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The law and economics of identity.

Article Excerpt
I. INTRODUCTION

A growing number of legal scholars have written about the demands that society and particular employers have placed on non-traditional employees to perform their identities, (1) "or make themselves palatable" to their employers, by comporting with the criteria that the institution values. (2) These authors have forcefully made the argument that some of these requirements are actually a form of class subordination; as a response, they argue for various forms of legal intervention. (3)

Kenji Yoshino provides a particularly useful scheme for conceptualizing this situation. At one extreme are situations where employers ask employees to actually "convert" or alter their identities. (4) A requirement that employees change their religion is an example of such an extreme practice, and under existing law, such a practice would be deemed clearly illegal. (5) At the other extreme, there are practices such as demands by an employer that employees "cover" their identities. (6) "Covering" is the demand for an individual to play down those disfavored characteristics of her identity which make the favored group uncomfortable, even while the group remains fully aware of that underlying identity. (7) These practices have not been found to be illegal, and there is disagreement among scholars as to whether there should be any condemnation for such demands on employees with regard to their identities. In between these two extremes, Yoshino observes two intermediate cases: passing (pretending that one is a member of the favored group, even though the underlying identity remains unchanged) and reverse covering (performing one's identity to conform to a stereotype held by the favored group). (8)

The types of responses that Yoshino identifies suggest both that employees and employers alike are constantly negotiating issues of identity (9) and that identity is an important part of the employment relationship. Yet, labor economists have been traditionally silent about the concept of identity. (10) In a series of recent articles, Nobel Prize-winning economist Professor George Akerlof and his colleague, Rachel Kranton, fill this gap. (11) Borrowing constructs from the fields of sociology and psychology, Akerlof and Kranton demonstrate how identity influences the behavior of both individuals (12) and organizations. (13) This Essay explores the insights that Akerlof and Kranton's conceptual model has for the various legal issues that are beginning to arise as courts struggle with questions surrounding grooming and dress-code discrimination. (14)

II. THE AKERLOF AND KRANTON MODEL

In the traditional neoclassical economic model, the preferences of an individual are both fixed (15) and dependent upon pecuniary factors such as income and effort. (16) So at a very simple level, the modeling of the decision to work is characterized as a choice between work and leisure. Characterized in that way, one could then divide into three groups the set of factors affecting the choice to work: (1) the opportunity cost of the work (i.e., leisure); (2) the individual's level of wealth, and (3) the individual's set of preferences. Under this basic model, the individual's preferences are taken as given and are not subject to immediate change. The opportunity cost of leisure is directly proportional to the wage rate, and the measure of wealth is a function of the individual's income. Absent from the traditional model is any mention of identity. (17)

Akerlof and Kranton start by including identity in the individual's utility. (18) They define identity not only as what economists traditionally refer to as "tastes" but also as "norms"--"how people think that they and others should behave." (19) Social norms are, in essence, "social regularities" or behaviors that are widely adopted in society. (20) They are activities that "society holds that people should do." (21) As Professor Lawrence Lessig notes, social norms "frown on the racist's joke; they tell the stranger to tip a waiter at a highway diner; they are unsure about whether a man should hold a door open for a woman." (22) Social norms differ among different cultures and within given cultures during different periods of time. (23)

Professor Jon Elster has observed that the "workplace is a hotbed for norm-guided action." (24) Social norms, for example, have long had an important impact on gender roles in employment specifically with respect to work/family concerns. (25) Moreover, one of the central conclusions of the famous Hawthorne experiments of the 1930s (26) was that employee work effort is significantly influenced by the norms of the employee's workgroup with respect to what constitutes an appropriate work level or output. (27) Applying this analysis, employees are deemed not "irrational" when they don't increase output in response to increased employer incentive pay; they are simply responding to workplace social norms--i.e., they don't want to be ostracized by fellow employees as "ratebusters." (28) Moreover, other observers have pointed out that in the workplace, breaching norms can sometimes have more "serious consequences" than breaching the law. (29)

The concept of norms, while necessary, is not sufficient to fully incorporate the concept of identity. Rather, Akerlof and Kranton argue that the critical component is that norms "depend upon the particular situation--that is, when, where, how, and between whom a transaction takes place." (30) Every situation, they claim, will define how individuals think they need to behave in that particular situation. Those expectations are defined, not only by the way individuals feel about themselves, but also by the expectations of those around them. Akerlof and Kranton argue that "[i]n a model of utility ... a person's identity describes gains and losses in utility from behavior that conforms or departs from the norms for particular social categories in particular situations." (31)

In the Akerlof and Kranton model, each person's utility function is in part based upon what sociologists and psychologists call "social categories." Each person knows his or her own category and that of other people with whom the person interacts. (32) Additionally, identity is based upon the person's assigned social category and the extent to which that person's own characteristics match the ideal of his or her assigned category. A person's identity is further dependent upon his or her own actions and the action of others; specifically, the extent to which such actions correspond to the behavior prescribed by society's expectations as to how that person should fit into the ideal of the social category to which that person belongs. (33) Thus, a person's utility is dependent upon that person identity and his or her assigned social category. Akerlof and Kranton refer to increases or decreases in utility that derive from changes in the identity component of the utility function, as gains or losses in identity.

III. IMPLICATIONS

There are various implications of modeling utility...

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