Surprise, Surprise, Surprise!

This just in from the very smart folks at NPR – being a minority might have a negative effect on your career! Really!?

Actually, NPR presents a social science study from the National Bureau of Economic Research that does a very good job explaining what we all already know – but want to easily push off as racism.  From the article:

Economists have long noted that multiple companies in an industry often congregate in an area — think of movie companies in Hollywood or investment bankers on Wall Street — and observed that these firms become more profitable. Indeed, this may be one reason why an up-and-coming tech company would want to locate in Silicon Valley, rather than in Tennessee, where costs are far cheaper.

But why do companies that congregate become more profitable? It has to do, Ananat says, with the fact that when a number of companies involved in similar work are concentrated in one area, they effectively create an ecosystem where ideas and refinements can spread easily from one company to the next, and increase productivity overall.

“It’s stuff in the ether — you know, these tips that get communicated,” Ananat says. “For any given job, it’s going to be specific to that job. That’s why they are so hard to identify and so valuable. We say, ‘Oh, you’re not doing that quite right. Do it just this way instead.’ “

What does all of this have to do with the racial wage gap? Much of this valuable information that gets transmitted and shared in the ecosystem happens in informal or social settings — over lunch, or a beer after work, or even at church on Sunday. Those social settings tend to be segregated, with whites tending to spend time with whites and blacks with blacks. (The next time you are in an office cafeteria, notice who sits next to whom at lunch.) In a world where ethnic groups cluster together, those in the minority are less likely to share and benefit from spillover effects in the ecosystem and are therefore less likely to learn early on about important company developments or technological innovations.

“People of the same race are much more likely to have conversations where they share ideas,” she says. “The fact is you just talk more about everything with people who you feel more comfortable with than with people you feel less comfortable with. And we know that one of the big predictors of who you feel comfortable with is whether you are of the same ethnicity.”

Ananat explains the findings with a hypothetical example: “Say there are 1,000 black engineers in Silicon Valley, compared to 20 in Topeka, and there are 10,000 total engineers in Silicon Valley, compared to 500 in Topeka. Then blacks make up 10 percent of engineers in Silicon Valley, compared to 4 percent in Topeka.”

“A black engineer in Silicon Valley has 980 more black engineers to get spillovers from than does a black engineer in Topeka,” she writes in an email. “Meanwhile, a white engineer in Silicon Valley has 8,500 more white engineers to benefit from than a white engineer in Topeka. Thus, while both white and black engineers’ wages will be higher in Silicon Valley than in Topeka, the white engineer’s wages will increase more than the black engineer’s do — in effect, the white engineer is living in a much bigger city (of engineers) than the black engineer is, if only people within one’s own race matter for urban spillovers.”

How do companies take advantage of this knowledge?  The study went on to explain that certain individuals in companies cross the racial divide (they call them ‘code-switchers’).  Companies who want to ensure all employees are sharing information will engage these code-switchers, and actually work to recruit more code-switchers, as they will work as links between both bodies and knowledge, almost acting like a bridge to the knowledge and to the relationships where the knowledge is coming from.  The companies with more, and more active, code-switchers can gain the most from their complete body of knowledge that all of their employees have.   Using code-switchers as mentors, especially with your minority employees, is also a great way to ensure the knowledge is being shared between the groups.

I love how social science takes the emotion out of a topic like this and looks at the reality of why this is happening.   HR wants to plan events so we all get to know each others cultures better, etc. When in reality, science will show us differences will continue regardless, focus on finding ways to gain the value from all of those differences by finding ways to ensure sharing of everyone’s knowledge is being done.