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The State of Minorities: The Recession Issue

SOURCE: AP/Mark Lennihan

The recession has caused hardship for all Americans, but minorities have been hit particularly hard by these difficult economic times.

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The United States entered its most severe recession in decades in 2008. Even before the recession hit, minorities were in a more precarious economic situation than whites, largely because of fewer good employment opportunities. As the economy and the labor market declined, so did the fortunes of American families, hitting minorities especially hard.

The rising economic insecurity during the 2008 recession followed very weak labor market performance during the previous business cycle that lasted from March 2001 to December 2007. The economic expansion after the last recession failed to deliver rising incomes for most families.

Although this was true for all middle-class families, economic weaknesses tend to have worse effects for minority families than for whites. Minority workers have fewer employment opportunities, lower wages, or both as compared to their white counterparts. This leaves them with lower incomes and slower income growth. As a result, minorities are less well situated than white families to save and build wealth that would provide an economic cushion in bad economic times. When hard economic times hit, minorities find themselves in a precarious economic situation sooner than is the case for white families.

The data tell a clear and dire tale. The following range of key indicators highlights the economic trends for minorities during the last business cycle. We then compare those with what has happened in the recession of 2008.

Unemployment

In December 2008, unemployment rates for minorities were substantially higher than those for whites. The unemployment rate for African Americans amounted to 11.5 percent, compared to 8.9 percent for Hispanics, and 6.3 percent for whites. That is, minorities were at least more than 40 percent more likely than whites to experience unemployment at the end of 2008.

Furthermore, although the unemployment rate rose for all groups, it increased much faster for minorities than for whites. The unemployment rate for whites rose by 2.1 percentage points, to 6.3 percent in December 2008 from 4.2 percent in December 2007, while the unemployment rate for African Americans grew by 2.9 percentage points and that of Hispanics rose by 3.1 percentage points during the same time period. In other words, the increase in the unemployment rate for minorities was at least 38.1 percent larger than that for whites.

These increases in the unemployment rate during the 2008 recession came after seven years during which minorities made no significant inroads in reducing their unemployment rates relative to whites. Minority unemployment rates in December 2007 were roughly the same as in March 2001 when the previous business cycle started.

The unemployment rate for whites was 4.2 percent in December 2007 compared to 3.7 percent in March 2001, while the respective rates for Hispanics were 5.8 percent and 6.0 percent, and for African Americans were 8.6 percent and 8.1 percent. That is, the structural differences in unemployment rates by race and ethnicity persisted for the entire decade.

Employment growth

The flip side of rising unemployment is falling employment. Minority employment fell faster in 2008 than it did for whites. Employment for African Americans and for Hispanics declined by 1.9 percent in 2008, while it dropped by 1.6 percent for whites.

These employment losses came after meager employment gains, at least for African Americans and whites. The annualized job growth rate for whites averaged to an annualized rate of 0.6 percent and that of African Americans to 0.9 percent from March 2001 to December 2007.

In comparison, Hispanics saw substantially larger employment gains during the last business cycle as a result of strong employment gains in isolated sectors, such as construction, and hotels and restaurants. From March 2001 to December 2007, employment for Hispanics rose by an annualized rate of 3.6 percent. Yet these strong employment gains were insufficient to substantially shrink the unemployment gap between Hispanics and whites.

Employment to population ratio

By and large, the employment gains over the last business cycle were insufficient to keep pace with population. The employed share of the population for whites stood at 62.1 percent in December 2008, compared to 61.9 percent for Hispanics, and 56.1 percent for African Americans.

For all groups, these levels were well below the respective employed shares at the beginning of the last business cycle in March 2001. Then, 64.9 percent of whites and 64.9 percent of Hispanics were employed, compared to 60.5 percent for African Americans.

The overall decline in the employed share of the respective populations came in two stages. During the last business cycle, each group experienced a slow decline, signaling that employment growth fell slightly short of population growth. Specifically, the employment to population ratio for whites declined by an annualized rate of 0.2 percentage points between March 2001 and December 2007, while the same ratio for African Americans decreased at an average rate of 0.4 percentage points and that for Hispanics stayed flat. Once the recession began, though, the employment to population ratios dropped sharply, by 1.4 percentage points for whites, 1.8 percentage points for African Americans, and 2.7 percentage points for Hispanics. The recession made a bad situation quickly worse.

Earnings

Large earnings gaps persist among whites and minorities. Hispanics’ usual median weekly earnings stood at just $529.00 (in 2007 dollars) in the third quarter of 2008, while whites’ were $696.33.

