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Archive for June 2015

Discrimination on the job market

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Job market discrimination has been at the centre of the last few months’ furore about the lack of transformation at universities across South Africa. On the one hand, those appealing for faster transformation believe, I surmise, that black candidates are not hired or promoted because of discrimination by the panels making the appointments. In contrast, those citing practical difficulties of hiring black staff believe, I surmise again, that the constraint rather lies with a shortage of black candidates.

I suspect both these premises are true. To solve the second – i.e. to increase the supply of black candidates – is a time and resource-intensive process that universities have neglected for too long but which the events of the last few months have certainly hastened. Perhaps that is the topic of a future blog post. Instead, I’ll focus on the former: discrimination at the hiring and promotion level. If this is indeed happening, and I think there is some evidence to suggest that it is, what can be done to forestall such discrimination and speed the much-needed transformation of universities? I should note that discrimination in the workplace may be overt through an undisguised preference for a specific race or gender. When and where this happens, there should be immediate action through the correct channels. But my suspicion is that it more commonly manifests unconsciously – a preference for the culturally familiar (“he went to the same school as I did”, or “she speaks the same language”) which reduces transaction and decision-making costs. Discrimination is then borne through a rational desire to hire the best candidate in a world of asymmetric information.

This type of discrimination was most famously demonstrated by Claudia Goldin and Cecilia Rouse in a 2000 American Economic Review paper. They showed that a change in the auditioning procedures of symphony orchestras – adopting a ‘blind’ assessment with a screen to conceal the candidate’s identity from the jury – increases the probability that a woman will be hired. Because conductors are often male and orchestras male-dominated, male musicians were considered (by the judges, also male) to be better than their female counterparts. Anonymous assessment (playing the violin behind a screen so that the candidate’s gender could not be seen) reduced the bias and meant that more females joined the orchestra.

There is a long history of studies showing similar biases for race. In the US, studies have repeatedly found that résumés with traditional white names are substantially more likely to lead to job interviews than identical résumés with distinctively black names. Roland Fryer and Steven Levitt have found that these effects, though, are not causal for later life outcomes: “we find no compelling evidence of a causal impact of Black names on a wide range of life outcomes after controlling for background characteristics”. Instead, black names better predict life outcomes for the parents than the children.

But given the evidence that people discriminate on race or gender, how does one mitigate the possibilities of such (unconscious) discrimination? Of course, it would help to have more diverse appointment and promotion panels, but given the much-highlighted current racial profile of staff, this will either not be feasible or it would impose heavy costs on black staff who now would have their days filled by sitting on appointment and promotion committees. Another option is to have anonymous résumés and promotion applications. Anonymous résumés or CVs would, theoretically, allow all candidates to be judged according to the exact same criteria, with the top five chosen for the interview process. It is difficult to imagine how to conduct anonymous interviews, but it is not entirely impossible: technology may allow each interviewer and interviewee to create a digital avatar, with the conversation through a Skype session and a mechanical voice transformer. It sounds silly, but it may be the only way to rid the selection committee of any biases (good or bad) they may have towards the candidate. Similarly, promotion applications could be done anonymously, with theoretically only the best candidates making the grade.

So why aren’t we seeing more of this? Well, a new paper just published in the American Economic Journal: Applied Economics suggests we should be cautious. The authors

evaluate an experimental program in which the French public employment service anonymized résumés for firms that were hiring. Firms were free to participate or not; participating firms were then randomly assigned to receive either anonymous résumés or name-bearing ones. [They] find that participating firms become less likely to interview and hire minority candidates when receiving anonymous résumés.

They ascribe their surprising results to two things: 1) self-selection into the voluntary programme and, 2) anonymization prevents the attenuation of negative signals when the candidate belongs to a minority. The latter may be most revealing for South Africa: it simply means that making things anonymous makes it harder for the adjudicators to account for the poorer performance of some candidates at a younger age. Here’s one example: the high school marks of a black South African who attended a poor school may be lower than a white South African who attended a better school, despite the two of them having the same capabilities. An anonymous panel – where school names are removed – would not allow adjudicators to see the high school marks in the context of a poor-performing school. (Education economists in South Africa know that a 80% math score for a kid in a poor school is a much stronger signal than a 80% math score for a kid in a wealthy school.) Instead, anonymous procedures do not factor in past inequalities. Anonymization perpetuates past inequalities; everyone is treated equally but unfairly.

