Many economists find it promising that the U.S. unemployment rate fell from a high of 14.7 percent in April 2020 to 8.4 percent in August 2020. Some policymakers have used this as evidence that little further fiscal relief is warranted. Significantly, however, unemployment rates have not fallen for everyone: The Black unemployment rate reached a high of 16.6 percent in May 2020, and as of August 2020, it was still at 13.2 percent. Conversely, the white unemployment rate fell to 6.9 percent in August 2020 from a high of 12.8 percent in April, or nearly half of the Black unemployment rate. The ratio of Black-to-white unemployment went from 1.27 in April 2020 to 1.97 in August 2020—that is, the Black unemployment rate is currently double the white unemployment rate.
The labor market is designed to create a Black-white unemployment gap
This 2-to-1 Black-white unemployment rate gap is not an accident: The labor market is designed to create it. In February 2020, the Center for American Progress wrote about the consistent and persistent 2-to-1 racialized unemployment gap, in part refuting the theory that tight labor markets can close this gap. The theory posits that in a tight labor market—wherein the economy is close to full employment—employers are less likely to discriminate, allowing people traditionally on the margins of the labor market to finally get hired. Although this phenomenon may help explain the falling Black unemployment rate, it cannot explain the gap. Since unemployment data disaggregated by race first became available in 1972, African Americans have consistently shown an unemployment rate double that of whites. This 2-to-1 gap has persisted through some of the best economies and through some of the most severe economic downturns. (see Figure 1, first published in the February issue brief)
Figure 1
This pattern of racial disparities in the labor market remains consistent whether partitioned by age, gender, education level, or veteran status. In the February issue brief, CAP made the argument that this pattern is a result of structural racism. In short, barriers in the labor market—including mass incarceration and employment discrimination—create an environment that allows unemployment gaps to persist, resulting in the unequal outcomes seen in the data. The pandemic has given policymakers the opportunity to fix this problem, and a later section of this column highlights three specific policies to address structural racism in the U.S. economy.
The COVID-19 pandemic led to a temporary unemployment gap closure
Even if tight labor markets do work temporarily, it is not a sustainable policy to permanently close the Black-white unemployment gap in the United States. This was sadly shown to be true when millions of people lost their jobs in March due to the pandemic. Moreover, the recent tight labor market came to an end with the pandemic-induced recession, and 11 million people who have lost their jobs since February are still out of work. Still, a curiosity occurred in April 2020, when the Black-white unemployment gap nearly closed.
Figure 2
As shown in Figure 2, the ratio fell from nearly 2.03 in March 2020 to 1.27 in April 2020. On its face, this may seem like a positive development. However, the pandemic has made this downturn different. In March, the unemployment rate for African Americans rose faster than it did for white people. Yet in April, even though unemployment rates spiked, the spikes were similar for both whites and African Americans, leading to the fall in the ratio. This was due in part to the prevalence of workers in essential jobs—which are disproportionately held by African Americans and other people of color—which prevented them from falling into the discriminatory “first fired, last hired” phenomenon. Essential jobs, however, are often in the low-earnings sector, do not offer hazard pay, and put workers at higher risk of contracting the coronavirus. Even with their disproportionately higher presence in essential jobs, African American workers still experienced a higher unemployment rate compared with whites.
Once the economy began its slow recovery in May 2020—with the $1,200 federal stimulus checks and expanded unemployment insurance benefits making their way to qualifying individuals—the Black-to-white unemployment gap began to rise, falling once more into the consistent and persistent pattern highlighted in CAP’s February issue brief. As Howard University professor and chief economist for the AFL-CIO William Spriggs noted, this presents clear evidence of systemic racism: “The trend to rebound to the 2:1 gap is proof the 2:1 gap in Black-to-white unemployment is an equilibrium of the systemic racism baked into the labor market. Having an exogenous shock to the system, we now see it re-calibrate before our eyes.”
Unless targeted policies are directed toward addressing the structural barriers in the labor market, the 2-to-1 gap will continue to manifest as an equilibrium outcome. As economists have commonly seen in other contexts, such as housing markets or the digital divide, structural problems cannot be solved with cyclical policies.
Policies to craft an inclusive economic recovery
The COVID-19 pandemic has provided an opportunity for policymakers to craft an economic recovery plan that does not leave anyone behind. In order to achieve this, recovery packages must include provisions that tackle structural racism, not just in the labor market but also throughout the economy. The following three policies would not only help close the Black-white unemployment gap but also provide a boost to the overall U.S. economy.
Strengthening worker power
Unions have been shown to reduce racial inequality by raising earnings and creating economic stability for African Americans. Policymakers should therefore encourage legislation that promotes the formation of unions and ensures collective bargaining rights. They should work to repeal “right-to-work” laws, which are more prevalent in Southern states with high African American populations; pass legislation such as the Protecting the Right to Organize (PRO) Act, which would protect workers who want to organize and workers who engage in protests or strikes by enforcing penalties against employers who interfere; and pass legislation such as the Public Service Freedom to Negotiate Act, which would ensure that all public employees, many of whom are African American, have the right to organize and collectively bargain.
More strongly enforce anti-discrimination laws
The Equal Employment Opportunity Commission (EEOC), an important federal agency charged with enforcing anti-discrimination laws, has seen its effectiveness wane over the past 40 years. EEOC staff numbers fell from 3,390 to only 1,968 between 1980 and 2018, even as the U.S. population increased by more than 44 percent during the same period. This has allowed racial disparities in the labor market to worsen. Increasing the agency’s funding, resources, and staff will help ensure that African Americans and other people of color have recourse when they experience hiring discrimination or discrimination in the workplace and can fully participate in the labor market.
Reduce barriers for citizens reentering society
Years of increased punitiveness in the criminal justice system have created racial disparities in incarceration rates, which have led to the overrepresentation of African Americans with a criminal record and diminished labor market prospects upon reentering society. Policymakers must eliminate fines and fees for minor infractions that result in unmanageable debts for returning citizens. They must also expand eligibility for federal programs so that returning citizens are able to access services such as public housing, federal student aid, and the Supplemental Nutrition Assistance Program (SNAP).
Conclusion
As economists anticipate the next monthly jobs report, they cannot focus solely on the unemployment rate as a barometer of economic recovery, as it masks underlying dynamics not only by race but also by gender, age, and geography. Indeed, this narrow focus has imperiled the fiscal policy debate by understating the dire need for relief for households, small businesses, and state and local governments.
During the COVID-19 pandemic, the focus on the unemployment rate has been subject to debate, with many scholars and even the Federal Reserve considering a more inclusive and comprehensive analysis of the economy. This analysis is not new but is gaining more credibility—and as the United States progresses in its recovery, policymakers must consider how this approach can inform their efforts to support all labor market participants.
Olugbenga Ajilore is a senior economist at the Center for American Progress.