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7 Facts on Racial Equity and the Economic Recovery
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7 Facts on Racial Equity and the Economic Recovery

The economic recovery has supported workers of color, but inequities persist, and the Federal Reserve risks undoing the equitable economic gains achieved.

A girl rides on her father's shoulders through the Orange County Fair against a green, leafy backdrop.
A girl rides on her father's shoulders as they walk through the Orange County Fair in Costa Mesa, California, on July 17, 2022. (Getty/Leonard Ortiz/MediaNews Group/Orange County Register)

After enduring serious economic challenges amid the COVID-19 pandemic, 2021 was an extraordinary year of economic growth and recovery. The country saw record job gains and an unprecedented drop in unemployment. The size of the economy, measured by real gross domestic product, grew at its highest rate in decades and surpassed pre-pandemic levels. Despite heightened inflation spurred by supply chain issues, war-related energy price increases, disruptions to food supplies from climate change, and climbing housing prices, Americans’ disposable incomes were higher in 2021 in real—or inflation-adjusted—terms than they were in 2019 and 2020.

While the U.S. economy and labor market remain strong, inequities along racial and ethnic lines persist. In its efforts to combat inflation, the Federal Reserve risks widening these gaps, and undoing some of the gains from the economic recovery, as it continues to increase interest rates—now set between 3.75 percent and 4 percent—and commits to future rate increases; some estimates expect it to reach up to 5 percent in 2023. In its previous interest rate hike, the Federal Reserve forecast an increase in unemployment to 4.4 percent by next year, up from 3.5 percent in September 2022. These changes will fall across the economy unevenly, disproportionately hurting people of color and the economic progress they have made during the recovery. As businesses invest less in new projects, slow down construction, and restrict hiring, the most vulnerable groups will experience a more severe erosion of employment and wages.

Maintaining an economy close to full employment is a crucial first step toward achieving racial equity. Without a strong labor market, it will be much harder to close persistent gaps in wages, housing, and wealth along racial and ethnic lines. The Federal Reserve, the Biden administration, and Congress should enact measures that prioritize full employment and continue to increase the economic progress of communities of color in the labor market.

The economic recovery has supported workers of color

After prior recessions, economic recovery has typically taken longer for workers of color. Because people of color fall behind during a recession and experience a disproportionate amount of job losses, they tend to struggle in the early recovery period. However, the Biden administration’s timely and successful fiscal supports boosted the labor market and helped allow it to recover more quickly and more equitably compared with previous recessions.

1.     Employment participation has rebounded

Employment participation fell across all groups after the onset of the COVID-19 pandemic, with the overall employment-to-population ratio reaching a low of 51.3 percent in April 2020. However, Black, Latino, and Asian workers have recovered their jobs at similar rates compared with white workers.

Figure 1

2.     Unemployment has approached historic lows for people of color

The unemployment rate fell rapidly and dramatically to 3.5 percent in September 2022, matching its lowest rate in 50 years. Similarly, unemployment rates for Black, Latino, and Asian workers fell to record lows at the same time as white workers.

Figure 2

3.     Wage growth for people of color has increased

The historically low unemployment rates alongside rising quits and job openings also boosted worker negotiating power, which workers leveraged to pursue higher wages. This leverage largely aided people of color: From 2021 to 2022, median nominal wage growth for nonwhite workers increased at a higher rate compared with white workers. Growth was particularly high for low-income workers, hourly workers, and younger workers.

Figure 3

4.     Long-term unemployment fell drastically

These gains included those who have experienced long-term unemployment. From July 2021 to July 2022, Black and Hispanic or Latino people experienced the largest 12-month drop on record in the number of individuals experiencing long-term unemployment.

Figure 4

Together, these economic indicators show real progress for advancing racial equity and justice in the labor market. Black and Latino workers’ strong recovery was reflected in reduced poverty, increased disposable income, and increased savings, which overall strengthened their economic security. These trends are critical to advancing racial equity: They provide workers with more opportunities to meet their needs, prepare for future needs, and make strides in other areas such as health, education, and safety.

Racial and ethnic disparities persist

Despite clear signs of economic progress, persistent racial and ethnic disparities in the labor market remain. A strong labor market alone is not enough to close these gaps, which continue to affect people of color and their economic security.

5.     People of color continue to experience higher rates of unemployment

While federal policies and stimulus helped to spur fast and historic recovery, gaps persist between white workers and people of color in unemployment, earnings, and wealth. The unemployment rates for Black and Hispanic or Latino workers reached historic lows, but they still lag behind the unemployment rate of white workers.

Figure 5

6.     Long-term unemployment disparities persist

This is also true of long-term unemployment and those who have been seeking work for longer durations. Among those searching for work, both the median and average duration of unemployment is greater for people of color compared with white people.

Figure 6

7.     Wage growth hasn’t meaningfully closed racial and gender wage gaps

Meanwhile, racial wage gaps continue to affect the economic security of Black and Hispanic workers. These groups are hit hardest by inflation, which takes away from real wage growth, and will suffer even further due to erosion of employment and job opportunities that will come from increasing interest rates. This is particularly true for women of color.

Figure 7

Conclusion

The economic recovery following the pandemic-induced global recession has been impressively inclusive of people of color compared with prior recoveries. Still, racial and ethnic inequities persist and may be exacerbated if the Federal Reserve causes a recession in its effort to fight inflation.

Wages and employment should not have to decline to restore price stability. The Biden administration has taken steps to help fight inflation and reduce the cost of essentials, but Congress and the administration should also continue to pursue supply-side policies to decrease the rise of inflation and further reduce the pressure on the Federal Reserve to increase interest rates. In particular, they should implement measures that provide supports for child and home care, invest in renewable energy production, increase supply of affordable housing, and intensify antitrust enforcement so that workers do not suffer from rate hikes and lose the wage and employment gains they have made in the recovery.

But to truly have an equitable economy, Congress must pass additional policy measures to close outstanding gaps in wages and overall and long-term unemployment rates. These include paid family and medical leave and subsidized and affordable child care to support women of color and single mothers, who are among the most vulnerable to economic turbulence. Additionally, stronger labor protections, including anti-discrimination protections, higher utilization of unions, and an increase in the federal minimum wage will all help close labor and wage disparities.

Ultimately, structural reforms that work across systems of government to close the racial wealth gap, support generational wealth building in communities of color, and invest in an equitable future represent the path toward achieving real racial equity in the economy.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.

Author

Justin Dorazio

Research Associate

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