Perspectives: M. V. Lee Badgett

M. V. Lee Badgett

Professor of Economics and Director of the Center for Public Policy & Administration, University of Massachusetts, Amherst

 

Making the economic case for inclusion (September 2015)

 

“The power of this economic case is that it gives a roadmap for companies and countries that want all of their workers and citizens to contribute fully.”

 

Economists increasingly see the goals of shared prosperity and a high standard of living as being tied to equity. In short, it’s not just about the size of the pie—how that pie is divided up might also influence how big it is. As this report demonstrates, a growing body of research shows that treating LGBT people fairly in that distribution can help make that pie bigger.

 

Public policies and corporate practices that reduce discrimination, harassment, and other forms of social stigma free up LGBT workers’ energy, increase their education, improve their health, and improve productivity-related factors. From this perspective, fairness is an investment in human capital. LGBT workers will be more productive when they can better use their skills, knowledge, and experience. When workers are more productive, companies can afford to pay them more, and the capacity of the whole economy grows.

 

A recent example from the World Bank shows how large that impact can be.[1] I developed a model of the cost of stigma and discrimination against LGBT people in India that includes health disparities and workplace discrimination. In India, research suggests LGBT people experience workplace discrimination and are much more likely than the general population to be depressed, think about suicide, and to have HIV. My own estimates using that model suggest that just those two effects of excluding LGBT people lead to a loss of 0.1% to 1.4% of India’s GDP.

 

Countries might gain when they shift to greater equality and inclusion of LGBT people for other reasons, too. Protecting the rights of LGBT people demonstrates that a country is modern and open to diversity, both characteristics potentially valued by multinational companies, potential trading partners, and LGBT and non-LGBT tourists. Just as inclusion signals modernization, exclusion of LGBT people signals more traditional ways of doing business that might result in less foreign investment and tourism than would otherwise occur—another cost of homophobia and transphobia.

 

Richard Florida’s well-known work on the creative class fits into this strategic modernization approach. He has studied the relationship between tolerance of homosexuality and various economic measures. In his framework, tolerance of openly LGBT people send a signal to all skilled and creative workers—not just those who are LGBT—that a country is receptive to new ideas and to the entry of creative workers.

 

Of course, there’s a chicken-and-egg problem here when thinking about these links. Countries might be more likely to give LGBT people rights when their economies have grown beyond a subsistence level and political attention turns to greater individual autonomy and human rights.

 

Either way, though, clearly economic development, corporate performance, and human rights for LGBT people go hand in hand.   The positive correlation between LGBT inclusion and economic outcomes at the macroeconomic level is strong. Our recent study shows that emerging economies that protect more rights for LGBT people through decriminalization of homosexuality, nondiscrimination laws, and recognition of LGBT families have higher GDP per capita, even after controlling for other influences on a country’s economic output.[2] Each additional right is associated with a 3% increase in GDP per capita for those countries.

 

Some people are skeptical about this economic case for LGBT rights: “Human rights are universal and indivisible,” they might argue, “They are not for sale.” In my view, the profound moral force of that basic understanding is not undermined by identifying the costs of violating human rights.

 

But the economic argument for LGBT rights is a complement to the human rights argument—not a replacement for it. The approach identifies and quantifies the harms that result from the denial of human rights. Adding up those social and individual costs simply provides another angle from which to see the harms of human rights violations.

 

The power of this economic case is that it gives a roadmap for companies and countries that want all of their workers and citizens to contribute fully. Respecting the human rights of LGBT people will improve their lives tremendously, and we will all gain from their full inclusion in economic, social, and political life.

 

[1] Badgett, M.V. L. (2014), The economic cost of stigma and the exclusion of LGBT people: a case study of India

[2] USAID and The Williams Institute (2014), The Relationship between LGBT Inclusion and Economic Development: An Analysis of Emerging Economies