How discrimination affects the economy

A full-scale campaign to discriminate against a group of people, organized by the state, severely hits those it targets. In addition, it affects every side of society, including business. Talented people are often removed from leadership positions if they belong to a discriminated group. What is the price of all this, apart from the breakdown and collapse of the careers of thousands of people? Do corporations become less profitable when they adopt discriminatory attitudes and get rid of highly qualified personnel in leadership positions? And how much does the economy as a whole suffer when the government enforces discriminatory laws against specific groups of people?

It is extremely important to find the answer to these questions if we want to understand two types of public policy: one that helps members of the discriminated group climb up the career ladder, and one that actively opposes this. Elements of state policy of the second type can be seen in some modern and historical events. Here are just a few examples. The decree of Donald trump, prohibiting citizens of seven predominantly Muslim states from entering the country, has called for American corporations (Amazon, Nike, MasterCard etc.) fear of losing the ability to hire, retain and develop talented employees. Starting in 2016, several thousand leading followers of the preacher Fethullah Gulen in Turkey were arrested or forced to leave the country, which fueled fears of a possible economic collapse. The US government succumbed to racial prejudice and forcibly detained Japanese citizens in camps during World War II. In France of the 17th century, Huguenot entrepreneurs were forced to flee the country in order to escape from religious persecution.

Despite the importance of this topic, at the moment we do not have much data on how expensive discrimination can be for highly qualified employees in senior positions. Our study offers a new perspective on this issue by measuring the economic costs of discrimination. In it, we analyze the consequences of discrimination against senior executives of Jewish descent in Nazi Germany. Using data from individual executives and corporations, we found out how stock prices and profitability changed when Jewish executives stopped participating in the German economy due to growing anti-Semitism.

First of all, it was necessary to find out how the national composition of company leaders in Germany changed in the 1920s and 30s. We have collected data on more than 30 thousand leading positions in German companies from the list of the Berlin Stock Exchange. The data includes information about managers without Jewish roots, managers working for companies that were considered Jewish, as well as leaders of non-Jewish organizations in which non-Jewish leadership positions were held (among them: Allianz, BMW, Daimler-Benz and IG Fabre )

We found that managers with Jewish roots (both practicing Jews and Christians of Jewish descent) occupied about 15% of leadership positions in 1928 and 1932. However, when the Nazis came to power and Adolf Hitler became chancellor on January 30, 1933, discrimination against Jews became part of Germany’s daily reality. Many firms fired executives of Jewish descent voluntarily or by coercion by Nazi officials. For example, Deutsche Bank forced its CEO Oscar Wasserman and board member Theodor Frank to leave office by June 1, 1933. By 1938, virtually none of the companies listed on the Berlin Stock Exchange had Jewish leaders.


Then we compared the companies run by Jews with firms that did not have Jewish leaders and that did not suffer a loss of leadership due to Nazi ideology. We took into account a number of factors that could affect the stock prices of companies, including relations with the NSDAP, the period of financial reporting, the size and age of the organization, its scope of activity.

We found that in companies run by Jews in 1932, the loss of managers of Jewish descent led to a qualitative deterioration in leadership. In particular, the number of managers with extensive experience, managers with higher education, and the number of relations with other players (that is, the number of managers who served on the boards of directors of other companies) was significantly reduced. These effects persisted at least until the end of the historical period we took for analysis (1938). This suggests that companies that have lost Jewish managers could not replace them with leaders with similar characteristics. Most likely, they could not find an adequate replacement due to the lack of equally highly qualified managers.

We also determined that after the Nazis came to power in 1933, the stock prices of companies from which the Jewish leaders were expelled sharply fell. The fall continued until the end of the historical period under consideration in 1943, that is, as much as 10 years. The stock price of the average company, in which there were Jewish managers in 1932, fell by 12% compared with the shares of firms in which there were no Jews in leading posts.


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