Many think that the “New Economy” rewrote the rules of the labor market. The hope was that the adverse labor market impacts of recessions and economic slowdowns would be dampened, meaning that minorities, teenagers and less educated workers would not disproportionately suffer as much from a contraction or stagnation in the economy.
The first five months of the last recession that lasted from March 2001 to November 2001 confirmed this belief. In fact, even though whites have a higher employment-population ratio (the percentage of the civilian population that is employed) than African Americans, during the first 5 months of the recession, the white employment-population ratio fell with 0.7 percentage points faster than the African American ratio, which declined by 0.3 percentage points. The “dot com” meltdown and more generally job cuts in IT and IT related occupations generated this shift from past recessions. Whites were disproportionately represented in these sectors of the economy.
But as consumer spending slowed and consumer confidence fell, the labor market outcomes of African Americans began to deteriorate at a faster rate than those of whites. By recession’s end, African Americans had born a larger brunt of the downturn. Their employment-population ratio had fallen by almost 2.0 percentage points, compared to a 1.2 percentage point decline in the white ratio.
This return to old business cycle dynamics continued during the jobless recovery. Today, the African American unemployment rate has been above 10% for the past 13 months. Most striking is the fact that inflation-adjusted median income of African American households fell by 3.2% from 2000/2001 to 2001/2002, compared to only a 0.8% decline in median white household income.
Worst yet, the extreme absolute and relative difficulty of young African American teenagers to find jobs has reemerged. The jobless rate of African American teenagers, which reached a still too high historical low of 20.0% in April 2000, has averaged 30.7% during the Bush Administration, 28.8% during the recession, and 31.7% during the recovery. Today, the African American teenage unemployment rate sits at 28.2%, twice the white teenage unemployment rate.
Investing in education remains one key strategy for weathering recessions and periods of weak job growth; however, during the current jobless recovery, even the job prospects of African American college graduates weakened considerably. Prior to the recession – in November 2000 – the white and African American rates were virtually indistinguishable, both below 2.0%. Twelve months later, the African American and white jobless rates jumped to 2.8 and 2.5%, respectively. In November 2002 and 2003, the white college graduate unemployment rate remained at 2.5%, while the African American unemployment rate jumped to 4.7% in 2002 and fell to 4.0% in November 2003.
Since the third quarter of last year, the economy has shown signs of recovery, and several months of modest job growth. Part of the economic recovery was fuelled by tax cuts. Unfortunately, due to the structure of the Administration’s tax cuts, many African Americans will have to wait until the benefits “trickle” down to them.
When can we expect these benefits to trickle down to African Americans and other minorities? The pessimistic view says that it is unclear whether African Americans and other minorities will benefit at all from this latest installment of trickle down economics. A great deal of economic and political uncertainty remains. Today, international economic and political events have more influence on U.S. labor markets than in the past.
What labor market barometer should Americans watch to determine if and when the benefits begin to trickle down to African Americans? The African American unemployment rate is an obvious measure. Also, employment levels are important. Analysts like to see at least 150,000 new jobs created per month. However, this minimum is only large enough to absorb the labor market’s natural population growth. Average monthly job growth well in excess of 150,000 new jobs is needed before displaced workers, particularly African Americans are re-employed.
When can we expect to see monthly job growth figures in excess of 150,000 new jobs? Short-term predictions of private sector forecasters suggest that we will not see this type of growth during the winter months. Can a comparison of the current jobless recovery to the 1990s jobless recovery provide clues to the future? Unfortunately the answer is no. The U.S. economy has now completed its 25th month of recovery but 776,000 jobs being lost, compared to the creation of 1.7 million jobs by the 25th month of the 1990s recovery. The1990 economy stopped shedding workers in the 14th month of the recovery and began to show robust job growth well above 150,000 in the 21st month of the recovery. It is no coincidence that a few months later, the unemployment rates of African Americans and whites began to trend downward.
Was there a menu of policies that would have directly helped all Americans, but disproportionately helped African Americans weather the effects of the recession? Yes. A tax cut package that was tilted toward middle and lower income households would have been the right prescription. Such a tax cut would have boosted spending by middle class families, thus producing stronger growth and faster employment growth, which would have helped to create employment opportunities for African-Americans.
The jobless recovery has taken a toll on African-Americans and minorities. In the coming months, policymakers can and should do more to create job opportunities for all Americans, particularly these groups. In doing so, they must not jeopardize the long-term health of the U.S. economy.
Unemployment Rates Since March 2001 by Race
The unemployment rate for African-Americans tends to be 4 to 5 percentage points higher than for whites. By the end of 2003, the unemployment rate for whites remained below 5%, whereas it was above 10% for African-Americans. It was above 10% for the past 13 months.
Source: Author’s calculations. Bureau of Labor Statistics, Current Population Survey.
Decline in Inflation-Adjusted Median Household Income from 2000/2001 to 2001/2002
The inflation-adjusted household income for the median household – half of all households fall below this figures, while the other half remains above it – declined by 0.8% for whites and by 3.2% for African-Americans from 2000/2001 to 2001/2002. That is, the income decline was about four times as large for African-Americans than for whites.
Source: Author’s calculations. Department of the Census, Median Income of Households by Race and Hispanic Origin Using 2-Year-Averages: 2000-2002. Figures are for White and African-American alone.
Unemployment Rates for College Graduates by Race
Prior to the recession and throughout the recession, the difference in unemployment rates between white and African-American college graduates was barely noticeable. However, during the job loss recovery, the unemployment rate for African-American college graduates rose to 4.7%, compared to 2.5% for whites.
Source: Bureau of Labor Statistics, Current Population Survey. Figures are from non-seasonally adjusted from November of each month.
William M. Rodgers III is a professor of public policy at the Edward J. Bloustein School of Planning and Public Policy. He is also the chief economist of the John J. Heldrich Center for Workforce Development and senior research affiliate of the National Poverty Center at the University of Michigan. Rodgers served as chief economist in the Department of Labor from January 2000 to January 2001.