Professor Frank’s blog post downplays the role of competition, diversity, and the potential for supply responses to mitigate the “Arms Race” that he worries about. Â In economics, there is demand and there is supply. Â He solely focuses on one side of each market he discusses.
In 1956, Gary Becker published his thesis on the economics of discrimination. Â You can read about his key points in his Nobel Prize lecture available here.Â If there are employers who only hire attractive people, then there is a profit incentive for employers who do not discriminate to step in and hire the average Joe and Jane. Â If both types of firms produce pizza and sell on a competitive market (and if the pizza buyers don’t observe the beauty of the pizza sellers), then the firm that discriminates against average people will be driven out of business because its profits will be negative.
Frank writes; Â “If youâ€™re applying for a job, for example, youâ€™re advised to look good when you go for your interview. But looking good is an inescapably relative concept. If other applicants spend more on clothing, your best bet may be to spend more as well, even though your likelihood of a callback wonâ€™t rise if all spend more.Â Yet if others spend more and you donâ€™t, your odds will fall.”
This sounds like there is an arbitrage opportunity for firms who aren’t picky about appearances to contact the slackers and screen those with tattoos and no neck tie to see who might be Â a good fit for their firm. Â My point is that those who don’t partake in the Frank arms race won’t be “doomed” if there are arbitraging firms seeking a bargain. Â Firm heterogeneity brings about efficient matching with those who engage in the “counter-culture”. Â Â Dr. Frank implicitly is assuming that there is no firm heterogeneity. Â If firms were all homogeneous with respect to their hiring practices then they would all agree with respect to what they are looking for in individuals. But diversity is two sided!
Consider UCLA. Â Â If UCLA paid attractive Professors 20% more, I would not get a raise, and studentÂ tuitionÂ would eventually rise. Â This wage premium wouldn’t be sustainable as students would transfer to a school with an equally good but ugly faculty. Â In which industries do the beautiful win the relative beautyÂ competition, the workersÂ earn the wage premium and the firms persist in earning non-negative profits in competitive equilibrium? Â Â If UCLA didn’t hire professors who don’t wear a suit to the interview, these folks will be hired by some up and coming university (think of the University of Chicago hiring Jews in the 1930s) and that school will rise and the discriminators will sink.