December 2014

IZA DP No. 8753: Incentives to Identify: Racial Identity in the Age of Affirmative Action

shorter version published in: Review of Economics and Statistics, 2015, 97(3), 710-13

It is almost universally assumed that race is an exogenously given trait that is not subject to change. But as race is most often self-reported by individuals who must weigh the costs and benefits of associating with minority groups, we ask whether racial self-identification responds to economic incentives. To address this question, we link racial self-identification with changes in state-level affirmative action policies in higher education, contracting, and employment. Consistent with supporting evidence showing that individuals from underrepresented minority groups face an incentive to identify under affirmative action, we find that once affirmative action is outlawed, they are less likely to identify with their minority group. In contrast, we find that individuals from overrepresented minority groups, who face a disincentive to identify under affirmative action, are more likely to identify with their minority group once affirmative action is banned. To our knowledge, this is the first study to document a causal relationship between racial self-identification and economic incentives in the United States. As such, it has broad implications for understanding the impact of affirmative action policies, estimating broader trends in racial disparities, and the emerging literature on the construction of race and individual identity.