The expansion that began in the early 1990s and continues
into 2000 is an unusual one. What started in mid 1991 as
the “jobless recovery” has become the “how-can-unemployment-stay-so-low?
expansion.” In the expansions of the late 1970s and
1980s, the nation’s unemployment rate never dipped
below 5 percent. In the current expansion, by contrast,
the U.S. rate has remained below 5 percent since mid 1997
and below 4.5 percent since the end of 1998, levels not
enjoyed on such a sustained basis since the late 1960s.
Nonetheless, jobless rates for blacks remain noticeably
higher than those for whites. In the first half of 2000,
the unemployment rate averaged 6.9 percent for black men
(20 years of age or older) as compared to 2.8 percent for
white men, and 6.5 percent for black women versus 3.2 percent
for white women. (Data limitations prevent a similar analysis
for Hispanics.)
This raises an obvious question. Is the current strong
U.S. expansion being shared across the U.S. population?
Is the rising tide lifting all boats? More specifically,
to what degree are black men and women participating in
the current prosperity by seeing their unemployment rates
fall closer to the rates of whites?
DIFFERENCES IN EDUCATION AND AGE MIX
Regardless of the performance of the national economy, unemployment
rates have been higher for black men and women than for
white men and women over the last quarter of a century (see
charts). Part of the explanation lies in differing levels
of educational attainment. Workers whose education never
extended beyond high school are much more likely to be unemployed
than college grads. Blacks, on average, have historically
had less education than whites and that partly accounts
for their higher unemployment rates. For instance, in 1972,
over 60 percent of blacks had not graduated from high school
as compared with 40 percent of the corresponding white population,
while 5 percent of black men and women had college degrees
as compared with 9 (women) to 16 (men) percent of whites.
Lower educational attainment by blacks accounted for about
one-half of a percentage point of the 3 percentage-point
gap between black and white unemployment rates that year.
Narrowing differences in education would be expected to
reduce this gap. Between 1972 and 1998, the fraction of
blacks without a high school diploma fell markedly, and
the fractions who had either completed a high school diploma
or had some college rose to equal those of whites. Still,
some differences remained; for example, the fraction of
blacks who graduated from college more than doubled between
1972 and 1998, but the white fraction almost doubled, so
whites retained a sizable lead in percent completing college
or higher degrees. Furthermore, the payoff to additional
education, in terms of reduced unemployment, was greater
in the 1990s than in the 1970s. On balance, however, blacks
have made progress on the education front. Although the
black-white unemployment gap increased almost a percentage
point between 1972 and 1998, it would have widened even
more (up to half a percentage point more) without blacks’
educational gains.
The age mix of the population also has an impact on joblessness.
Workers between 16 and 34 years of age have higher unemployment
rates, on average, than those 35 years and older. The fact
that the fraction of the black population under age 35 exceeds
that of whites contributes to blacks’ higher unemployment
rates.
In addition to education and age, economists hypothesize
that the black-white unemployment gap is attributable to
various mismatches — in geographic location and access
to information, for example — between the characteristics
of black workers and the job characteristics defined by
employers. Discrimination may also play a role.
WHAT HAPPENS OVER THE BUSINESS CYCLE?
The factors that contribute to generally higher black
joblessness do not account for the way the black-white unemployment
gap tends to rise in recessions and shrink in recoveries
(see lower panel in chart). In the severe national recession
period from 1979 to 1982, the unemployment rate for black
men rose from 9.4 percent in the first half of 1979 to 18.9
percent in the second half of 1982; meanwhile, the white
male rate rose from 3.5 percent to 8.6 percent. That is,
an additional 9.5 percent of the black adult male labor
force joined the ranks of the unemployed as compared with
“only” 5.1 percent of white males.
