Racial Unemployment Gap Being Reduced by a Tightened Labor Market

There are numerous benefits to full employment policies. Of course, while there is a relatively tight U.S. labor market, some part of the low unemployment story is due to the significant number of workers who have dropped out of the labor force. The point I make repeatedly is that there’s a lot of important work to be done, people willing to do it, and an economic system that isn’t putting the two together. The U.S. is notably forgoing $1 trillion a year in added output because there isn’t enough demand in its economy.

One wants to always be careful not to over interpret any jobs report — the numbers are noisy in the monthly data. But when a number pops out that makes sense in terms of both theory and empirical evidence, it’s legitimate to take note.

In this spirit, note that the African American unemployment rate hit 6.8 percent last month, the lowest on record, with data going back to the early 1970s. In addition, the gap between black and white unemployment, measured as the black rate minus the white rate, hit 3.1 percentage points, also the lowest on record.

Now, you may well be saying, “Wait up; 6.8 percent doesn’t sound all that low, especially given that the overall jobless rate remains at a 17-year low of 4.1 percent.”

I agree. Where is it written that minority rates must be multiples of white rates? Some of the difference is due to educational differences, but not as much as you might think. Similar differentials in black/white jobless rates exist for all education levels. Racial discrimination is, of course, alive and well and in play in these gaps.

But that key observation underscores my larger point: A persistently strong macroeconomy is highly potent medicine for treating economic inequities, including racial ones. It’s not all that’s needed, by a very long shot. Purging discrimination and unequal punishment from the criminal justice, for example, is essential if we’re ever to achieve racial justice. But it’s not a coincidence that toward the end of his life, the Rev. Martin Luther King Jr. was pushing hard on a full-employment agenda.

The economics is straightforward. Discrimination — which doesn’t have to be only racial discrimination; employers might discriminate against workers who’ve, for example, been unemployed for a long time or have been out of the job market — is a “luxury” that employers who engage in it can’t afford when the economy tightens up. You either hire someone you might avoid if the labor supply queue was a lot longer, or you leave profits on the table.

So, while we shouldn’t get too excited about that relatively low monthly rate — given the high statistical variance in these data, it could jump back up next month — we should recognize and applaud these critical important macro-dynamics and the clear trends they’re delivering, as seen in the figure above.

The author of the article also co-wrote a useful book that covers the benefits and importance of full employment. It’s called Getting Back to Full Employment and can be read online for free (pdf).