Market structure and racial and gender discrimination: evidence from the telecommunication industry
James PeoplesI
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.
Concurrent with the 1979 termination of the AT&T-EEO consent decree, the Federal Communication Commission (FCC) softened regulations that prohibited nonBell carriers from competing in the interstate sector of the telecommunications industry. The entrance of long distance competition helped spur a proliferation of technical innovations, such as satellite transmitters and fiber optics. This technically advanced equipment increased the need for technically trained professionals, managers and craft workers. These changes in labor demand raised concerns about AT&T's ability to employ a sizeable pool of qualified minorities and women. Indeed, near the termination of the consent decree, Northrup and Larson (1979) predicted that even with programs to increase minority and white female participation in engineering and business curricula, for many years these professions would still be overwhelmingly dominated by white men.
Table 1
Employment Share by Occupations in Telecommunications
Minorities
1973 1979
Professionals 3.7 (1,041)(a) 9.9 (10,356)
Managers 4.7 (1,106) 9.2 (10,481)
Craft 8.1 (13,403) 10.5 (24,896)
White Women
Professionals 19.5 (16,212) 28.9 (30,371)
Managers 34.4 (41,059) 29.4 (33,506)
Craft 2.4 (1,133) 7.1 (16,928)
White Men
Professionals 76.8 (63,659) 61.2 (64,358)
Managers 61.0 (72,884) 61.4 (69,997)
Craft 89.5 (248,611) 82.4 (195,537)
a: The number of observations are presented in parentheses.
Source: Annual Equal Employment Opportunity Reports
Despite the potential short supply of technically trained minorities and women, AT&T's wage policy should have provided an advantage for recruiting these workers. The company's dominant market position allowed it to continue paying unusually high industry wages (Ehrenberg 1979). Nonetheless, structural changes resulting from the 1984 divestiture of AT&T and the almost total removal of entry restrictions in the long distance sector might be expected to diminish any advantage held until then. Since the operating companies now have autonomy, they might approach the recruitment of minorities and women with different levels of enthusiasm. In addition, the loss of subsidies from what was a very lucrative long distance sector might have weakened the recruitment advantage for the regional companies by reducing their ability to pay wage premiums. Alternatively, research by Peoples (1989/90) and Hendricks (1994) reveals that the earnings gap between telecommunication and non-telecommunication workers actually increased after divestiture. Thus, the maintenance of a high wage policy may still provide a recruitment advantage even after divestiture.
III
Sample Selection
Employment comparisons are made using annual Equal Employment Opportunity Reports. These reports provide industry information on the occupational distribution of workers by their race and gender. A shortcoming faced when using these reports is that workers' occupations are only classified at the three-digit census level. This level of aggregation prohibits employment analysis of the many detailed occupational classifications existing in the telecommunications industry. Nonetheless, the three-digit classification does allow a precise examination of the major occupations targeted for increased minority and female employment.
Earnings comparisons are made using a sample population from May Current Population Survey files (CPS) for the years from 1973 to 1978 and Annual CPS files for the years from 1979 to 1991. Annual files are not available before 1979. These surveys consist of individual information on workers' personal characteristics, occupation and region of residence. A sub-sample of workers reporting to be employed full-time in the telecommunications industry is identified by the same 3-digit census classification used by the LEO reports. This provides samples of 2,493, 9,497 and 8,682 for the years from 1973 to 1978, 1979 to 1983 and 1984 to 1991, respectively. Such large sub-samples allow detailed earnings analysis by race and gender. However, the lack of nonblack minority employment in this industry creates a small sample problem for this group of workers. This problem suggests avoiding any finer breakdown with respect to race and suggests caution when interpreting earnings trends for nonblack minorities.
