White House study says DEI costs US economy 0.34% of GDP

A White House study concludes that diversity, equity, and inclusion policies hurt U.S. productivity, estimating the initiatives cost the economy 0.34 percent of annual output in 2023 and slowed growth.

“The issue is rapidly promoting unqualified workers in order to meet racial quotas set forth by DEI,” the study from President Trump’s Council of Economic Advisers says, arguing the policies reverse economic gains from civil-rights legislation.

The report, scheduled for release on Monday, found that productivity was 2.7 percent lower in industries that heavily pursued DEI as of 2023. The authors tracked a significant shift in minority representation in management, which rose four times faster from 2015 to 2023 than in the preceding decade.

The study provides official backing for President Trump’s efforts to dismantle DEI in federal and private sectors, escalating the political and economic stakes for U.S. corporations. This could force companies to re-evaluate human capital strategies and face increased investor scrutiny over social-political risks.

The authors, economists serving on the council, argue that the accelerated promotion of minority workers since 2015 is the most probable cause for the productivity dip. They link the trend's inflection to a widely-cited 2015 McKinsey & Co. study that correlated corporate diversity with better financial performance, which spurred a rapid corporate adoption of DEI initiatives and the growth of related executive positions.

Methodology Under Scrutiny

The White House report's conclusions hinge on a methodology that infers the presence of DEI policies rather than tracking them directly. Lacking explicit company-level data, the economists used the representation of Black, Hispanic, and indigenous people in management roles as a proxy for DEI adoption. Critics may argue this correlation doesn't establish causation and that other unidentified factors could be responsible for the observed productivity changes.

Furthermore, the study's estimated national cost of $1,160 per household assumes a widespread impact, which could be contested. If companies that adopted DEI lost market share, their non-DEI competitors would presumably gain it, potentially muting the aggregate economic effect.

The debate over DEI's economic impact is not new. Research claiming positive financial effects has also faced criticism. A 2024 paper from Jeremiah Green of Texas A&M University and John Hand of the University of North Carolina re-examined the original McKinsey results and reported finding no correlation between diversity and financial performance. They argued that financial outperformance might lead to more diversity in hiring, rather than the other way around. McKinsey has stated it stands by its research.

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