The Truth is the Unemployment Picture in the United States is Black and White December 2004 By: ChartingTheEconomy.Com If you look at historical levels, unemployment in the United States is running at the lower end of the long-term range. During the 2004 presidential election campaign a lot was made of how the Bush Administration destroyed jobs during its first term largely due to outsourcing of U.S. jobs abroad. However, little to nothing was said of a more disturbing trend in the U.S. employment picture, that of the division along racial lines. A quick look at unemployment in the U.S. over the past 50 years shows that the U.S. employment picture as a whole is now better than it has been on average over this period. In addition, the employment picture over the past couple of years has improved. So why all the press coverage about outsourcing of jobs abroad, weekly unemployment numbers, and monthly job creation figures? Because it makes good headlines. With all this press and all the finger pointing during this year’s presidential campaign you would think it was 1983 when unemployment was running at close to 11% (See Chart #1). The goal is not to belittle the issue of unemployment. This is obviously not trivial to anyone who has ever lost a job or depends on unemployment insurance. There is an old saying that a recession is when your neighbor loses his job, and a depression is when you lose yours. The point is that everyone is so focused on the overall jobs picture that they are missing a more disturbing trend in the employment picture. African-Americans are being left out of the current jobs recovery in the U.S. Historically, unemployment among African-Americans has run about twice that of white Americans, and that trend continues today. Let’s call this the “employment gap.” This is not a new issue by any means. The purpose of this paper is not to unravel the complexity of issues that make up the employment gap. However, it is to point out and bring some understanding to the inequality of the state of the current jobs recovery. Charts #2 and #3 below shows the current trend. During 2000 and 2001 unemployment increased overall and across racial lines as the U.S. went into a recession. From January 2002 to November 2004 the picture is much different. Overall and for white Americans the employment picture has improved. However, unemployment has increased for African-Americans. As shown in Chart #2 above, the employment gap clearly begins to increase in 2002 and continues to worsen today. On a percentage basis the increase in the employment gap over the past several years may not look like a major issue, but it is. To illustrate the magnitude of the issue, in November 2004, there were 387,000 fewer unemployed white Americans than in January 2002. However, during the same period there are 166,000 more unemployed African-Americans. The gap looks even worse when you look at employment figures. In November 2004, there are 2,506,000 more white Americans employed and only 46,000 more African-Americans employed than in January 2002. Chart #3 below demonstrates the problem in another way. It shows the percentage change in the number of unemployed Americans by race. The picture is very disturbing, especially if you are an African-American. There are 6.4% fewer white Americans unemployed in November 2004 than in January 2002. On the other hand, over the same period there are 10% more African- Americans unemployed. So why are African-Americans being left out of the current jobs recovery? This is a difficult question to answer and is somewhat attributable to ongoing workplace discrimination. However, it can also be attributed to several other more quantifiable factors. These are: 1) job tenure, 2) net worth/income, and 3) geographic movement of jobs. Let’s look at each of these factors. First, African-Americans have less job tenure than white Americans. According to the Bureau of Labor Statistics, as of January 2004, the percentage of African-Americans with four years or less of tenure with their current employer was 56.1% while white Americans in the same category were 53.4%. Conversely, the percent of African-Americans with 10 or more years of tenure was 23.4% versus white Americans with 27%. These percentages may not sound large, but remember the total U.S. nonfarm payroll is over 132 million. So the absolute numbers these percentages represent are extremely large. Chart #5 shows the tenure gap. Why has tenure negatively affected African-Americans in the current jobs recovery? When companies downsize those with less tenure, all else being equal, are more likely to be cut. The same happens when companies hire. All else being equal, companies hire the person with more experience. Because of this African-Americans are hit doubly hard. They lose their jobs more quickly in downturns and regain them more slowly in recoveries. Second, African-Americans’ net worth and incomes are far lower than that of white Americans. According to Federal Reserve Board Senior Economist Arthur Kennickell’s paper A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001, the median net worth in 2001 for African-Americans and white non-Hispanics was $19,000 and $121,000, respectively. According to Census Bureau data the 2003 median household income for African-Americans and white non-Hispanic was $29,645 and $47,777, respectively. Chart #6 below shows the differences. Why is this contributing to the fact that African-Americans are being left out of the current jobs recovery? The answer to this question has multiple parts, but they are all tied to the fact that white Americans have more resources at their disposal. Obviously, the higher your net worth the better your resources when unemployed, and a higher income usually means higher unemployment checks and a better severance package. To answer the question: 1) African-Americans, because they have smaller safety nets when they are unemployed (lower savings and less income from unemployment insurance and severance), are less likely to drop out of the work force than white Americans. Remember, unemployment numbers only count people that are actively looking for a new job. 2) More white Americans can afford to take the time and pay for retraining education when unemployed. This enables white Americans to be more marketable when the economy improves. 3) When the economy recovers from a recession jobs are not necessarily recreated in the same geographic area from which they were lost. To this ends, more white Americans have the resources to be more mobile in their job search. Jobs when recreated may move among states and cites or just from urban to suburban areas. Due to leak of resources and transportation constraints African-Americans are less mobile than white Americans. Therefore, to just say discrimination and lack of equal opportunity is to blame would beg the question. There is no doubt that discrimination is the cause of part of the employment gap between white Americans and African-Americans. There are also other fundamental issues that are causing the African-Americans to be left out of the current jobs recovery. The objective of this paper is not to offer the ultimate solution to the worsening employment gap; however, it is to bring the issue to light. First, some of the things to remember are very basic: 1) The U.S. needs to continue to promote public transportation. A good public transportation system is critical to keeping those with less resources in the job market. 2) The U.S. needs to continue to promote job retraining for those who need it. Second, affirmative action and equal opportunity rules need to continue to be promoted. Also, rules that provide for community development in low income areas need to be continued. This may seem obvious, but recently there have been some examples of movement on these issues in the opposite direction. Remember, last year the Bush Administration opposed the University of Michigan’s affirmative action program. Ultimately, the U.S. Supreme Court upheld the constitutionality of the program. Then regarding community development in low income areas, the Federal Deposit Insurance Corporation (FDIC) is currently considering rule changes to the Community Reinvestment Act (CRA). The Community Reinvestment Act is a federal law passed in 1977, to prohibit banks from refusing to lend in low and moderate income communities. The proposed rules, among other things, would change the definition of a small bank from those with $250 million in assets or less to the level of $1 billion in assets or less. This definition is important because banks with assets above the threshold are required to be tested on their number of loans, investment and services to low and moderate income communities. The proposed rule change would increase the threshold to apply to banks with more than $1 billion in assets. Under the proposed rules, banks with assets of $250 million to $1 billion would be able to choose just one development activity. The result would be less community development in low and middle income areas. The employment gap is a complex issue, and the fact that it has worsened in recent years because African-Americans have not been included in the current jobs recovery may be an even more complex issue. However, what is obvious is that this is not a time to move backward on such issues as affirmative action and community development in low income areas. Americans shouldn’t be fooled into thinking the current jobs recovery is complete and broad based, it is not. It is important to remember that weekly and monthly job reports focus on total job creation and unemployment. At least for now the overall trend is good. What America needs to do is peel back the layers and see how the jobs picture looks under the surface. A cursory look at employment based on race should make us all concerned. When an ethnic group that represents over 12% of the total population is left out of the current economic recovery, there is cause to wonder why. To make the current economic recovery complete, the U.S. needs to do more than just create jobs, it needs to make the employment picture less black and white. Sources: Charts 1-4 use data from The U.S. Bureau of Labor Statistics Chart 5 uses data from the Bureau of Labor Statistics’ Employee Tenure in 2004 report Chart 6 uses data from the Census Bureau, and from Arthur Kennickell’s paper, A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001 Information on the Community Redevelopment Act was from the Federal Deposit Insurance Corporation’s (FDIC’s) website regarding FDIC’s Notice of Proposed Rulemaking on 12 CFR 345 |
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