Will the Recession Offset Racial and Economic Equity Gains?

Before the pandemic and the closing of the economies, the long economic expansion from 2009 to 2020 saw an unemployment rate drop below 4%.  This growth created greater opportunities for those marginalized or otherwise not participating in the economy.  African Americans and Hispanics, workers stuck in low-paid jobs, and those with disabilities or criminal records, had accelerated pay growth and job opportunities.

“We heard over and over again that this is the best labor market we’ve seen in our lifetime,” Fed Chairman Jerome Powell told senators in a recent hearing. In poor and working-class communities he recalled being told: “Please don’t change what you’re doing. This is really working.”

But the recession is tearing this growth apart, and it is questionable, with employers right sizing and redeveloping the workplace given the pandemic environment, whether these groups that finally gained economic standing, will be able to do so once again when the pandemic crisis is over. A study by Jonathan Heathcote and Fabrizio Perri of the Federal Reserve Bank of Minneapolis and Giovanni Violante of Princeton University reviewed the earnings of prime-aged men (those 25 to 54 years old) since the early 1970s and found two distinct trends: a steady rise at the top relative to the median, and a saw-toothed decline at the bottom, with all of the decline occurring around recessions.

The study confirmed what many believed: inequality mainly reflects the long-run rise in the premium paid to high-skilled workers as technology, automation and foreign competition encroach on low-skilled work.  Recessions made it worse.  The study found that the low-skilled men impacted by the shift to high-skilled work lost the opportunity by the recession to gain new experience and new skills on the job. With rightsizing, the on-the-job opportunities go away.  The result is that many simply drop out of the labor force altogether.

With recessions, prime aged men are more likely to be out of the workforce.  Yet the expansions should have seen growth of employment.  For example, in 1967 just 2.5% of prime-aged men were not working. By 2011 that had topped 14%.  Moreover, inequity is exacerbated during recessions.  Yet, long-term economic expansion can reverse the recessionary aspects of inequity.  The study found that the expansions from 1991 to 2001 and from 2009 to 2020 lasted long enough to reverse all of the relative decline in incomes of the bottom 20%.

Yet now, it may be that all the gains are going away, and to get back to the place we were at in February, may take years. The economic expansion was still rolling, albeit slowly until February.  Gains were apparent.  However, there was no major inflation even with the low unemployment rate.  However, with the Federal Reserve keeping rates at 0%, the opportunity to use borrowing to grow has long passed.  Many employers had increased borrowings after years of low interest rates.  Now the Coronavirus is seeing a new wave of bankruptcies.  Therefore, unless the government provides another business stimulus, inequity growth will grow again. 

Many organizations that had a Paycheck Protection Program Loan are coming to the end of that cycle and will likely need another round to avoid layoffs.   And with hotspots rising, the question will be whether there will be more economic shutdowns.  If so, economic inequities and instability for these various groups will grow.

Additional ASE Resources
Webinar:  If You’re Human, You’re Biased: How Our Biases Impact Our Decisions, Interactions, and Perceptions - This webinar will explore the origin of biases and how they may impact human dynamics, perceptions, and interactions. Participants will learn techniques to manage biases and how culture (individually or organizationally) impacts biases and behaviors. Methods to enhance awareness and sensitivity will be shared.  Complimentary to ASE members; July 10, 11:00 a.m. - 12:00 p.m.  Register here.

Custom Training - Now available virtually, ASE can bring organizational wide, diversity & inclusion training to your organization.  This allows consistent training across employees and allows for the content to be customized to your organization. For more information, please contact Tony Kaylin.

Traliant On-Demand Training


Source:  Wall Street Journal 6/24/20

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