Nearly a dozen experts from a variety of disciplines, along with three Fed presidents, explored the causes of persistent racial disparities in labor markets that hobble economic growth in the second session of the Fed’s Racism and the Economy series.


Fed Webinar Explores Racial Inequities in Labor Markets

A half century of racial inequities in the U.S. labor market can be mostly summed up in a simple ratio: 2 to 1.

Over the past 48 years, white job seekers have been twice as likely as Black counterparts to secure employment during any four-week period, economist Valerie Wilson explained at a November 17 Federal Reserve webinar examining longstanding racial disparities in pay, employment, and other labor market measures. Based on U.S. Bureau of Labor Statistics data starting in 1972, when the BLS started breaking out unemployment by race, the 2-to-1 ratio holds across all ages, education levels, genders, and macroeconomic conditions, said Wilson, director of the Economic Policy Institute's Program on Race, Ethnicity, and the Economy.

Gaps in pay prevail as well, and in fact have grown. Perhaps most troubling, Wilson added, the gap has widened most among college-educated workers. Among workers with the same education, age, and gender, and living in the same places, Black workers on average earned 15 percent less than white workers in 2019.

Wilson was one of nearly a dozen experts from academia, businesses, and nonprofits who joined three Federal Reserve Bank presidents to explore the causes of persistent racial disparities in labor markets, and to discuss how the Federal Reserve, other policymakers, and employers can address those gaps. The online event was the second in the Racism and the Economy series sponsored by the Federal Reserve Banks of Atlanta, Boston, Minneapolis, and San Francisco.

Examining occupational segregation

The two-hour conference focused largely on "occupational segregation." That refers to the outsized representation of minorities, particularly Blacks and Hispanics, in lower-wage occupations such as food preparation, cleaning, and health care services and support. Before the pandemic, the share of Blacks and Hispanics in such work was double the share of whites, Atlanta Fed president Raphael Bostic pointed out.

Those jobs typically offer low pay, limited opportunities to advance to better positions, and few benefits. Dismantling occupational segregation by making better jobs more accessible to minorities would help erode broad racial inequities in the labor market, numerous conference speakers said.

At an even deeper level, eliminating labor market disparities requires widespread acceptance that the root causes lie not with shortcomings among individual workers but rather that the underlying reasons have been embedded in the workings of the labor market over more than a century, observed Wilson and other speakers, including Bostic. He was joined in the webinar by Boston Fed president Eric Rosengren and San Francisco Fed president Mary Daly.

Structural factors inhibiting labor market equity include discrimination, lack of access to quality education and training, and policies dating back to New Deal programs that excluded half of all Black, Latino, and Native American workers from Social Security, said Rebecca Dixon, executive director of the National Employment Law Project.

To be sure, a couple of speakers apportioned some responsibility to the Fed. Wilson figures the central bank contributed to the lagging fortunes of minority workers over recent decades by raising the federal funds rate prematurely during economic expansions, perhaps shutting off job growth before it helped those marginally attached to the labor force. Meanwhile, William Rodgers, chief economist at Rutgers University's Heldrich Center for Workforce Development, voiced support for a proposal to formally add to the central bank mandate a duty to minimize and eliminate racial disparities in the economy.

An expanding body of research reveals that gaps in pay and access to higher-wage occupations persist regardless of education and skills. For example, less than half of the observed difference in average hourly wages between Black and white workers is explained by the main factors presumed to determine pay, according to Wilson.

Progress toward pay parity stalled after the 1960s and '70s, several speakers noted. In fact, relative to other demographic groups, earnings for Blacks are stuck at 1979 levels, said Rodgers, a visiting scholar in the Atlanta Fed's Center for Workforce and Economic Opportunity. What's more, he added, considering mass incarceration and the number of Black Americans who have left the labor force entirely, the job market status of Blacks is unchanged from 1950.  

"That's why this conversation and what comes out of it is so important," he said.

Proposing solutions

In addition to describing racial inequities in employment markets, conference speakers proposed solutions including:

  • Strengthening the Equal Employment Opportunity Commission (EEOC)
  • Improving the completeness of data companies report on pay
  • Fostering enlightened self-interest in the corporate sector
  • Furthering criminal justice reform to improve job opportunities for formerly incarcerated people

Start with the EEOC. Established by the 1964 Civil Rights Act to administer and enforce civil rights laws against workplace discrimination, the EEOC's funding in inflation-adjusted terms has not increased since the 1980s even as the labor force has grown by about 50 percent, Dixon noted. Today, the agency employs 570 investigators, 150 fewer than a decade ago, she said. Staffing shortages result in backlogs of cases and generally feeble enforcement of workplace discrimination rules, Dixon and Rodgers said.

In the corporate sector, Delta Air Lines chief executive officer Ed Bastian said executives should realize that efforts to improve minority recruitment, training, and advancement ultimately boost profits. More diverse perspectives among leaders produce more nuanced, creative thinking, better decisions, and happier employees, communities, and customers, he said.

Bastian joined other speakers in supporting more criminal justice reform and greater transparency in data collected on salaries. He also said heightened calls for racial justice have compelled executives to face difficult truths about racial disparities in their own companies. But data unequivocally show that disparities exist, he acknowledged. African Americans make up 22 percent of Delta's employees but only 7 of the top 100 officers, he said.

Making concerted efforts to address these inequities, "is not just the right thing to do; it's the smart thing to do," Bastian said.

A concrete step in that direction: rethinking job applicant screening policies and algorithms, said Byron Auguste, CEO and cofounder of Opportunity@Work, a nonprofit agency that helps workers earn to their full potential. For instance, requiring a bachelor's degree as a screening mechanism when job duties don't truly demand such training immediately excludes 75 percent of Black workers, over 80 percent of Hispanics, and 80 percent of rural residents, said Auguste, who spent 20 years at McKinsey & Company and two years as an economic adviser in the White House before cofounding Opportunity@Work in 2015.

He described "an overlooked talent pool" of 30 million workers who possess skills that would allow them to perform jobs that pay at least 50 percent more than their current positions. Those workers, who are disproportionately Black and Hispanic, generally lack clear pathways to advance, Auguste said.

Presidents on why racial disparities matter to the Fed

The three Fed presidents emphasized the critical role racial disparities play in shaping labor market conditions. For instance, the Boston Fed's Rosengren pointed out that while economic discussion typically focuses on sheer numbers of jobs, the quality of jobs is crucial. Pay and job security influence access to childcare and health care. While the COVID-19-triggered recession is clarifying that a safe workplace and livable wages have never been more important, the challenges in those areas fall disproportionately on people of color, he said.

The disparities in opportunity, wages, and job security demonstrate that our economy has too long blunted the potential of minority workers and in turn the potential of our economy, in Bostic's view. "So," he said, "this runs to the heart of what is important to us at the Federal Reserve."

In Daly's phrasing, "an inclusive economy is a productive economy." She called for immediate action. "We need to be fiercely impatient about getting this done," Daly declared.

By Charles Davidson of the Atlanta Fed