Cecilia Machado: The commitment to delay and misallocation of talent

The last 50 years have witnessed enormous convergence in the occupational choices of different demographic groups, such as between men and women, and between whites and blacks. In 1960, 94% of doctors and lawyers in the United States were male and white. In 2010, this percentage dropped to just over 60% in both occupations.

This convergence is observed in high-skilled and high-paying professions, such as directors and management positions, and in the science, technology, engineering and mathematics (STEM) sector.

If we consider that the innate abilities of different demographic groups are invariant over time, the change in the proportion of women and blacks in high-skill occupations reveals that many women and many talented blacks in the 1960s were not (or could not) choose occupations according to your abilities.

And if the distribution of talents is identical among the different groups, it can additionally be argued that the misallocation of talent persists today, even if to a lesser extent than in the past.

Possible candidates for the misallocation of talent in the economy are barriers that prevent workers from choosing a profession according to their comparative advantages, such as friction in the labor market, obstacles to educational investments or even distinct preferences –related to social norms– between the demographic groups.

Discrimination in the labor market, for example, means that individuals with equal qualifications are faced with different job opportunities and career advancement opportunities.

Alternatively, there are numerous barriers that increase investment costs for occupation qualification. Such costs, considered quite broadly, refer both to the implicit biases of parents and teachers in the teaching and training of students, as well as to historical restrictions on access to education, differences in the quality of education that is offered to whites and blacks, or differences in parents’ income and schooling, which alter the cost of investing in their children’s education.

Finally, there is also the role of social norms in the professional preferences of women and blacks, such as, for example, perceptions that housework and child care are women’s responsibilities.

Over time, the convergences in the choices of women and blacks were accompanied by the significant reduction of many of these barriers, leading to the important question: how much of the growth we observed between 2010 and 1960 can be attributed to a better allocation of talent in the economy?

In the United States, 40% of GDP per capita growth between 1960 and 2010 is associated with lowering barriers to talent allocation (Hsieh, Hurst, Jones and Klenow, 2019). The decomposition of the gain shows that much of it comes from the reduction in the costs of educational investments, and that reductions in labor market frictions also contribute to growth, albeit to a lesser extent. On the other hand, changes in social norms and preferences have little explanatory power for growth in the period in question.

Efficient talent allocation adds a new ingredient to economic growth models. Productivity gains, technological innovation, the creation and destruction of ideas and firms, investment in education, and the allocation of capital and labor in the most productive sectors continue to be important factors for growth, but no more than the demographic composition of the workforce. and that the efficient allocation of talent in high-skill occupations.

In Brazil, as in the United States, there has been considerable convergence in the allocation of talent among marginalized groups, but there is room for improvement. In the STEM sector, only 26% of jobs are held by women, while 30% are held by blacks. 73% of directors and management positions are still held by men.

Reducing barriers to better use of the black and female workforce is not just the right thing to do, but the best allocation of resources in our economy. The economic growth and inequality reduction agenda is also an inclusion and diversity agenda.