Black workers typically benefit when hiring picks up after an economic slump, but their labor market gains could be limited in the recovery that follows COVID-19.
That's the conclusion of Will COVID-19 Erase Black Workers' Labor Market Gains?, an article by Atlanta Fed research economist and senior adviser Julie Hotchkiss published in the Federal Reserve Bank of Atlanta's Policy Hub.
One labor market, two outcomes
The gap in unemployment for Black workers relative to Whites tends to increase during financial downturns and decline during periods of recovery, a "high beta” effect in economics. That means Black workers tend to make greater job gains than White workers during the boom that follows a recession, even as their overall employment levels remain below that of Whites, Hotchkiss explained.
The steepest fall in the unemployment gap between Blacks and Whites generally appears during a so-called hot economy, characterized by the jobless rate falling below what is considered its natural level. The three years from 2017 to 2019—following the Great Recession of 2008–09—was such a period. "As the economy heats up, the share of time an individual spends unemployed decreases as job-finding prospects improve,” the Policy Hub article states. During cold economies, Blacks and other employment groups considered disadvantaged—including ethnic minorities and younger and less-educated people—tend to suffer more than Whites (see the table).
Unemployment Rates by Race and Ethnicity, Quarterly Averages
| White | Asian | Black or African American | Hispanic or Latino | Total | |
|---|---|---|---|---|---|
| 2Q 2020 | 12.0 | 14.3 | 16.1 | 16.7 | 12.9 |
| 2Q 2021 | 5.1 | 5.6 | 9.2 | 7.2 | 5.8 |
Note: Data represent total unemployed, 16 years and over.
Source: U.S. Bureau of Labor Statistics
During a hot economy, demand may rise to a point at which employers who harbor preferences for or prejudices against certain groups of workers might be forced to set them aside to keep their businesses functioning. When such proclivities are abandoned, workers from disadvantaged groups have a higher probability of making labor market gains.
"Not all employers are prejudiced, but economywide there is a continuum of employer prejudice, and eventually employers that are the most prejudiced are going to start hiring workers that they wouldn't normally hire,” Hotchkiss said.
The Atlanta Fed's Julie Hotchkiss. Photo by David Fine
Hotchkiss and Robert Moore, associate dean and associate professor emeritus at Georgia State University's Andrew Young School of Policy Studies, analyzed U.S. Bureau of Labor Statistics data to find the average share of time spent jobless during a year. Their findings indicate that the unemployment gap averaged 9.1 percentage points from 2010 to 2016, a cool period, but improved to 7.7 points during the hot economy of 2017–19. Last year, the jobless gap narrowed to 7.3 percentage points, showing that Black workers were still benefiting from the prior hot period.
Weakness from COVID is expected to contribute to a widening of the unemployment gap between Blacks and Whites to 7.4 percentage points in the 2023 to 2025 timeframe, Hotchkiss and Moore estimate. Hotchkiss noted that the industries hardest hit during the COVID-19 recession employ higher numbers of Blacks and other disadvantaged groups, suggesting they might have a harder time recovering.
An unequal impact
In a June 22, 2021, hearing before a select subcommittee of the U.S. House of Representatives, Federal Reserve Chair Jerome Powell noted that minorities still bear the brunt of employment loss from the pandemic. "The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the hardest hit,” Powell testified. "In particular, despite progress, joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African Americans and Hispanics.”
The Policy Hub article asserts that reliance on hot economies alone is not enough to reduce labor market disparities between Blacks and Whites. "You can't rely on just a hot economy to bring Black workers up to parity,” Hotchkiss said in discussing her findings. "You really need to change something substantial or fundamental about the opportunities and experience of Black workers in order to improve their position relative to Whites at any given point in time.”
One way employers can help increase opportunities for Blacks and other disadvantaged workers is to provide job training that will enable them to add skills and improve their economic mobility, Hotchkiss said.
"You don't just hire that worker into the lowest position that is available, but you hire that worker and make an investment in them,” Hotchkiss said. "That means that at the next downturn, those workers are not in the same position as they were at the last downturn” because they will have more experience and skills that can help them be more resilient.
Karen Jacobs
Staff writer for Economy Matters