These differences have shrunk slightly because inflation-adjusted earnings for Hispanics gained slightly in the last business cycle, from March 2001 to December 2007, while those for whites were flat in the last business cycle and dropped sharply in the current recession. Between the first quarter of 2001 and the fourth quarter of 2007, the usual median weekly earnings of Hispanics in 2007 dollars grew at an average annualized rate of 0.6 percent, while whites’ earnings declined at an average annualized rate of 0.03 percent. Once the recession hit, Hispanics actually saw a bump in their earnings, which grew by 7.9 percent, while those for whites dropped by 2.6 percent on an annualized basis from December 2007 to September 2008.

It is important to note, though, that the recent earnings gains for Hispanics are likely short lived. Earnings typically lag behind employment, and since Hispanics saw the largest employment gains over this period, it makes sense that their earnings increases would continue longer than whites’ and African Americans’. In turn, given that the rates of employment have dropped off for Hispanics along with those of other groups, it is expected that earnings growth for Hispanics will eventually slow as well.

The earnings gap between African Americans’ and whites’ usual median weekly earnings has grown at the same. There is still a substantial earnings gap between African Americans and whites’ median weekly earnings. African Americans’ earnings stood at $554.99 in the third quarter of 2008 compared to whites’ $696.33.

African Americans’ usual median weekly earnings (in 2007 dollars) have declined slightly since 2000. They first increased at an average annualized rate of negative 0.06 percent between the first quarter of 2001 and the fourth quarter of 2007, about twice as fast as the decrease in earnings for whites during the same period. During the recession of 2008, earnings for African Americans fell by an annualized 2.3 percent from December 2007 to September 2008, compared to the 2.6 percent decline for whites during those nine months.

Family income

By 2007, the last year for which data are available, family incomes for whites were about 30 percent greater than for Hispanics and that gap has increased over time. Hispanics’ median family income declined by an average of 0.5 percent per year from 2000, the last full year before the last recession started, to 2007, the last year for which data are available, falling to $38,679 from $39,935, or by a total of $1,256 (in 2007 dollars). In comparison, whites’ median family income fell at a much lower rate of just 0.003 percent per year, for a total decline of $12 between 2000 and 2007, to $54,920 from $54,932 (in 2007 dollars).

The same story holds for the comparison by race. African Americans’ median family income declined by an average of 0.7 percent per year between 2000 and 2007, to $34,091 from $34,720 (in 2007 dollars), much faster than the income decrease for whites, but not as fast as that for Hispanics. In 2007, African Americans’ income was $1,629 dollars lower in 2007 than in 2000.

Poverty

Astonishingly, poverty increased among Hispanics despite substantial employment gains, which only highlights the low wages at which Hispanics tend to work. In 2007, 8.2 percent of whites lived below the poverty line, up from 5.4 percent in 2000, but well below the 21.5 percent of Hispanics who lived below the poverty line in 2007. What’s more, the percent of Hispanics living in poverty grew from 2000 to 2007 by an average of 0.3 percent per year. In comparison, the percentage of whites living below the poverty line grew by an average of 0.4 percent per year between 2000 and 2007.

The percent of African Americans living in poverty increased even more than that of both whites and Hispanics between 2000 and 2007, growing at an average rate of 0.7 percent each year. The percent of African Americans living in poverty jumped from 19.3 percent in 2001 to 24.4 percent in 2007, meaning that the share of African Americans living below the poverty line in 2007 was nearly three times as large as that of whites (8.2 percent).

Health care

Large disparities in health insurance coverage also persist. In 2007, 10.4 percent of whites lacked health insurance coverage, while 32.1 percent of Hispanics did. The percent of Hispanics covered by health insurance increased slightly between 2000 and 2007, by an average of 0.07 percent per year, while the share of whites lacking health insurance declined by an average of 0.2 percent per year between 2000 and 2007.

The share of African Americans with health care coverage remains noticeably below that of whites. In 2007, 19.2 percent of African Americans did not have health insurance, compared to only 10.4 percent of whites. The percent of African Americans with health care coverage fell slightly between 2000 and 2007, from 81.7 percent to 80.8 percent, or by an average of 0.1 percent per year, about half the rate of whites, but substantially below the increases for Hispanics.

Retirement plan participation

Access to employer-sponsored retirement savings is equally uneven. Less than one-third of Hispanic workers in the private sector participated in an employer-sponsored retirement plan in 2007, compared to over half of whites. Hispanics were already less likely than whites to participate in an employer-sponsored retirement plan in 2002, the earliest year for which data are available, with only 31.1 percent of Hispanics participating compared to 58.8 percent of whites. Between 2002 and 2007, the share of Hispanics who participated in an employer-sponsored retirement plan in the private sector declined by an average rate of 0.1 percentage points per year while whites’ participation declined by an average rate of 0.2 percentage points per year. Importantly, in 2007, the percentage of Hispanics who participated in an employer-sponsored retirement plan remained considerably lower than that of whites, falling to 30.6 percent, well below the 57.6 percent of whites who participated.

