For Too Many Minority Workers, Earnings Still Don’t Add Up
Gaps in earnings—the annual wage of workers aged 16 and older—matter. While there are some reasons for optimism, there is also a need for ongoing vigilance about how this economy is playing out in real time for minority workers and their families.
The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.
As the 400th anniversary of slaves arriving in North America passes, we set foot into the 401st with a somber step, aware of how far we’ve come, but with renewed attention to how far we must go. For black households, the racial wealth gap was roughly the same in 2016 as it was in 1962, two years before the passage of the Civil Rights Act of 1964 and 15 years before the Community Reinvestment Act of 1977. And although employment rates among minorities (defined broadly as share of black, Asian, and Hispanic workers working) outpaced white employment rates since the last recession—more metro areas saw the racial earnings gap widen in the decade than saw it close.
In this blog post, I reflect on why gaps in earnings—the annual wage of workers aged 16 and older—matter, some reasons for optimism, and a call for ongoing vigilance about how this economy is playing out in real time for minority workers and their families.
Pay Matters
Income is the primary driver of the wealth gap between white and black households over the past 54 years, according to a 2019 analysis by my colleagues Dionissi Aliprantis and Daniel Carroll. Though historically the gap has been caused—and exacerbated—by practices ranging from slavery to racially discriminatory policies (think GI Bill and redlining), the authors contend that the reason why the racial wealth gap continues today is “primarily the result of a sizeable and persistent income gap.” Even when the authors factor in savings, inheritance, and rates of return, they find it is the labor income gap between white and black households that “remains the dominant factor until far into the future.”
My colleague Layisha Bailey and I recently looked closer at the disconnect between white and minority workers’ earnings across the country to identify where the disparity was greatest. We highlight two places—Dayton, Ohio, and Pittsburgh, Pennsylvania—that illustrate the variation behind earnings gap, based on data from Brookings’ 2019 Metro Monitor.
In Dayton, minority earnings declined 17 percent between 2007 and 2017, while white workers’ earnings stagnated. Part of this was due to significant layoffs within that period that had a disproportionate impact on minority and blue-collar communities. Often the jobs that replaced them were lower paid, a story told in the recent documentary American Factory. Meanwhile in Pittsburgh, the earnings gap grew not because minority workers’ earnings declined, but because white workers’ earnings rose significantly with an economy biasing higher educated—often white—workers.
Note: The asterisk indicates significance at the 90 percent level.
Source: Authors’ analysis of data derived from Brookings Institution’s Metro Monitor 2019.
Measured Optimism
There is reason for optimism—and not just for the 11 metro areas that saw the racial earnings gap close. The share of minorities in the workforce has continued to increase nationally. While this may coincide with earnings declines, on average, due to lower-skilled workers entering at lower wages, workers who remain in the labor force (“stayers”) may experience gains, as argued here in an article from the Dallas Fed regarding black workers’ wages. And new entrants may gain skills that could translate to sustained employment and—presumably—higher wages. (Whether that translation lasts more than a few years, however, has been shown to be limited.)
Another reason for hope is that places such as the Pittsburgh region now actively measure and acknowledge disparate outcomes by race. This has enabled both public and private sectors to focus their economic development plans and investments in minority communities and more equitable practices.
Looking Forward
No matter how you read the data, jobs alone won’t close the racial earnings gap if the better-paying jobs are out of reach for minority workers. According to a recent Brookings report on low-wage workers, 44 percent of all workers in the United States aged 18 to 64 qualify as “low-wage,” with “women, people of color, and those with low levels of education…most likely to stay in low-wage jobs.” The report and subsequent blogs (here and here) underscore the need to look behind aggregate statistics and understand how the current labor market privileges certain groups over others.
In short, we should not depend on a tight labor market and low unemployment to close the earnings gap. On the contrary, we should work even harder to ensure that jobs that pay a good wage in this economy are accessible to all workers—particularly low-income, minority workers. We (practitioners, academics, policymakers, and media) must continue to monitor not only what kind of jobs are coming into our communities and where, but who is getting them.
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