Why Do Unemployment Rates Vary by Race and Ethnicity?

What causes differences across racial and ethnic groups in the labor market? As seen in the figure below, the average unemployment rates from January 2000 to December 2016 for blacks and Hispanics were substantially greater than those for either non-Hispanic whites or Asians.

What factors lead to these outcomes? It’s well-known that the unemployment rate is negatively correlated with educational attainment: The more educated the workforce, the lower the unemployment rate.

Blacks and Hispanics are less likely to have completed high school or college, while Asians are the most educated among these four groups. Might education levels help explain racial and ethnic disparities in unemployment?

Education Levels and Unemployment Disparities

The figure below shows the average unemployment rate broken down by both educational attainment and race and ethnicity over the same time period.

For starters, on average, the unemployment rate for blacks is:

• 34 percent greater than that of Hispanics
• 93 percent higher than that of whites
• 104 percent greater than that of Asians

But restricting our sample to only those with a college degree, the unemployment rate for blacks is 19 percent, 65 percent and 31 percent greater than that of Hispanics, whites and Asians, respectively. These data suggest that policy initiatives to improve access to higher education for minorities may help reduce some of the disparities in the labor market.

That said, clearly discrepancies persist even when accounting for educational attainment, as blacks and Hispanics still generally have the highest unemployment rates even when compared to their similarly educated peers.

Geography and Unemployment Disparities

Beyond education, geographic dispersion is an important factor to consider. Even among households with similar income levels, blacks are more likely to live in economically depressed areas than whites,¹ which would drive up their unemployment rate compared to whites. Additionally, evidence suggests that Hispanic immigrants may be more likely to remain near their country of origin, whereas Asian immigrants might pick locations based on economic opportunity.²

So while both populations tend to be heavily concentrated in specific areas, it could be that Hispanics, like blacks, tend to live in areas with worse economic prospects, while Asians congregate in areas with more plentiful opportunities. If true, this would help account for Hispanics’ relatively high unemployment rate compared to Asians’ relatively low one.

Not Just a Single Factor

Like with education, though, geography doesn’t explain everything. For example, the black population is most highly concentrated in the South.³ However, that region as a whole doesn’t have particularly high unemployment rates for any of the four groups we’re looking at, nor are the racial and ethnic disparities significantly greater than elsewhere. This result suggests that there are other factors at play here.

We have presented only a couple of the many possible explanations for labor market disparities of this nature. The data imply that we can’t narrow down the causes of these complex discrepancies into one simple answer.

Notes and References

¹ Reardon, Sean F.; Fox, Lindsay; and Townsend, Joseph. “Neighborhood Income Composition by Household Race and Income, 1990-2009.” The Annals of the American Academy of Political and Social Science, No. 660, July 2015, pp. 78-97.

² Bandyopadhyay, Subhayu; and Guerrero, Rodrigo. “Immigrants to the U.S.: Where They Are Coming from, and Where They Are Headed.” The Regional Economist, October 2016, pp. 14-5.

³ “2010 Census Shows Black Population Has Highest Concentration in the South.” United States Census Bureau, Sept. 29, 2011.

Additional Resources

• On the Economy: Dissecting the Falling Labor Force Participation Rate
• On the Economy: How Do Imports Affect Manufacturing Jobs?
• On the Economy: Immigration: Top Origin Nations and Top Destinations