IV
Findings on Race-Gender Employment
Employment patterns for the six race and gender groups are presented on Table 2 and reveal that the participation of minorities continued to increase following the adoption of a less aggressive affirmative action program and following the divestiture of AT&T. For instance, by 1991, blacks comprised 15.175 percent of the industry's work force compared to 11.5 percent immediately following the termination of the EEO consent decree. The sample for black women reveals that they consistently represent the largest group of minorities employed in telecommunications with a participation rate increasing from 9.4 percent immediately following the termination of the EEO decree to 11.05 percent following the divestiture of AT&T. The pattern of increased work force participation by black women is mirrored by the employment participation pattern of other minority women. Only the employment share of white women failed to increase markedly during this period, as their participation rate rose from 39.2 percent in 1984 to 39.62 by 1991. Nonetheless, these rates exceed that ranging from 32 percent in 1979 to 35 percent by 1991 for other white women in the U.S. work-force.(3) Overall, female participation rates in telecommunication increased from 49.7 percent in 1979 to 54.87 percent by 1991.
Although the findings reveal that more minorities are employed in telecommunications and women continue to comprise a large share of the industry's work force, the prediction of a shortage of qualified workers from these underrepresented groups suggests that compared to their white male counterparts these workers may experience a smaller probability of employment in the targeted occupations. To test this, the percentage of telecommunications workers employed as professionals, managers, clerical workers and craft workers for each race and gender group is presented in columns (1), (3) and (5) of Table 3. The relative occupation employment probabilities for underrepresented workers compared to white men are presented in columns (2), (4) and (6).
Table 2
Race-Gender Work Force Participation in Telecommunications
(Percentages)
1978 1983 1991
Black Women 8.4 9.65 11.05
Black Men 3.1 3.57 4.125
Non-Black 2.0 2.91 4.12
Minority Women
Non-Black 2.8 3.70 3.39
Minority Men
White Women 39.3 37.99 39.62
White Men 44.4 42.15 36.70
Sample size 880,915 933,174 796,676
Source: Annual Equal Employment Opportunity Reports
The findings for professionals suggest only nonblack minority men experienced an increased probability of employment in this occupation following the termination of the consent decree. This explains the increased relative probability of nonblack minority male employment as professionals as opposed to white men. Indeed, nonblack minority men were more likely than white men to be employed in this occupation by 1991. In contrast the relative professional employment probability for black men is small and only varies from 0.62 in 1979 to 0.644 by 1991. White and nonblack minority women did experience a non-trivial increase in their relative professional employment probability as compared to white men. Only black women experienced a declining relative professional employment probability compared to white men. However, this change was not substantial for black women.
The employment findings reveal that all race and gender groups are more likely to be employed as managers following the termination of the EEO consent decree. This is due partly to a secular increase in the proportion of these jobs within the industry. Indeed, management employment increased from 113,934 to 122,448 compared to a decrease in employment of other jobs from 766,481 to 634,236 over the 19 year observation period? The increased employment of minority and female managers could reflect the use of the transfer and upgrade program to reclassify nonmanagement workers facing displacement from the introduction of labor saving technology. Such a policy would especially benefit female workers given the significant job losses sustained by telephone operators after the introduction of the electronic switching system (Keefe and Boroff, 1994). Indeed, the relative managerial employment probability of women as opposed to white men did increase slightly. This employment pattern is not unique to women as the contents of columns (2), (4), and (6) on Table 3 reveal that minority men and white women were just as likely to be employed as managers for each observation year. Workers from underrepresented groups, though, were still less likely than white men to be employed in this occupation.
Women were much more likely to work as clerical workers throughout the observation period. However, they experienced a nontrivial decline in this probability following the termination of the decree and which also continued after divestiture. While this is consistent with EEO goals, the declining probability of women employed as clerical workers is most likely due to the significantly reduced role of telephone operators in the production process. The findings on Table 3 also reveal that black men experienced a marked increase in the probability of clerical employment. In contrast this probability fell for other minority men following the termination of the EEO consent decree. Both of these groups of men remained much more likely then white men to be employed in this occupation.