The French government, having hoped that the system would lead to greater representation of minorities, actually abandoned the system as soon as the results became known. It just shows again that what might sound plausible in theory is not always the policy reality. The equal treatment that anonymity provides does not result in equal opportunity. That’s why policy evaluation is so important, and why addressing inequality so difficult.

Written by Johan Fourie

June 29, 2015 at 07:09

Dinner at my place

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If you could invite anyone to dinner (and they were forced to accept), who would you choose?

This is the type of thing you think about when you should be marking. But it was interesting enough that I entertained the idea for a while. Who would I really like to meet, and why? Would it be to simply bask in the fame and popularity of my guests? A selfie with Meg Ryan (that gives away my age, right?) or Mesut Özil (a fan since the 2010 World Cup in South Africa)? Would it be to wine and dine with the powerful and prosperous? (Maybe I can convince Bill Gates, Aliko Dangote or Oprah to fund LEAP…!) Or would it be for the engaging conversation with the intellectual elite, debating ideas with Nobel prize laureates Paul Krugman, JM Coetzee or Stephen Hawking?

I decided to make two lists: five South Africans I’d like to invite to dinner, and five people from across the world. I started with the South African list: Cyril Ramaphosa seemed an obvious choice. He might not be our next president, but he is sure to influence the decision. I also included Thuli Madonsela, a pillar of moral clarity the country so desperately needs. I considered former politicians and activists: Desmond Tutu, Thabo Mbeki, Trevor Manuel and Phumzile Mlambo-Ngcuka, now Under Secretary-General at the United Nations. And then there are the businessmen and women, of course, people like Koos Bekker, who transformed a stale South African media company into a multinational giant, or Herman Mashaba, who built up his own cosmetics company and now is a director of several leading South African companies.

Writing down these names, though, made me wonder about the purpose of my dinner invitation. Yes, it would be great to meet powerful and impressive people, and ask them questions about their careers and experiences. But it would be equally wonderful to meet young people who will shape our future societies. Do I want to discuss the past (you don’t need much to convince an economic historian), or do I want to dream about the future, as young people inevitably do?

So I instead made a list of the top five people younger than me I’d like to invite. This turned out to be even more difficult: how do you choose between Taylor Swift, global music icon, and Catherine, Duchess of Cambridge, for example? (Catherine was disqualified on a technicality because, despite being born in the same year as I, her birthday is in January.) Or between Julius Malema and Mmusi Maimane, two men whom I suspect will have a long-term impact on South African society? (Again, both were disqualified because they are older than me, but only just.) And then there are the dozens of tech gurus already creating the future: from South Africans building satellites and platforms and apps and drones to the tech geniuses of San Francisco like Mark Zuckerberg (who is, miraculously, still only 31!), Marissa Meyer (CEO of Yahoo and 40) and Sergey Brin (founder of Google and 41). So, after some tough decisions (and many hours of not marking papers), here are my two lists. I’ve included a short explanation and my first question to them:

  1. Trevor Noah (31): He’s funny, he’s engaging and he’s taking over America. Q: How will we laugh at ourselves without you?
  2. Mark Zuckerberg (31): Facebook has connected the world. Who knows what it will do next. Q: What will Facebook do next?
  3. Taylor Swift (25): Global music icon. Q: Do you have a blank space in your diary?
  4. Mesut Özil (26): He has more than just a cultured left boot. Q: Who should Arsenal buy to win the league?
  5. Elizabeth Holmes (31): She started her own company when she was 19. It’s now worth more than $9 billion. Q: How do we create more Elizabeth Holmes’s?

Surprisingly, the global list was slightly easier. The first three were certainties: Elon Musk is the most innovative and confident person on the planet, Obama the most powerful. The Queen is a walking library (and it would just be pretty awesome to have the Queen over for dinner). Arsene Wenger is a legend at Arsenal, and an intellectual in the sport world. He’s also a trained economist. That’s a killer combo. It was really only the last slot that caused some deliberations. How do you not invite the Pope, for example? I reckoned there might be a language barrier (my Spanish and Latin is pretty poor), so instead I decided to invite someone else with an enormous following: Tom Hanks. He is not only a brilliant actor but also collects old typewriters. Sold.

  1. Elon Musk: The Thomas Edison and Nikola Tesla of our generation. Q: We have an energy crisis in South Africa. Perhaps you have some ideas?
  2. Barack Obama: US president. Q: We have a leadership crisis in South Africa. Perhaps you have some ideas?
  3. Elizabeth II: Surely the only living person to have met the last 12 British Prime Ministers (including Winston Churchill) and the last 12 American presidents, from Herbert Hoover to Barack Obama. She also met Jan Smuts, Nelson Mandela and Jacob Zuma. Q: How are the corgis doing?
  4. Arsene Wenger: The reason I support Arsenal (and have spent too much money on supporters gear). Q: Who will Arsenal buy to win the league?
  5. Tom Hanks: Second highest all-time box office star. Q: Can you bring along Meg Ryan?

