Paul Donovan, global economist at UBS, writes on the economic benefits of legalising equal marriage.
After the successful vote in the House of Lords, England and Wales will join the growing list of countries that have ended the discrimination against same-sex marriage. France celebrated its first same-sex marriage at the end of last month, and in the United States the Supreme Court is expected to rule before the end of June in two cases regarding the constitutionality of same-sex marriage.
Amid the heated debate over same-sex marriage, the simplest and least emotive argument for legalisation is often overlooked: discrimination against homosexual couples hurts the economy.
Allowing one group to enjoy all the legal and social benefits of marriage – including the right to use the socially meaningful word “married” – while another group is prohibited from enjoying those rights, is plainly discriminatory. It would be discrimination to ban marriage between people of different races, or between people who are past the age of child-bearing (the obvious response to the argument that same-sex couples should not marry because the institution of marriage is for procreation). Equally, it is discrimination to ban marriage on the grounds of gender.
Economists passionately oppose discrimination, because it wastes or even destroys human capital.
An economy that discriminates against a group in its society is explicitly devaluing that group’s human capital. In 2004, the US General Accounting Office reported that marriage granted 1,138 federal benefits, rights and privileges to heterosexual married couples, but denied those rights to same s-x couples. The difference of treatment is a clear message to same-sex couples that society views them as somehow less valuable.
Over fifty years of studies have shown that repeated discrimination changes the way people behave. If a group in society are told again and again that they are less valuable, they are likely to be less ambitious and to underachieve academically or in the workplace. That robs the economy of human capital it would otherwise have had.
A 2011 US study suggested that lesbian, bisexual, gay and transgender employees who felt unable to be honest about their sexual orientation were far less likely to reach positions in senior management. Even relatively tolerant Sweden found that homosexual men are 1.5% less likely to hold a professional position when compared to equally qualified heterosexual men. Other less suitable, but heterosexual, candidates will be promoted to these positions. Economically this discrimination damages productivity by putting the wrong people into the wrong jobs, and by forcing companies to replace talented but demoralised homosexual staff when they quit.
The economic damage is visible in pay discrimination. A 2001 US study showed homosexual men earning between 2.4% and 15.6% less than their heterosexual peers. Research from France last year suggested a 6.5% difference in pay for homosexuals in the private sector, and a 2006 UK survey indicated that homosexual men earned 6% less than identically qualified heterosexual men.
Societies that discriminate may also drive talented human capital away. New Zealand, having passed same-sex marriage legislation in April, expects 1,000 couples to visit from Australia to marry over the coming months (as they can not marry at home). Some of those couples may choose to remain in the more tolerant New Zealand economy. If they do, they will bring their productivity with them, hurting Australia’s economic potential.
The costs of discrimination can be seen most clearly in extreme cases. The British mathematician and code breaker Alan Turing was among the founders of modern computing, who committed suicide in 1954 after he was convicted of homosexuality. The human cost of Turing’s death for his family and friends was horrific, but there was an economic cost to society, too. Former Prime Minister Gordon Brown said that “without [Turing’s] outstanding contribution, the history of the Second World War could have been very different.” How might the history of the latter part of the twentieth century been different if Turing had been able to live a full life, free from the pressure of discrimination?
Discrimination is potentially even more economically damaging today than in the past. The financial crisis has changed things. The cost of financial capital has risen in the private sector – infinitely, where banks refuse to lend at all. Most economists argue that rising risk and financial disintermediation will lower medium term physical capital investment. This makes human capital ever more valuable in economic terms.
At the same time, the environmental credit crunch – the fact we are literally mortgaging our future economic prosperity by consuming natural resources at twice the sustainable rate – means that humanity needs to become smarter about doing more with fewer physical resources. This requires innovation and productivity, maximising a society’s human capital regardless of sexual orientation.
Factor in the demographics of ageing populations and there is simply no economic argument for allowing a society to prevent some of its citizens from maximising their abilities and economic potential by discriminating against them. Countries such as Germany and Italy, with rapidly aging demographics, will suffer if they do not make best use of what they have.
Although correlation is never the same thing as causation, there is a relationship between homophobia and economic competitiveness that seems to sum up these arguments. Countries with the highest levels of competitiveness on the World Economic Forum scale generally have less than 20% of their population identifying themselves as being strongly intolerant of homosexuality. Countries with the lowest levels of competitiveness have between 60% and 80% intolerance.
The economic argument for marriage equality is incontrovertible, and it is why economists will celebrate the House of Lords’ decision. Those who seek to discriminate in society by denying one group the marriage rights that others enjoy are damaging human capital. By damaging human capital, opponents of marriage equality are damaging potential economic growth, at a time when maximising human capital (of whatever sexual orientation) is increasingly important to maintaining global standards of living.
Economics has a word to describe people who destroy capital to prevent economic progress. Opponents of marriage equality are not traditionalists, moralists, or even loons.
They are Luddites.
Paul Donovan is a global economist at UBS