Imagine, for a moment, an old-school freight train. Now imagine that freight train as a stand in for the economy with African Americans relegated to the caboose. When the train speeds up, so does the caboose. And when the train slows down, the caboose does likewise. Unfortunately, no matter how quickly or slowly the train travels, because the caboose is the last car on the train, it perpetually travels well behind the engine.
The employment opportunities of African Americans have always been closely tied to the ups and downs of the business cycle. That’s been the reality of Black workers in the U.S. economy since the turn of the 20th century.
Right now, the U.S. is caught in the grip of the worst economic crisis since the Great Depression a half century ago. The economic collapse was caused by the coronavirus. Currently, the global pandemic has reached 3 million infections and exceeded 130,000 deaths in the U.S. alone. In February and March, the GDP declined 4.8%, and the unemployment rate skyrocketed from 3.7% in the fourth quarter of 2019 to 14.7% in April. More jobs were lost in March and April than were created in the nine years of recovery from the Great Recession that occurred between 2007 and 2009.
As we have seen in past economic downturns, African Americans bore the brunt of disproportionately large job losses. In April, Black workers lost 2.9 million jobs, raising their unemployment rate from 6.7% to 16.7%. Their labor participation rate, i.e., those working or seeking a job, declined from its all time high of 62% to 58.6%.
White workers lost nearly 17 million jobs, with 12 million joining the ranks of the unemployed. Their unemployment rate climbed from 5.4% to 14.2%. The Black/white unemployment ratio fell from its persistent 2:1 level to 1.6, leading some to suggest that the recession acted as an equal opportunity job destroyer.
But the racial disparity in Black and white unemployment is not clearly revealed just by comparing the data. Black workers are more likely than white workers to drop out of the labor force when unemployment surges. They typically have difficulty finding new jobs, even lower wage work, and many become discouraged and stop looking for work.
The employment-to-population ratio, which measures the number working-age people in a group who are employed relative to the size of the population, is a better measure of relative employment opportunity than the unemployment rate. This measurement dropped 8.4 points for white workers and 9.0 for African Americans when unemployment surged.
A Deep Dive into The Numbers
Massive job losses in the leisure/hospitality industry, an industry that employs millions of Black low wage workers, led to disproportionate job loss among African American workers. Job loss in the industry accounted for 70% of total job loss in March. Black workers are also heavily concentrated in direct service health care, personal care, and custodial jobs. These essential but “low prestige” jobs lack many of the labor protections and benefits of “high prestige” jobs and are usually paid near to low minimum wage. About 60% of the 2.2 million domestic and home care workers are African American. On average, they earn about $12 an hour; less than 10% have a retirement plan; and only 20% have health insurance. Many of these workers kept their jobs, but work in high risk locations for contracting coronavirus, like nursing homes. Proportionately fewer Black workers hold white collar professional, business, and financial jobs that can be performed online in the safety of their homes.
The depth and scope of the recession creates uncertainty about how to pull out of the deep hole and regain sustainable growth. In June, business activity picked up as lockdowns were gradually lifted and more businesses reopened. Over a million workers were called back from layoffs and employment spiked upward. Manufacturing, retail, warehousing and other industries increased hiring, and construction employment moderately bounced back. At the same time, state and local governments cut jobs as revenue declined. Regrettably, the 7 million employment increase in April and May was only one-third the number of workers who remained unemployed.
Despite the increase in aggregate demand associated with reopening, layoffs and new claims for unemployment compensation remain high. In the second week of July, 1.3 million new unemployment claims were filed, making it the 16th consecutive week with more than one million new claims filed. The number receiving compensation is half the number filing new claims. It will be hard to sustain job gains if that gap continues.
Recovery from the recession requires sustainable growth in consumer spending. Household spending accounts for two thirds of economic growth. In response to the economic crisis, Congress passed the CARES Act, a $2.3 trillion stimulus program. The act included $700 billion for the Paycheck Protection Program (PPP) that was designed to help small business with forgivable Small Business Association loans that allowed those businesses to keep workers on their payroll.
The Federal Reserve weighed in by reducing the federal funds rate to near zero with the promise to keep it there until sustainable growth returns. The Fed also created nine lending facilities to support business liquidity. While these measures support consumer spending, consumer confidence will decline as long as the virus infection rate increases.
In the last two months, the labor market has been improving, but the record is mixed; and there is much uncertainty about the path forward. Twenty-two states reported an increase in infections and hospitalizations. Some governors are reordering lockdowns or slowing business reopening. These measures might make employers cautious about recalling laid off workers, thereby reducing monthly employment increases.
Extended fiscal and monetary policy is necessary to sustain the recovery and achieve stable, balanced growth. It is equally important to develop and implement policies that will reduce racial employment disparities. Our dire national circumstances call for a federal guaranteed jobs program to provide employment for every person willing and able to work. If a worker cannot find a private sector job, a government job can fill the gap.
African Americans were not only overrepresented in COVID-19 cases and deaths, but they were disproportionately impacted by the attendant job loss. As our nation reckons, yet again, with its history of anti-Black racism, it is clear that high priority must be placed on targeted policies that eliminate racial inequality in the labor market. Solutions that reconcile these historic and structural wrongs will bring the practice of America in line with the promise of America and finally usher African Americans and people of color out of the caboose and upgrade them to first class citizenry.
