Jobs Report: The Economy Is Recovering, but Racial Disparity Persists

The following opinion piece was written by Bernard E. Anderson, the Whitney M. Young Jr. Professor Emeritus at Wharton and a senior fellow in Wharton’s Center for Human Resources. Anderson also served as assistant secretary of labor in the Clinton administration.

In July, the economy continued on a steady, measured path of recovery from the pandemic, but racial disparity in the labor market persists.

Employment of white workers grew by 1.1 million, compared with only 12,000 for Black workers, a wide gap in relative employment growth. While the Black unemployment rate fell by one percentage point to 8.2%, it remains significantly higher than the white rate of 4.8%. Bottom line: African Americans remain in the caboose as the economic train moves steadily toward recovery and full employment.

Significant fiscal stimulus is speeding the recovery. Employment is rising and job openings exceed hiring in most industries. Still, the economy remains far from the maximum employment goal in the Federal Reserve’s dual mandate. Last month’s job report showed long-term unemployment at 8 million workers, far above the level reported before the pandemic.

The pandemic created labor market conditions unlike anything experienced in previous economic downturns. The unemployment impact was heavily concentrated in a few industries that rely on personal interaction, industries where the workforce is dominated by low-wage women workers. Lockdowns and social distancing were imposed to contain the spread of the COVID-19 virus.

“African Americans remain in the caboose as the economic train moves steadily toward recovery and full employment.”

When vaccinations increased, lockdowns were terminated and social distancing eased. Increased business activity generated labor demand. Many workers were recalled from furlough, but in many industries, employers reported labor shortages. A number of factors help explain labor shortages, including child care responsibilities of working mothers, enhanced and expanding eligibility for unemployment benefits, increased retirements, and extended job search by workers seeking better jobs and income.

The pandemic also produced a structural change in the labor market. The expanded use of the internet for consumer spending, group communication, and business production will change the labor/output ratio. It will take time for the structural change to reach a new equilibrium in the labor demand/supply relationship. Also, in some cities, the pandemic destroyed a number of minority-owned small businesses that are unlikely to return during the economic recovery.

The economic outlook for the near term is bright. GDP, 6.5% in the first quarter, is expected to grow in the next three quarters. Monthly job creation is expected to exceed 700,000 through the end of 2021, and the unemployment rate is forecast to fall to 4.0% by the end of 2022.

Two major uncertainties cloud the forecast: inflation and housing prices and sales. The Fed thinks the recent spike in inflation is transitory and due to bottlenecks and supply shortages associated with the rapid recovery of the economy from the pandemic. If inflation does not recede in the next few months, the Fed promised to use its tools, i.e., interest rates, reserve requirements, and open market operations to bring inflation under control. The goal is to achieve a long-term inflation rate slightly above 2.0 %. The downside of doing so is that raising interest rates will reduce economic growth and raise unemployment. But that can be done without driving the economy into recession.

The Federal Reserve is required to implement monetary policy under the dual mandate of maximum employment and price stability. But “maximum employment” is not full employment. Maximum employment is gauged by a number of measures including labor force participation rate, employment/population ratio, number of long-term unemployed, involuntary unemployed, wage trends, and other measures.

Demographic disparities are not included in measuring maximum employment, and while monetary policy is an effective tool for achieving maximum employment, it plays no role in eliminating demographic employment disparities. Only public policy intervention through education, job training, direct employment, and enforcement of anti-discrimination actions can eliminate racial disparities in employment and unemployment.

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"Jobs Report: The Economy Is Recovering, but Racial Disparity Persists." Knowledge@Wharton. The Wharton School, University of Pennsylvania, 10 August, 2021. Web. 26 September, 2021 <https://knowledge.wharton.upenn.edu/article/jobs-report-economy-recovering-racial-disparity-persists/>

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Jobs Report: The Economy Is Recovering, but Racial Disparity Persists. Knowledge@Wharton (2021, August 10). Retrieved from https://knowledge.wharton.upenn.edu/article/jobs-report-economy-recovering-racial-disparity-persists/

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accessed September 26, 2021. https://knowledge.wharton.upenn.edu/article/jobs-report-economy-recovering-racial-disparity-persists/


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