Affirmative Action

1. Affirmative Action Affirmative Action is the notion that a certain amount of a certain type of labor be hired in some minimal amount.

2. Scenario1 – prejudiced firm Enf Enf1 B A q* Ef Ef1

3. Scenario1 On the previous slide we have firm that makes output level q*. Ef is the employment of labor it favors and Enf is employment of the labor it does not favor. The wages of the two types of labor are determined in the market. If the firm attempted to minimize the cost of production it would go to point A where the amount of output q* is produced at lowest cost and we have Ef1 and Enf1. But, this firm doesn’t like to have Enf1 because that is “too much” and thus the firm moves down the isoquant to, say, point B and this means q* is made with higher than minimum cost.

4. Scenario1 An affirmative action program would say the firm has to hire more of the not favored group. This would have the firm move from point B back toward point A. Costs would be lowered and thus profit of the firm would rise. Conclusion: If a firm is prejudiced in its hiring, an affirmative action program leads to greater profits for the firm as it moves closer to the cost minimization point.

5. Scenario2 – non-prejudiced firm Enf D Enf1 C q* Ef Ef1

6. Scenario2 Here the firm is not prejudiced, but operates where it minimizes cost at point C. If the firm has to follow an affirmative action program to hire more of the non-favored workers this will move the firm to a point of higher cost and thus less profit. Note that here the firm doesn’t consider any labor as unfavorable, but I label the two types as more of a way to consider the impact on the two groups and the firm. By the way, you would hope in 2010 America that no one would be discriminated against. You would hope people are only judged by how well they can do the job.