The economics of diversity: The efficiency vs. equity trade-off

There is an inherent tension between efficiency and equity in justifying the implementation of diversity initiatives. The economics literature points to both costs and benefits associated with efforts to create diversity in the workforce, in organizations, and within communities. Three illustrations are provided of the tensions between equity and efficiency in diversity. The first involves national policies concerning disabled workers in the labor market in China vs. the United States. This illustration shows that narrowly targeted affirmative action programs for the disabled can be more effective in reducing disparities in wages between the disabled and non-disabled than broad-based anti-discrimination policies. The second concerns the relationship between policies designed to increase diversity in competitive swimming and racial disparities in drowning. This illustration details the difficulties of adopting diversity programs when there are widespread pseudo-scientific beliefs that seem to justify the very disparities that the diversity programs are designed to remedy. The third illustration involves the analysis of disadvantaged business enterprise (DBE) programs as a means for increasing diversity in public procurement and contracting with special reference to Asian-American business enterprises. This illustration points to the problem of designing diversity programs that are not over-inclusive but that nevertheless address underlying disparities in the marketplace.