The New Challenges to Economic Equity in 2023

February 21, 2023

This post is the first in a four-part series titled “The State of Economic Equity.” Written by Institute for Economic Equity staff, this series examines the challenges facing vulnerable workers in 2023 and the opportunities that more equitable participation in the economy may provide.

As the Institute highlighted in last year’s State of Economic Equity, the effects of the COVID-19 pandemic created significant challenges to broader economic participation. Since then, the pandemic effects have moderated, but inflation has emerged as the dominant economic headwind.

After peaking in June 2022, the year-over-year inflation rateIn June 2022, year-over-year inflation reached 9.1% for the consumer price index and 7.0% for the personal consumption expenditures price index, which is the Federal Reserve’s preferred measure of inflation. Beginning in July, year-over-year inflation rates for both indexes have steadily declined. began deaccelerating in the second half of the year, the result of interest rate hikes that the Federal Reserve started in March. Still, rising consumer prices remain a source of concern, especially for vulnerable groupsThe Institute for Economic Equity defines “vulnerable” groups as those that include (but are not limited to): young adults (ages 16 to 24); adults with a high school diploma and no college education; men and women who are Black, Latino, Asian, American Indian or Alaska Natives; people with a disability; and adults who identify as lesbian, gay, bisexual, transgender and queer and/or questioning (LGBTQ+). and low- to moderate-income (LMI) communities.

One traditional consequence of higher interest rates is the slowing of economic growth, which can weaken the labor market’s health. While current rate hikes have affected sectors sensitive to interest rates (such as housing), the labor market remains strong.

Data from the Bureau of Labor Statistics indicate that since February 2022, U.S. nonfarm payroll employment has continued to grow monthly.Since February 2022, U.S. nonfarm payroll employment grew at a monthly average of 369,000. In January 2023 alone, 517,000 new jobs were added. Meanwhile, the nation’s “official” unemployment rate continued to decline, falling to 3.4% in January 2023. And this decline was not because workers were leaving the labor force; as of January 2023, there were almost 2 million more workers in the labor force than in February 2022. Further, the nation’s number of job openings has fallen by only 332,000, ending the year at 11 million.

What Has Been Learned since Last Year’s State of Economic Equity?

Yet the strong labor market conditions mask persistent inequities that existed prior to the pandemic and the surge in inflation. These inequities can be found in LMI communities, the labor market outcomes of mothers, and the employment of young adults not enrolled in school. Structural barriers and impediments to opportunity are the primary source of the lack of economic equity, as I discuss later in this post.

The slowing economy in the first half of 2022 appears to have hit certain vulnerable groups first, according to a November analysis of the monthly Current Population Survey by the Institute for Economic Equity.The estimates were created as follows. First, for each month since February 2022, I estimated the employment-population ratio for each group. Second, I constructed a forward-looking, three-month moving average (this smoothing, which is a common statistical practice, lessens the month-to-month variation) of the ratio, starting with February, March and April as the first observation. From February 2022 to August 2022, the employment-population ratios (the percentage of those working) of the following groups trended downward: out-of-school young adults (overall and various subgroups), Latino men and Asian women.

This November analysis also showed that employment-population ratios of the following groups started to decline by late summer: women, American Indians and Alaska Natives, adults with a high school diploma and no college education, adults with some college education, and workers living in core urban areas. The employment-population ratios of Black men, Latina women, Asian men, suburban workers and rural workers had increased since early spring of 2022, but at a slower pace than the overall average. As part of the Institute’s vulnerable workers project, I plan to update this analysis with data through the end of the 2022. Preliminary evidence suggests that the deterioration in employment through August 2022 has not continued.

Structural Barriers to Employment Led to Weaker Labor Market Outcomes

In October, the Institute’s analysis of the Beveridge curveThe Beveridge curve represents the relationship between the unemployment rate and the job openings, or vacancy, rate. revealed that the weaker labor market outcomes of mothers, women overall, Black men, noncollege-educated adults, young adults not enrolled in school, and people with a disability can be attributed to structural barriers to getting a job.

This analysis showed that even after controlling for personal characteristics like educational attainment and age, the Beveridge curves of these groups indicate that their higher unemployment rates have less to do with such individual characteristics and more to do with structural impediments, such as access to child care, transportation, and job information and networks. Additionally, employer and societal attitudes concerning race, ethnicity, gender and age—as well as mental health, ex-offender and disability status—can also create barriers to work.For examples of research on discriminatory hiring practices, see this NBER working paper on racial bias, this edited volume for discrimination based on gender, age, disability status and sexual orientation, and this paper on incarceration.

These structural challenges that workers and their families continue to face in holding a job and in accumulating income and wealth can shape the resilience of families and communities to economic crises.

