control for industry differences encountered when using a conventional interindustry approach.

II

Background

The 1973 AT&T-EEO consent decree set up guidelines to increase the number of minorities and women employed by the Bell system as professionals, managers and craft workers.(2) These guidelines also specified goals to increase the employment share of men as clerical workers. The proportion of minorities and women in the regional labor force and the projected number of job openings at each Bell operating company were used to determine the number of positions available to groups underrepresented in these occupations. The employment objective of this approach was for the race-sex profile of AT&T's work force to mirror that of the local pool of workers (Northrup and Larson). Meeting this goal was commonly referred to as achieving "statistical parity." AT&T used both an affirmative action override program and a "transfer and upgrade" program to attain statistical parity within a five-year time frame. The affirmative action override program allowed Bell companies to select junior qualified candidates from the targeted race-gender groups over more senior qualified workers from non-targeted groups. The less controversial transfer and upgrade program broadened the concept of seniority by specifying it as the length of service in any Bell system department (Northrup and Larson). This allowed workers from underrepresented groups to carry-over the years of service in their initial occupation when transferring to one of the targeted occupations.

The success of these programs is revealed on Table 1. Minority participation in professional occupations rose from 3.7 to 9.9 percent between 1973 and 1979. The percentage of minority managers and craft workers increased from 4.7 percent to 9.2 percent and from 8.1 to 10.5 percent respectively. The percentage of white women employed as professionals rose from 19.3 to 28.9; those employed as craft workers rose from 2.4 to 7.1. Only the percentage of white female managers declined, yet despite the fall from 34.4 to 29.4, the overall participation of white women in the three targeted occupations increased from 12.72 to 17.70 percent.

The implementation of the AT&T-EEO consent decree guidelines led to objections from workers outside the underrepresented groups. Most complaints were directed at the use of the affirmative action override to achieve statistical parity, partly because this provision diminished the role seniority played in job promotions. Following the 1979 termination of the consent decree, AT&T developed the "Model Affirmative Action Program," which eliminated the use of the affirmative action override program and placed greater emphasis on the less aggressive job transfer and upgrade program to meet numerical goals. Hence, this approach might have reduced the pool of potential workers from underrepresented groups. This may be even more likely for minorities since their recent participation following the enactment of the EEO consent decree suggests that on average they should have accumulated fewer years of work experience in the industry compared to other workers, at least in the short term.