Wait, did I just write a whole blog post about imaginative dinner guests? This is what marking does to you.

The cheapest way to fix South Africa’s education catastrophe

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A muppet a day will make you clever one day: More funding for early childhood education is the cheapest solution to improve education

A muppet a day will make you clever one day: More funding for early childhood education is the cheapest solution to address South Africa’s harrowing education outcomes

There is little doubt that one of the main constraints to South African economic development and prosperity has been the failure of our education system. The new government in 1994 inherited an intolerably unequal system, with white kids receiving world-class education while black kids obtained such a poor quality of education that only the really talented ones could escape the poverty cycle. Two decades later, while the racial inequality has abated with many more black kids in good-performing schools, the sad reality is that too many poor South Africans are stuck in schools where they learn basically nothing.

But the problem runs deeper than the sorry state of South Africa’s schools. As Nic Spaull points out, our poor performance in matric (the final year of high school in South Africa) is rooted in weak foundations in grades 1-3. And in truth, those weak foundations in school are often rooted in weak foundations at home.

The field of early-childhood development is an exciting and challenging new area of research. More and more studies show the large gains from investments in the early years of a child’s life. James Heckman, probably the leading scholar on education economics, writes:

A critical time to shape productivity is from birth to age five, when the brain develops rapidly to build the foundation of cognitive and character skills necessary for success in school, health, career and life. Early childhood education fosters cognitive skills along with attentiveness, motivation, self-control and sociability – the character skills that turn knowledge into know-how and people into productive citizens.

HeckmanHeckman investigated the Perry Preschool programme in the United States and calculated a return on investment of between 7 and 10% per year through better school and career achievement as well as reduced costs through remedial education, health and criminal justice system expenditures. The graph above shows how the returns to education investment falls as the level of education rises. While Rulof Burger’s research shows that these returns may not be exactly true for South Africa (the quality of education for many kids is so poor that they don’t gain anything from an additional year in school), my expectation is that South Africa’s return on investment will be much higher at these very early levels.

But what are these early investments? They can be many things: providing mothers with tool-kits containing basic necessities for newborns (an ongoing study within the Economics department at Stellenbosch University is testing the effect of exactly this), providing young mothers with information about early childhood nutrition and health (see, for example, the Ilifa Labantwana programme), improving the way teachers interact with kids in nurseries with limited resources (my mother-in-law is doing her PhD on this topic!), or something as simple as a television programme.

The latter, at least, is the finding of a new NBER paper on the effects of Sesame Street, a well-known television and radio programme that has expanded across the world, including to South Africa, in the guise of Takalani Sesame. Melissa Kearney and Phillip Levine, the authors of the new study, show the large gains from something as affordable as a TV programme for kids: not only in terms of immediate outcomes but, as Kearney and Levine show, also later in life:

Sesame Street is one of the largest early childhood interventions ever to take place. It was introduced in 1969 as an educational, early childhood program with the explicit goal of preparing preschool age children for school entry. Millions of children watched a typical episode in its early years. Well-designed studies at its inception provided evidence that watching the show generated an immediate and sizeable increase in test scores. In this paper we investigate whether the first cohorts of preschool children exposed to Sesame Street experienced improved outcomes subsequently. We implement an instrumental variables strategy exploiting limitations in television technology generated by distance to a broadcast tower and UHF versus VHF transmission to distinguish counties by Sesame Street reception quality. We relate this geographic variation to outcomes in Census data including grade-for-age status in 1980, educational attainment in 1990, and labor market outcomes in 2000. The results indicate that Sesame Street accomplished its goal of improving school readiness; preschool-aged children in areas with better reception when it was introduced were more likely to advance through school as appropriate for their age. This effect is particularly pronounced for boys and non-Hispanic, black children, as well as children living in economically disadvantaged areas. The evidence regarding the impact on ultimate educational attainment and labor market outcomes is inconclusive.

Early childhood development is one of the few expenditure categories that would win support across the political spectrum. National and provincial funding should therefore not be an issue. Trade unions that plague the transformation of the education system are less involved at the preschool level: there is thus no reason not to rapidly expand early childhood programmes across South Africa, particularly in poor areas.