Wealth and Income as Ingredients for Economic Security

Women—especially mothers—were disproportionality forced out of the labor force during the pandemic recession of 2020, earning it the moniker “she-cession” or “mom-cession.” Additionally, many single mothers had slim financial cushions going into the pandemic; this was particularly the case for single Black mothers and Hispanic/Latina mothers, who had about $4,000 in median wealth in 2019. Addressing structural barriers such as access to child care was a significant area of study on approaches to equitable recovery by supporting mothers in the workforce.

Higher education is one of the pathways to economic security and wealth-building that can provide a financial buffer during an economic crisis. Student debt, one of the ways to finance higher education, has increasingly become a burden for many. This burden, however, is not equally distributed across generations; Gen Zers are more likely than millennials (at the same ages) to hold student debt, and that younger generation also tends to have higher balances. These disparities also hold across gender and racial lines, with women and Black adults more likely to have student loan debt than men and white adults, respectively.

Lingering Impacts of the Pandemic

Following the onset of COVID-19, LMI communities experienced the economy differently, as pandemic-related disruptions and other economic headwinds made for a longer recovery. Although government support—such as stimulus checks, enhanced unemployment insurance benefits and moratoriums on evictions and foreclosures—was critical in recovery efforts, such relief was not equally accessible. LMI communities of color reported more challenges in accessing government funds, which partly explains the higher rates of disruptions experienced by those communities.

Although organizations serving LMI communities were not immune to pandemic-related disruptions, these groups played an important role in contributing to the resilience and recovery of these communities. For example, organizations from various sectors in Louisville, Ky., collaborated to ensure that renters in need got emergency rental assistance in a timely manner, which in turn helped avoid additional disruptions caused by an eviction, such as being able to remain employed.

Tracking Economic Equity in 2023

Members of the Federal Open Market Committee—the Fed’s main monetary policymaking body—foresee higher unemployment later this year. In December’s Summary of Economic Projections, the median unemployment rate forecast among FOMC members was 4.6% for the fourth quarter of 2023.

What may seem to be a moderate increase in unemployment can have significant effects, especially on those who are the most vulnerable. If the U.S. unemployment rate were to rise to 4.6% in 2023, I estimate that the unemployment rate for out-of-school young adults with a high school diploma and no college education could reach 12%, with the jobless rate for similarly educated young Black adults exceeding 18%.The estimates are obtained by first using the micro data from the monthly CPS to estimate the relationship between an individual’s odds of unemployment and their state unemployment rate. I then take the estimated relationship and multiply it by the actual change in the national unemployment rate from 3.4% to 4.6%. This is the predicted change in the group’s employment-population ratio, which is added to the group’s actual jobless rate in December 2022.

Blog Series Overview

The purpose of this blog post series is to share the data studied and the analysis produced by the Institute since our inaugural set of essays in 2022. By understanding the state of economic equity, readers can gain a better sense of the underlying conditions that limit greater economic equity and the variables that could encourage broader participation in the American economy.

Our upcoming posts in this year’s series will explore the potential benefits of expanding opportunities to build wealth, the cases for economic equity and the role that community-based organizations can play.

Notes

  1. In June 2022, year-over-year inflation reached 9.1% for the consumer price index and 7.0% for the personal consumption expenditures price index, which is the Federal Reserve’s preferred measure of inflation. Beginning in July, year-over-year inflation rates for both indexes have steadily declined.
  2. The Institute for Economic Equity defines “vulnerable” groups as those that include (but are not limited to): young adults (ages 16 to 24); adults with a high school diploma and no college education; men and women who are Black, Latino, Asian, American Indian or Alaska Natives; people with a disability; and adults who identify as lesbian, gay, bisexual, transgender and queer and/or questioning (LGBTQ+).
  3. Since February 2022, U.S. nonfarm payroll employment grew at a monthly average of 369,000. In January 2023 alone, 517,000 new jobs were added.
  4. The estimates were created as follows. First, for each month since February 2022, I estimated the employment-population ratio for each group. Second, I constructed a forward-looking, three-month moving average (this smoothing, which is a common statistical practice, lessens the month-to-month variation) of the ratio, starting with February, March and April as the first observation.
  5. The Beveridge curve represents the relationship between the unemployment rate and the job openings, or vacancy, rate.
  6. For examples of research on discriminatory hiring practices, see this NBER working paper on racial bias, this edited volume for discrimination based on gender, age, disability status and sexual orientation, and this paper on incarceration.
  7. The estimates are obtained by first using the micro data from the monthly CPS to estimate the relationship between an individual’s odds of unemployment and their state unemployment rate. I then take the estimated relationship and multiply it by the actual change in the national unemployment rate from 3.4% to 4.6%. This is the predicted change in the group’s employment-population ratio, which is added to the group’s actual jobless rate in December 2022.
About the Author
William M. Rodgers III
William M. Rodgers III

William M. Rodgers III is vice president and director of the St. Louis Fed's Institute for Economic Equity. Read more about the author and his work.

William M. Rodgers III
William M. Rodgers III

William M. Rodgers III is vice president and director of the St. Louis Fed's Institute for Economic Equity. Read more about the author and his work.

This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.


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