Why We Shouldn't Stereotype Oompa Loompas

As someone who belongs to an ethnic minority, I’ve always been rather cognizant of the externalities (both positive and negative) borne by an entire minority population due to the behaviors of a small subsect of that group. In layman’s terms, there exist stereotypes faced by certain groups due to generalizations made based on specific situations.

To tease this out further while avoiding the further propagation of such stereotypes, let’s consider a fantastical example: the Oompa Loompas from Willy Wonka. The Oompa Loompas (OLs), who originate from Loompaland, a small isolated island in the hangdoodles, are the orange-colored, vocal, mischievous employees of Willy Wonka’s chocolate factory. While they are portrayed as quite beloved in both the novel and film adaptations, let’s imagine for a minute something went wrong. What if one of the first OLs employed by Willy Wonka had incidentally been quite rude or troublesome? What if they had broken some of Wonka’s rules or created a safety hazard? We can assume that Willy Wonka, having not had much exposure to OL’s in the past, could conclude that this behavior was representative of many OL’s and therefore choose not to hire them in the future. There now exists a negative production externality whereby the whole OL population now suffers from fewer opportunities for employment due to the bad behavior of one. Willy Wonka’s factory will also now suffer from fewer capable workers due to the assumptions made from the actions of one OL. In other words, the social marginal costs of the one rude OL exceed his private marginal cost. This will inevitably lead to a Q*<QAE or underhiring of OLs, meaning some type of incentive is required to ensure allocatively efficient quantities are reached.

In this scenario, property rights can inherently be attributed to Willy Wonka; as the employer, he naturally has the right to decide whether or not to hire OLs. Monetary incentives such as tax cuts towards the chocolate factory could be implemented to prompt Willy Wonka to hire more OLs and thereby shift the equilibrium. It’s reasonable, however, to assume that there exists more than just one firm and one OL involved in this scenario (especially in the real world). In such a case, there exists the potential for a market failure via the holdout problem: if OLs come to understand that there exist tax incentives for firms to hire more OLs, they may decide to wait and see how much each firm is willing to offer and therefore no OLs will enter an agreement. There also exists the potential for a free rider problem whereby if tax cuts are decided upon based on diversity across an industry as opposed to a specific firm, each firm experiences less of an incentive to hire OLs.

Overall, however, if we make the assumption that hiring more OLs and having more diversity in the workplace is a positive outcome, then it becomes society’s responsibility to work towards combating negative stereotypes through diversification initiatives. Afterall, who would argue against an allocatively efficient equilibrium that results in more chocolate. :)