Solving Economics' Diversity Problem

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The Bank of England has four big job vacancies this year and there’s hope that several will be filled by women. Even if that happens, central banks still have some way to go to tackle the lack of diversity in policymaking. Without more progress, this risks becoming a crisis of legitimacy.

Policymakers’ actions touch everyone. As a matter of principle, they should be representative of the societies they influence. Personal experience is a factor in decision-making, and homogenous committees may ignore the impact (or lack of it) that policies have on certain groups. They may also be more prone to error. There’s evidence that men and women have different approaches to risk, suggesting a need to balance these biases in policy formulations. As European Central Bank executive board member Isabel Schnabel recently told the Financial Times, the tone and conclusion of meetings is very different when she’s not the only woman.

For these reasons, the ECB introduced gender targets in 2013 and the Bank of England devised broader diversity targets the following year. Not all have been hit. Such goals are at least a spur to steps such as introducing flexible working policies and overhauling recruitment processes, and they have improved the internal pipeline of talent. The research materials going before the ultimate decision-makers should be informed by a broader perspective.

But central banks regularly point to an external problem — the pipeline of economists coming through from academia — to explain and implicitly excuse their lack of institutional diversity. Women and ethnic minorities are under-represented in economics at the undergraduate level. Many children have no exposure to economics at school. They may drop mathematics when forced to narrow their focus, thinking it’s essential only for the physical sciences in tertiary education. In doing so, they limit the number of economics courses they could later apply for.

The economics demographic becomes less diverse with seniority. An academic environment widely acknowledged as hostile and discriminatory is largely to blame. In 2018, the American Economic Association produced a grim review of the prevailing culture (including reports of bullying, bigotry, sexism and racism) and introduced a code of conduct. Last year, former U.S. Federal Reserve economist Claudia Sahm tore into the profession in her excoriating blog “Economics is a disgrace.”

The costs of higher education and the pitiful income for research work mean it helps to have family financial resources to pay the bills for the many years it can take to start earning a living in economics. The role of intergenerational wealth is one factor underlying the lack of racial diversity in the subject. Research has found evidence of bias against female lecturers in student evaluations, especially in math-related subjects. These biases threaten to stall female economists’ university careers when they’ve barely begun.

This is also problem for the subject itself. A recent analysis of economic publications by the U.K. Centre for Economic Policy Research found there has been a lower share dealing with race and ethnicity in economics than in other social sciences. That’s not just bad for academic depth, it’s another deterrent to candidates from minorities to embrace the subject.

Should central banks leave it to schools, universities and education ministries to fix the pipeline? Policymaking institutions have a clear interest and responsibility — plus resources — to do so themselves. They’re taking some action with that in mind. The ECB sponsors master’s scholarships for women, while the U.K. Royal Economic Society, in partnership with the Bank of England and others, has an outreach program to schools. The U.S. Federal Reserve has similar initiatives.

These are all welcome. The snag is they take time to bear fruit. Is there anything more immediate? One approach would be to elevate equality up the policy agenda — including issues that have hitherto been put in a box away from monetary policy. The immediate recruitment pool for central bank economists gets deeper if you broaden out from the traditional focus on macro expertise. That could even include making senior hires among non-economist scholars in, say, sociology which has been addressing questions that aren’t traditionally deemed “economics.”

At the same time, central banks can influence academic economics to research inequality issues, in turn incentivizing universities to attract and retain talented people whose research is in these areas. 

Diversity in the Bank of England’s top decision makers should hopefully have improved by the end of 2021. That would be testament to the programs it has in place. But poor diversity in the pipeline of economists is something that central banks have the power and duty to work on. And while those efforts are underway, policymaking institutions can do more than sit back and wait for them to bear fruit.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2021 Bloomberg L.P.

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