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The Journal Gazette

Monday, January 08, 2018 1:00 am

Joblessness' racial gap narrowing, numbers show

Jared Bernstein

Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities. He wrote this for the Washington Post.

One wants always to be careful not to overinterpret 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 system, for example, are 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 were 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. In fact, rigorous research by Federal Reserve economists shows that black unemployment, along with the black/white gap, is highly cyclical, meaning that what we're seeing is what we'd expect in year nine of an economic expansion with a labor market closing in on full employment.

What about wage growth? In fact, not everything is totally rosy in the current job market. While wages are rising a bit faster than prices, their growth rate hasn't accelerated much at all, even as the job market has tightened up. I've been observing and measuring this relationship for a long time, and I'd expect to see more than we're getting on the wage side.

The wage data for African-American workers lags the job market data, so I can't speak to the racial wage story in real time. But I can share some hopeful indirect evidence. Using data on real (inflation-adjusted) median hourly wages for black workers, I asked how does the wage respond as the black-white unemployment gap closes. For every point of closure, the real black median wage goes up about a percentage point.

That's not huge, but it's a move in the right direction. And the combination of more work at even slightly higher pay will raise black incomes and lower black poverty. Again, hold the applause: the strong macroeconomy is helping to achieve but a small piece of racial economic justice. These wage and job gaps remain far too large, and the opportunities facing black families, from kids to adults, are still much too constrained.

But the policy implication is crystal clear: the longer this expansion proceeds, the better chance minority workers have of claiming some of its benefits. For the Federal Reserve, soon under the new leadership of Chair Jerome Powell, the message is this: Especially given that inflation remains tame and well below the Fed's target, keep your hands off that punch bowl!