Table 3
Occupational Employment Distribution and Relative Occupational
Probabilities Within Race-Gender Groups(a)
1979 1984 1991
Professionals (1) (2) (3) (4) (5) (6)
white men 16.5 1.00 10.05 1.00 8.7 1.00
black men 10.3 0.62 6.61 0.658 5.6
0.644
non-black 10.4 0.63 10.3 1.025 11.92 1.37
minority men
white women 8.8 0.53 5.1 0.506 5.5 0.63
black women 5.7 0.34 2.65 0.264 2.5
0.287
non-black 6.07 0.368 4.12 0.41 5.97
0.686
minority women
Managers
white men 17.9 1.00 26.74 1.00 27.15 1.00
black men 9.3 0.52 15.58 0.58 17.07 0.62
non-black 10.06 0.56 16.40 0.61 17.94 0.66
minority men
white women 9.7 0.54 15.48 0.57 17.42 0.64
black women 6.2 0.35 10.54 0.39 11.27 0.41
non-black 6.3 0.35 10.84 0.40 12.22 0.45
minority women
Clerical Workers
white men 7.4 1.00 7.66 1.00 8.20 1.00
black men 16.2 2.19 20.73 2.70 20.43 2.49
non-black 19.37 2.62 17.68 2.31 16.46 2.00
minority men
white women 67.5 9.12 65.56 8.56 59.97 7.28
black women 73.9 9.98 74.35 9.71 69.53 8.48
non-black 72.02 9.73 70.45 9.19 62.03 7.56
minority women
Craft Workers
white men 50.0 1.00 42.38 1.00 40.44 1.00
black men 45.5 0.91 39.12 0.92 34.35 0.85
non-black 46.9 0.94 41.52 0.98 35.91 0.88
minority men
white women 4.9 0.098 3.72 0.088 4.92
0.120
black women 3.7 0.074 3.02 0.071 3.72
0.092
non-black 5.4 0.108 4.41 0.104 4.63
0.114
minority women
Number of 880,915 933,174 796,676
Observations
a: Columns 1, 3, and 5 show the percentage of group employment by
occupation. Columns 2, 4, and 6 show the relative occupation
employment probabilities for under represented workers compared to
white men.
Source: Annual Equal Employment Opportunity Reports
The employment pattern for craft workers shows a nontrivial reduction in the probability that men are employed in this occupation. This decline was somewhat larger for minority men as their relative employment probability, as opposed to white men, fell slightly by 1991. Women did experience negligible improvement in their relative employment probabilities as opposed to white men, yet they were still much less likely than men to be employed as craft workers.
In sum, while white men continue to experience an advantage in professional, managerial and craft employment in telecommunications, the opportunities for minorities and women in these occupations have not deteriorated following the termination of the EEO consent decree and following divestiture. This finding is consistent with the notion that the high wage telecommunications industry avoided the erosion of their ability to recruit technically trained minorities and women. Despite maintaining the advances made by underrepresented groups during the implementation of the EEO consent decree, the post EEO employment findings for white men do support Northrup's prediction that professional and managerial positions would remain overwhelmingly dominated by white men.
Maintaining the relative employment of underrepresented groups at levels near or above those attained during the implementation of the EEO guidelines led to recruitment concerns centered on the qualifications of minorities and women. To the extent that years of schooling can be used to identify worker quality, minority men were as educationally qualified as their white male counterparts throughout the period of analysis.(5) The findings in columns on Table 4 suggest, on average, minority men employed in management and professional positions actually received more years of schooling than white men in the same occupations.(6) There is no appreciable schooling differential for men by race in the clerical and craft occupations.
In contrast women generally have fewer years of schooling than their white male counterparts. This differential is most pronounced for black and white women who are clerical workers and white women in management. Such employment patterns may suggest job clustering by women in clerical and managerial occupations that require less schooling than the positions held by men.(7)
V
Occupational Earnings
Even though affirmative action legislation led to increased minority and female participation in high paying occupations, the lack of price competition [TABULAR DATA FOR TABLE 4 OMITTED] could have allowed earnings discrimination since telecommunications employers could pass on the costs of such behavior. Indeed, Bergmann and King (1976) report that sex segregation within occupations and discriminatory promotional procedures were prevalent in this industry before the 1973 EEO consent decree. Theory suggests that the break up of AT&T, and the stepped-up competition in the long distance sector of the industry, should weaken employers' ability to engage in such practices (Becker 1958).