I also see a lucrative private sector opportunity, although Curro has already entered this space with its Curro Castle model. What we really need, though, is an affordable model for millions of poor families unable to afford preschool. Why can government not institute a voucher scheme for every kid to attend a nursery of their choice and let the private sector provide the services?

A national nursery scheme won’t have an immediate effect on South Africa’s growth or prosperity. But a new generation of kids will grow up without the inequalities in cognitive abilities that are already entrenched when they reach school. Instead, a successful national preschool system can show voters and bureaucrats (and hopefully trade unions) the benefits of private sector participation, which will allow the system to be expanded to primary and perhaps even secondary school.

Perhaps it’s just wishful thinking, but, in my opinion, this is the most effective (and affordable) way we can begin to address the massive inequalities so persistent at present.

South Africa’s first financial crisis

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A certificate of credit to the value of 20 rijksdaalders (rix dollars). Source: Tropenmuseum of the Royal Tropical Institute

A certificate of credit to the value of 20 rijksdaalders (rix dollars). Source: Tropenmuseum of the Royal Tropical Institute

It happened much like any other financial crisis: the government was spending more than it could collect, imports outweighed exports, and to combat these twin deficits, the government printed money. Easy money meant that borrowing increased. The exchange rate depreciated, inflation shot through the roof. And with the domestic economy in a bad state, the global economy took a turn for the worse, which meant local lenders, notably a large, unregulated merchant house, defaulted on its debts. A perfect storm.

Though these events sound very familiar, they explain colonial Africa’s first financial crisis. In a new ERSA Working Paper, Roy Havemann and I consider the causes of consequences of this 1794 Cape Colony crash. By the 1780s, after a century of settler expansion and relatively high standards of living for the settler population, economic conditions had worsened, largely due to the American War of Independence and the blockade of French ships in Table Bay. Fiscal and trade deficits increased, money was printed, exchange rates depreciated and inflation spiked. But it was an unregulated merchant house, the Gebroeders Van Reenen, that was the tipping point:

By 1780, the Van Reenens had become possibly the wealthiest family in the Cape, thanks to patriarch Jacob van Reenen’s vast landholdings and major involvement in the meat and alcohol trade over several decades. On his death in 1793, Jacob left a number of sons, all of whom rose to prominence in Cape society. The one son, Dirk, built one of the largest and most successful wine businesses. A further two sons, Jacobus Gijsbert and Sebastiaan, went into the lucrative meat merchanting business. Both branches of the family, meat and wine marketers, must have provided merchant credit — however, it was the meat marketers who caused problems.

The Van Reenen brothers had a key advantage: they acted as intermediaries between Cape Town and the far flung districts of the interior, issuing slagtersbriefjes (promissory notes) which could be exchanged in Cape Town and the interior. Because hard currency was regularly in short supply at the Cape, the slagtersbriefjes became the de facto currency. But this allowed for unsecured loans which by the beginning of the 1790s totaled thousands of rijksdaalders. In fact, writing in 1795 to the new British government at the Cape, Johannes Frederik Kirsten complained that “by far the greater part of the Farmers and the Inhabitants of the Town are Bankrupts (sic), the rest have their property under Sequester, and every individual looks forward to impending ruin.” The collapse of Gebroeders Van Reenen would pull down the entire Cape economy.

The policy response during the crisis included fiscal austerity, an attempted reorganisation of domestic financial intermediation and continued monetary easing, which depreciated the exchange rate and created inflation. A new domestic bank was created. Most economic historians regard this bank as a primarily a lending institution, but we show that it also fulfilled central bank functions and had more in common with an emerging group of state-owned banks in Europe and a type of bank created in Amsterdam and Java.

The conventional view of the Cape of that period is that its financial system was substantially underdeveloped in comparison with Europe’s. The crisis shows the contrary, as does the response. Indeed, the system was similar to that of Amsterdam and much of Europe, and the crisis experienced in the Cape was similar to a 1763 crisis in Amsterdam. The Cape, it seems, was a prosperous society with an advanced, albeit informal, financial system.

The crisis had severe implications for economic growth and welfare in the Cape: the exchange rate all but collapsed and, using figures from the GDP estimates Jan Luiten van Zanden and I calculated for this period, per capita GDP fell by 22 per cent between 1788 and 1793. By the time of the first British occupation in 1795, the Cape economy was a shadow of its former self. The policy response was arguably ineffectual and the crisis and the weak response appear to have been contributing factors to the economic stagnation of 1790 to 1820.

As the Great Recession of 2007 demonstrated, we remain impervious to the early warning signals of bad weather. Best to learn from the past.