Typically, as the national economy recovers, the unemployment
rate for black men drops more than for white men, and the
gap declines. In the current expansion, the jobless rate
for black men has fallen by 6.7 percentage points from a
high of 13.6 percent in the first half of 1992, while white
men’s unemployment has fallen 2.8 percentage points
from 5.6 percent at the trough of the recession. Together,
these changes have narrowed the gap between black and white
unemployment rates for men by 3.9 percentage points. The
patterns for women are similar, although the cyclical swings
are smaller. For example, the current expansion has been
associated with a 2.9 percentage point decline in the black-white
unemployment gap for women.
Economists have several hypotheses for this cyclical pattern.
In good times, when the labor market is tight, employers
may make extra efforts to recruit, hire, and train people
whom they might not usually consider because of the educational,
geographic, or cultural barriers that place those individuals
lower down the employment queue. For example, employers
may reduce their reliance on informal methods of looking
for workers (such as referrals by friends and current employees)
and advertise more widely, thus increasing blacks’
access to information about job openings. They may find
discrimination more costly when the economy is strong and
their preferred type of job candidate is fully employed
elsewhere. They may also adapt the content of their jobs,
and hire workers with less skill and experience, or increase
on-the-job training to provide the needed skills. In the
current expansion,“the shortage of well-qualified workers
has led firm after firm to hire less-educated workers, and
those with poor employment histories, and train them,”
observe coauthors St. Louis Fed President William Poole
and Senior Economist Howard Wall in a January 2000 article
in The Regional Economist.
THE UNUSUALLY HOT ECONOMY
OF THE LATE 1990s
The business cycle plays an important role in determining
the size of the black-white unemployment gap, but the 1990s
expansion has brought more than the “typical”
cyclical reduction. For example, based on past patterns
and the overall economic growth during the period, one would
have expected a drop of 1.6 percentage points in the black-white
gap in female unemployment rates; the actual drop was 2.9
percentage points. Men also saw more of a drop in the black-white
gap than would have been expected.
Some economists have hypothesized that it takes an especially
sustained period of prosperity or exceptionally low overall
unemployment rates — a “hot” economy —
for the benefits to spread fully to the most disadvantaged.
As Business Week put it in 1998, “With the economy
continuing to expand and unemployment at its lowest point
in 30 years, companies are snapping up minorities, women,
seniors, and anyone else willing to work for a day’s
pay.”
The economy has certainly been hot — with very low
unemployment — in the last several years, and the black-white
unemployment gap has dropped to its lowest point since the
early 1970s. Alternatively, the narrowing of the gap could
be due to idiosyncratic factors not related to the business
cycle, but the data suggest that blacks make extraordinary
gains in good economic times.
Moreover, some research suggests that the effect of the
good times is not entirely reversed after the economy cools.
A booming economy moves some individuals who can’t
find jobs in ordinary times into employment, and this work
experience enhances their future employability. Regarding
the current expansion, Poole and Wall note that “not
only is the U.S. economy generating employment for many
left behind in earlier years, but these workers are also
developing new skills that will undoubtedly yield opportunities
for them in the future.”
The usual cyclical improvements and the extra gains from
a “hot” economy, however, have not been enough
to entirely eliminate black-white disparities. Disadvantaged
groups still have above-average unemployment rates even
in these good times. Thus, some analysts argue that only
targeted employment and training policies, or policies to
reduce geographic and other barriers to job access, can
provide sufficient labor market opportunity to the disadvantaged.
But the time to undertake them is when the economy is strong.
As Arthur Okun wrote in 1973 after an earlier “hot”
economy episode, “Policies to promote upward mobility
are probably best accomplished in the context of a higher-pressure
labor market.”
 |
Note: Total unemployment rate
is for ages 16 and older, monthly data, unemployment
rates by race and sex are for ages 20 and older,
six-month moving average. Shaded areas indicate
U.S. recessions.
Source: U.S. Bureau of Labor Statistics |
|
Katharine Bradbury is Vice President and Economist at the
Boston Fed. Her article, “
Rising
Tide in the Labor Market: To What Degree Do Expansions Benefit
the Disadvantaged?” appeared in the May/June issue
of the
New England Economic Review.