The results from estimating equation (1) are used to compare racial and gender earnings differentials over the EEO consent decree and divestiture regimes. These earnings comparisons allow for analyzing the effectiveness of affirmative action in the monopolistic pre-divestiture period and in the more competitive post-divestiture period. Equation (1) is specified as follows:
ln ([wage.sub.j,eeo]) = [Alpha] + [[Beta].sub.1][X.sub.pc] + [[Beta].sub.2][X.sub.reg] + [[Beta].sub.3][X.sub.lhour] + [[Beta].sub.4]T + [[Beta].sub.5][X.sub.occ*race,gender] + [[Mu].sub.i,eeo] [1]
where 'j' indexes individual telecommunications workers and 'eeo' indexes the EEO consent decree and divestiture regimes. The dependent variable "wage" represents weekly earnings in 1985 dollars. Years of schooling, potential years of experience, the square of potential years of experience, and marital status make up the set of individuals' personal characteristics contained in the control vector [X.sub.pc]. Dummy variables for the region of employment and SMSA residential status are listed in the vector [X.sub.reg]. The log of weekly hours worked is depicted by the variable [X.sub.lhour] and 'T' is a set of year dummies that are included to account for any fixed effect over time.
The set of variables of primary concern is listed in the vector [X.sub.occ*race,gender]. These are the interactions of occupational dummies and race-gender dummies. They cover the four major occupations and the six race-gender groups. White men employed as professionals are the benchmark group of comparison. Thus, the estimated coefficient on the interaction terms measures the log earnings differential between a specified race-gender-occupational group of workers and white male professionals. Earning differentials that exclude white male professionals as the benchmark are derived by taking the differences of the estimated coefficients on these other occupational-race-gender variables.(8)
The contents on Table 5 contain the earnings results when estimating equation (1). The estimated coefficient on the black professional male variable in columns (1) to (3) suggests a declining earnings differential such that the earnings of black male professionals are similar to white male professionals following divestiture. Taking the difference of the estimated coefficient on the manager variable for black and white men suggests that during the implementation of the EEO consent decree black men employed as managers received earnings similar to white male managers. Furthermore, following divestiture the earnings of black male managers were appreciably higher than that of white male managers. The black-white differential also declines for male clerical and craft workers. In contrast to the findings for these two white collar occupations, the black-white earnings differential remains large for clerical and craft workers following divestiture.
The nonblack minority earnings differential with whites for men declines for professional and clerical workers. This differential does not change markedly for craft workers and managers. However, nonblack minority men employed as craft workers receives earnings similar to white male craft workers and this group of minorities receive higher managerial earnings than their white male counterparts.
The earnings findings for white women seem to support the notion that greater competition helps to mitigate earnings discrimination. The results in Table 5 reveal that following divestiture the gender wage differential for whites did fall for all for occupational groups. This was most pronounced for white female managers. The estimated coefficient on the white female and male manager dummy is -0.227 and 0.016 respectively. Converting these coefficients to percentage approximations reveals a gender earnings differential of 21.9 percent for white managers during the implementation of the EEO consent decree. The results in column (3) show that this declines 15.58 percentage points to 6.32 percent following divestiture.(9) Despite the declining gender earnings differential across occupation for this group of workers, white female managers, professional and clerical workers still received lower earnings than their white male counterparts. Only white women employed as craft workers received earnings similar to their white male counterparts.
Increased competition had the least effect on the gender earnings gap for black women relative to white men, as black women continue to receive substantially lower earnings than white men across all four occupations following divestiture. Nonetheless, these earnings differentials did not differ from those found during the sample observation period covering the implementation of the EEO consent decree. High earnings differentials also persist for nonblack minority women employed as clerical and managers, while nonblack minority women employed as professional or craft workers receive wages similar to their white male counterparts following divestiture.
The earnings analysis thus far has been limited to the telecommunications industry. Findings that suggest declining racial earnings differentials for men and declining gender differentials for whites after divestiture may simply follow a national earnings trend instead of reflecting a response to stepped-up competition in the telecommunications industry. To address this possibility equation [TABULAR DATA FOR TABLE 5 OMITTED] (1) is estimated for a national sample population. The earnings findings are then compared to those found when only using the telecommunications sample.
