A hot labor market is not enough for racial equality

The rapid recovery of the labor market over the past two and a half years has not been sufficient to reduce persistent racial gaps in employment, jobs and wages. The labor market has recovered significantly after the pandemic-induced recession. Since September 2021, the overall unemployment rate has been less than five percent and since December 2021 it has even been four percent or less. Not only that, but racial inequality has at least not worsened, as it usually does in recessions. The unemployment rate for black, Latino, Asian and other black workers fell along with that of white workers. However, racial gaps in employment, unemployment and wages persisted stubbornly, even in the midst of a historic labor market recovery. This puts many black workers at high risk of financial insecurity as Federal Reserve policy threatens economic and employment growth.

The US economy experienced a rapid recovery in the labor market after the severe recession in the spring of 2020 thanks to swift, broad and sustained government action. The economy reopened on a lasting basis in 2021, after vaccines became widely available and the Biden administration and Congress approved the American bailout to support a struggling recovery. Jobs then returned and unemployment fell thanks to massive government actions. By July 2022, the job market had made up for all the jobs initially lost during the recession. At the same time, the unemployment rate had hit a pre-pandemic low of 3.5%. It took less than two and a half years to fully recover from this recession, while it took nearly six and a half years – until May 2014 – before the total number of jobs reached the level recorded before the Great Recession and the housing crisis from 2007 to 2009. The difference in political focus since the last recession meant that millions more workers were able to quickly return to work and avoid persistent long-term unemployment associated with widespread financial hardship. .

Unlike previous recessions and early ups, this upswing hasn’t left people of color behind. In the first two years after peaking unemployment rates in the spring of 2020, the Latinx and Black unemployment rates they experienced their fastest decreases on records dating back to 1973. Black unemployment, for example, approached historic lows, while unemployment hit an all-time low of 3.9 percent in July 2022. Employment levels – the share of the population that have a job – have also increased close to pre-pandemic levels for all racial and ethnic groups.

However, racial unemployment gaps remain high and widespread. Although the unemployment rate for African Americans fell close to the pre-pandemic low of 5.4% with a recent low dropped by 5.8% for a month in June of this year, it was nearly double the rate. unemployment for white workers. Likewise, Latinx’s unemployment rate remained close to its pre-pandemic levels of just above four percent from March to July this year, but was still well above the nearly three percent recorded for the white workers since March 2022.

The fact that racial gaps in the labor market remain widespread should be sobering. Rapid labor market recovery and relatively low overall unemployment rates have gone hand in hand with persistent racial gaps. The unemployment rate of blacks has consistently been about double that of white workers, for example. These differences apply to the subpopulations by gender, education and age (see figure below). Greater education does not protect black workers from greater job instability and job losses than does white workers. That is, structural obstacles such as absolute discrimination and employment guidance whereby workers of color end up in less stable occupations and industries have not magically disappeared.

This shouldn’t come as a surprise. For example, the unemployment rate of blacks was on average more than double the level of the unemployment rate of whites – 9.0% versus 4.2% – during all past periods, when the overall unemployment rate was below the five percent. This gap has not really narrowed over time and has only slightly decreased during some periods of sustained low unemployment – less than 5% in this example – such as the late 1990s and the years before the pandemic (see figure below). Not only does the gap not narrow constantly during times of low unemployment, it widens again rapidly as the economy slows and overall unemployment rises. This is just another way of saying that an economic slowdown, as the Federal Reserve now risks, hurts people of color more than whites. In other words, maintaining a labor market close to full employment through aggressive fiscal and monetary policy interventions is a crucial first step towards financial security for all, but it is not enough to create truly equitable outcomes for the labor market.

This current and persistent racial inequality puts black workers in a more precarious situation than that of white workers. The Federal Reserve is aggressively raising interest rates in an attempt to slow economic growth and lower inflation. Such aggressive monetary policy moves risk raising unemployment rates, particularly for people of color, who already experience more widespread unemployment and longer periods of unemployment. In essence, rapid hikes in interest rates could cause a recession and thus a return to the “last hired, first fired” experience for people of color. To this end, further steps of the policy are required. This primarily means making sure there are enough good jobs with good pay, decent benefits, stability, and career advancement opportunities. It also means that people of color have as much access to good jobs as whites, countering decades, even centuries, of racial exclusion. Specific policies include strengthening and enforcing existing anti-discrimination legislation and regulations. They also include making it easier for workers to join a union as union membership is a key step towards job stability and higher minimum wages. Further steps will require a huge effort to ensure that people of color can have the same amount of wealth as white families as it is a critical step towards equal opportunities in housing, education, transportation and healthcare, all of which are crucial to addressing the past illnesses and ensuring that people of color have the same access to good jobs as white workers. The work of policy makers is not finished yet, not from afar. Building a strong labor market recovery was only a first, but critical step, on which congressional and Federal Reserve policymakers must build.

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