Whether or not the economy is allowed to reach full recovery and full employment will have an outsized impact on African American workers, according to a new report for the Center on Budget and Policy Priorities by EPI Director of the Program on Race, Ethnicity, and the Economy Valerie Wilson. In The Impact of Full Employment on African American Employment and Wages, Wilson examines four previous periods of economic recovery to illustrate the important role full employment can play in boosting wages and lowering unemployment for African American workers. When the national unemployment rate declines 1 percentage point, the African American unemployment rate declines by nearly twice that, making full employment an especially important tool for reducing African American joblessness.
The unemployment rate began dropping rapidly in the late 1990s, and by 2000 the unemployment rate had fallen to 4 percent—its lowest level in generations. The difference between the black and white unemployment rates during this period was smaller than it has ever been—within 4.1 percentage points. Real wage growth for African Americans narrowly exceeded that of whites, with real wages of black workers growing by 2 percent per year compared to 1.7 percent per year for whites. The African American middle class expanded more rapidly during this period than during other economic recoveries when the economy never reached genuinely full employment. The share of African American households in the middle class increased 3 percentage points between 1995 and 2000, while it declined during the recoveries of the 1980s and 2000s. Because these desirable outcomes, which resulted from full employment, occurred without any acceleration in the rate of inflation, policymakers should be willing to experiment aggressively with low rates of unemployment without excessive concern about keeping inflation rates in check.
“The Federal Reserve is the most important decision maker when it comes to whether we’ll get to full employment in the next two to three years,” said Wilson. “The timing of the Fed’s decision to raise interest rates will influence how low the unemployment rate gets, how quickly wages grow, and how much African Americans will share in our country’s prosperity. For the sake of American workers, the Fed should not raise interest rates until we are much closer to full recovery and full employment.”
On average, African American workers suffer disproportionately from labor market downturns, but they also reap disproportionate benefits during recoveries. The black unemployment rate and the wages of black workers are more responsive to overall changes in the labor market than white unemployment and wages. Because African Americans experience stronger growth in wages and employment when labor markets are tight, full employment provides the best chance for them to share in economic gains, and failing to reach full unemployment disproportionately harms their wages.
This paper is part of the Full Employment Project of the Center on Budget and Policy Priorities. It was presented by Valerie Wilson on Monday, March 30, 2015, as part of a forum entitled “Full Employment: How Can We Get There and Stay There? Why Does It Matter?” The forum featured former Federal Reserve Chairman Ben Bernanke as the keynote speaker and was moderated by David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. Joining Valerie Wilson as panelists were Jared Bernstein, senior fellow at CBPP; Maurice Emsellem, program director at the National Employment Law Project; and Andrew Levin, visiting scholar at the International Monetary Fund.