Table 6 contains the earnings results for the national sample. These findings suggest appreciable reduction in the separate occupational earnings differential with white men for black and white women and nonblack minority men following divestiture. In contrast, black men experienced much smaller declines of the racial earnings differential by occupation, and nonblack minority women actually experienced an increase in the earnings differential with white men by occupation following divestiture. Thus, when comparing national earnings trends with the telecommunications industry only the declining earnings differential of black men and nonblack minority women with white men is unique to the telecommunications industry following divestiture. The declining earnings differential with white men for other workers from under-represented groups in telecommunications more closely follows a national trend. This supports the notion that the earnings findings for these telecommunication workers may be partly associated with changing national labor market conditions rather than solely the result of stepped-up competition in this industry.
VI
Conclusion
To compare the effectiveness of affirmative action in a monopolistic and more competitive product market, this study analyzed employment and earnings by race and gender in the telecommunications industry. This analysis is motivated by the hypothesis that stepped-up competition can increase employers' compliance with affirmative action guidelines.
The 1973 EEO Consent Decree provided the telecommunications industry with the impetus to change its hiring practices by encouraging the employment of workers from under-represented groups. As a result, minorities and women were provided enhanced employment opportunities in a wider array of job categories during a period of limited product market competition in this industry. Following divestiture, nonblack minority men were the only underrepresented group to experience appreciable increases of relative employment probabilities with white men in the targeted occupations. The relative employment probability for other underrepresented groups remained at EEO consent decree levels. Nonetheless, gender earnings did fall for white women, the largest group of under-represented workers. The racial earnings differential also fell for minority men. It is not clear, however, if these earnings patterns support the notion that stepped-up competition mitigates telecommunication employers' ability to discriminate, since these earnings findings for white women and nonblack minority men mirror national earnings patterns.
[TABULAR DATA FOR TABLE 6 OMITTED]
By identifying employment and earnings patterns for minorities and women in a once government sanctioned monopolistic industry that is now facing greater competition, this study argues that the effectiveness of affirmative action is not markedly enhanced by increased competition in the product market. Instead, the findings suggest that significant employment and earnings gains made during the implementation of affirmative action guidelines can be maintained by a high wage industry facing stepped-up competition, even with less aggressive affirmative action policy.
Notes
1. The ability to offset higher costs is positively associated with demand inelasticity.
It should be noted that discrimination could still occur in a competitive industry through the employment demands of a discriminating union (Ashenfelter 1973, and Shepherd 1969).
2. Sales workers, technicians and laborers were the occupations that were not targeted by the EEO consent decree.
3. Information on the U.S. employment participation rate of white women is collected from the annual EEO Reports.
4. These employment figures are taken from the annual EEO Reports.
5. The weighting procedure used to estimate the mean years of schooling sums the product of the individuals' assigned weight and years of schooling and divides this by the sum of the weights. These weights are supplied with the CPS files.
6. The difference in mean schooling between white and black men may indicate the continuation of some amount of discrimination or may indicate differences in the average quality of schooling received by these two groups of workers. Nonetheless, on average, black men who are employed as professionals or managers in the telecommunications industry receive college training.
7. We find that female clerical workers are much more likely than their male counterparts to be employed as secretaries and typist, and are much less likely to be employed as clerical supervisors and computer operators. Job segregation is more difficult to detect for managers as over 80 percent of these workers in our sample are listed in the "not elsewhere classified" managerial group. Nonetheless, we do find that male managers are more likely than their female counterparts to be employed as purchasing agents and financial and office managers (These results are available from the authors on request).
8. Percentage earnings differentials are approximated by taking the exponential of the estimated coefficient, subtracting one, and multiplying by 100.
9. The estimated coefficients on the white female and male management dummy are -0.144 and -0.0736 respectively for the post divestiture observation period. This suggests percentage earnings differentials with white male professionals of -13.41 and -7.09 for white female and male managers. The difference gives the white gender differential of 6.32 percent.
References
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James Peoples, PhD, is associate professor of economics at the University of Wisconsin at Milwaukee, Milwaukee, Wi 53201 and Rhoda Robinson B.A. is research assistant and candidate for a graduate degree at Hubert Humphrey School of Public Policy, University of Minnesota, Minneapolis, MN 55455. Helpful comments were received from Barbara Bergmann, Joyce Coverson, Robert Drago, John Heywood and Barbara Jones. Ms. Robinson was partly supported by the Committee on Institutional Cooperation while an intern at University of Wisconsin-Milwaukee.
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