The differences by race are not quite as stark. Only 47.1 percent of African Americans participated in an employer-sponsored retirement plan in 2007, compared to 57.6 percent of whites, a 10.5 percentage-point difference. In 2002, 47.5 percent of blacks participated in an employer-sponsored retirement plan compared to 58.8 percent of whites. Between 2002 and 2007, the percent of African Americans who participated in an employer-sponsored retirement plan in the private sector declined by an average annual rate of 0.1 percentage points.

Homeownership rate

In 2000, the homeownership rate for whites was 73.8, and in 2007, their homeownership rate stood at 75.2 percent, as compared to only 49.7 percent for Hispanics. The African-American homeownership rate was the same in 2007 as it was in 2000, standing at 47.2 percent.

The overall gains in homeownership left African Americans behind. Hispanics’ homeownership rose between 2000 and 2007, from 46.3 percent to 49.7 percent, for an annual average increase of 0.5 percentage points. In comparison, the homeownership rate for whites rose only by 0.2 percentage points on average during the same period. And, the homeownership rate for African Americans started to fall from its last peak in 2004 to end up at the same level in 2007 as in 2000.

High-cost mortgages

Nearly 29 percent of home-purchase loans made to Hispanics in 2007 were high cost, as opposed to only 11 percent for whites. Many more Hispanics obtained high-cost mortgages than did whites. Data collected under the Home Mortgage Disclosure Act show that 83,393 loans made to Hispanics were high cost, as opposed to 208,253 that were market rate.

Of home-purchase loans made to African Americans in 2007, more than 34 percent were high cost, as opposed to only 11 percent for whites. Many more African Americans received high-cost mortgages than whites. Data collected under the Home Mortgage Disclosure Act show that 67,480 loans made to African Americans were high cost, as opposed to only 130,985 that were market rate.

Sources

Unemployment: U.S. Department of Labor, Bureau of Labor Statistics, “Current Population Survey.” African American refers to blacks and African Americans, and Hispanic refers to Hispanics and Latinos. Quarterly data is used in order to include unemployment data available for 2008.

Employment growth: U.S. Department of Labor, Bureau of Labor Statistics, “Current Population Survey.” African American refers to blacks and African Americans, and Hispanic refers to Hispanics and Latinos. Quarterly data are used to include employment data already available for 2008.

Employment to population level: U.S. Department of Labor, Bureau of Labor Statistics, “Current Population Survey.” African American refers to blacks and African Americans, and Hispanic refers to Hispanics and Latinos. Quarterly data are used to include employment data already available for 2008.

Usual median weekly earnings: U.S. Department of Labor, Bureau of Labor Statistics, “Current Population Survey.” African American refers to blacks and African Americans, and Hispanic refers to Hispanics and Latinos. Usual median weekly earnings refer to the median weekly earnings of a full-time, non-self-employed wage and salary earner before taxes, including overtime pay, commissions, and tips earned from a primary job. Quarterly data are used to include earnings data already available for 2008.

Family income: U.S. Bureau of the Census, Historical Income Tables. White refers to white non-Hispanic. Beginning with 2002, data represent white non-Hispanic alone, which includes people who reported white alone or in combination. Beginning with 2005, data represent black alone or in combination. People of Hispanic origin may be of any race.

Poverty: U.S. Bureau of the Census, 2008, Income, Poverty, and Health Insurance Coverage in the United States 2007. White refers to white non-Hispanic. Beginning with 2002, data represent white non-Hispanic alone, which includes people who reported white alone or in combination. Beginning with 2005, data represent black alone or in combination. People of Hispanic origin may be of any race.

Health care: U.S. Bureau of the Census, Income, Poverty, and Health Insurance Coverage in the United States 2007. White refers to white non-Hispanic. Beginning with 2002, data represent white non-Hispanic alone, which includes people who reported white alone or in combination. Beginning with 2005, data represent black alone or in combination. People of Hispanic origin may be of any race.

Retirement savings: Patrick Purcell, 2008. “Pension Sponsorship and Participation: Summary of Recent Trends.” (Washington: Congressional Research Service). White refers to white non-Hispanic and African American refers to black non-Hispanic. 2002 was the first year the "Current Population Survey,” the survey Purcell analyzed, used expanded categories of race and ethnicity, making comparisons with earlier years problematic.

Homeownership rate: Bureau of the Census, Housing Vacancies, and Homeownership. White refers to white non-Hispanic. Beginning with 2002, data represent white non-Hispanic alone, which includes people who reported white alone or in combination. African American refers to African American only. People of Hispanic origin may be of any race.

High-cost mortgages: Home Mortgage Disclosure Act data. White refers to white non-Hispanic. People of Hispanic origin may be of any race. High-cost mortgages are defined as those with a rate three points or greater than the treasury rate when the loan was enacted.

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