Understanding the Cases for Economic Equity

This post is the third 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.

This blog post presents economic cases that each offer an analytical framework for understanding the importance of economic equity. The key conclusion of these cases is that persistent inequity has adverse effects and consequences for the entire economy, not just vulnerable peopleThe Institute for Economic Equity defines “vulnerable” groups as those that include (but are not limited to): young adults (ages 16 to 24); adults with no more than a high school diploma; 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- and moderate-income (LMI) communities. Thus, everyone can gain from greater economic equity.

The cases for economic equity are the following:These were presented in an August 2022 Bridges article. This blog post provides greater detail on each one.

• the historical case
• the resource-based case
• the deferred maintenance case
• the business case

Historical Case

In his March 1966 essay for The Nation, Dr. Martin Luther King Jr. outlined the economic challenges that Black people continued to face despite the political gains won by the Civil Rights movement.

King pointed out that the challenges faced by Black Americans included bearing the brunt of layoffs—which made them typically the first fired and the last rehired—and continued discrimination—which hindered long-term employment and, in turn, made it harder to build seniority, a key ingredient that reduced the odds of layoff.

“Statistics that picture declining rates of unemployment veil the reality that Negro jobs are still substandard and evanescent,” he wrote at a time when the U.S. was experiencing its best economic performance since World War II. “The instability of employment reflects itself in the fragile character of Negro ambitions and economic foundations.”

King then identified the workforce needs of Black people: full-time and full-year employment, promotion and development opportunities, and employment that fed, clothed, educated and stabilized a family.

King wrote that essay more than 50 years ago, yet the themes he raised remain relevant today.

• Black people continue to have lower full-time and full-year employment than white people. Figure 1 shows that in 2021, about 45% of Black men worked full time and year-round in the preceding 12 months. Just over 52% of white men worked full time and year-round.The percentages for Black and white people are based on my calculations using data from Table 2 of the 2021 “Work Experience of the Population” release.
• Black workers still experience less-stable employment. In calculations using the Current Population Survey, I found that Black workers, on average, still have greater displacement rates and less job tenure than their white peers. The gaps in the displacement rate and in job tenure are larger among those with less potential labor market experience. (See Figure 2.)
• Black workers still face higher hurdles when seeking employment. In numerous field experiments conducted by researchers, white applicants received, on average, 36% more invitations to job interviews than Black applicants.
• Economic security remains disproportionately elusive for people of color. Even though 29 million (57%) of the 51 million asset limited, income constrained, employed (ALICE)In 2009, the United Way of Northern New Jersey published its first ALICE report. The acronym represents a community’s households that can’t afford a “survival” budget. households are white, a disproportionate share of households of color don’t earn enough to cover the expenses of the minimum household basics necessary to live and work (which is known as the ALICE threshold): Black (60%), American Indian/Alaska Native (57%) and Latino (56%) versus white (36%). This means more than half of these households of color can’t afford the cost of household basics.

Figure 1: The Share of Black People and White People with Full-Time, Year-Round Employment

SOURCES: Bureau of Labor Statistics’ “Work Experience of the Population-2021” and author’s calculations.

NOTE: Percentage of people employed full time and year round in the preceding 12 months.

Figure 2: Black Workers Face a Disparate Labor Market Experience

SOURCES: Current Population Survey, January 2020; 2022 Displaced Worker, Employee Tenure, and Occupational Mobility supplement; and author’s calculations.

NOTES: The displacement rate represents the percentage of workers age 20 and older who lost a job or were forced to leave a job during the previous three years, and job tenure is the number of months that an employee has been working continuously at a job with his or her present employer. Potential work experience is equal to age minus years of schooling minus 6; it represents the most possible years a worker is in the labor force.

Resource-Based Case

Prior to the COVID-19 pandemic, 42% of U.S. households were below the ALICE threshold. These are households that earn above the federal poverty level but have difficulty covering the costs of basic expenses. Compared with higher-income families, ALICE households differ in how they pay for an emergency expense of $400.

The table below shows the major budget lines that ALICE households must cover each month. The adults in these families work hard at multiple jobs, but their wages don’t keep pace with inflation. They face a variety of tough choices: Pay the rent or buy food.

The table’s column 1 describes the consequences to ALICE households if the parents do not have, for example, good housing or accessible child care. Due to a lack of affordable child care, one parent must stay home, leading to a loss of income.

Column 2 describes ALICE households’ impact on the broader community. It shows that we all bear a portion of the costs when households don’t live in a safe neighborhood or have reliable transportation to work and if their children do not have access to quality child care, a good K-12 education and the opportunity for postsecondary education. The absence of these could lower property values and create greater traffic congestion. The impacts on children could place a future burden on the education system, the criminal justice system and other social services. Simply put, the impact on ALICE families is, in turn, an impact on all.

Deferred Maintenance Case

The tag line from a popular oil filter commercial in the 1970s and 1980s was “you can pay me now, or pay me later.” It rings true still today on many fronts when the lack of investment can mean higher costs in the future.

One such area is human priority expenditures, or public investments in human and social capital that strengthen the networks of relationships within and across communities.Human priorities are defined as follows: government social benefits to persons (Social Security and Medicare benefits), housing and community services, health, recreation and culture, elementary and secondary schools, higher education, libraries, and income security (disability, retirement, welfare and social services, and unemployment). Retirement comprises social insurance funds, including old age, survivors, and disability insurance (Social Security Trusts), and railroad retirement; it excludes government employee retirement plans. These government expenditures are computed as a share of gross domestic product; data are derived from the national income and product accounts: Table 3.16 and Table 1.1.5. The third figure below shows that since 2000, these expenditures have generally been below trend growth predicted by 1959 to 2000 data. The exceptions were in 2010, when the U.S. increased spending to aid its recovery from the Great Recession, and 2020-21, when the U.S. boosted expenditures because of the COVID-19 pandemic.

Figure 3: The Relative Size of Human Priority Expenditures since 1959

SOURCES: Bureau of Economic Analysis and author’s calculations.

Meanwhile, an increase in income inequity seems to have occurred during this same period. First, from 2001 to 2010, labor share—the percentage of economic output that accrues to workers in the form of compensation—steadily fell. Since then, it has stagnated. Second, inflation adjusted U.S. median household income fell from 1999 to 2012 before rebounding to surpass its 2000 value by 2016. Third, household income inequity increased after 2000, with the growth largest at the middle and upper percentiles.The data are derived from the following sources: Labor share comes from the Bureau of Labor Statistics’ Office of Productivity and Technology, and median household income and income equality measures come from the U.S. Census Bureau’s historical income tables.

In response to the pandemic, increased infrastructure investments were made to help improve mental health and access to quality child care during the crisis. Past research (PDF) suggests that these kinds of investments generally raise worker productivity, a key ingredient to economic growth. A fuller accounting of the benefits of such investments, plus a closer look at the way costs and benefits are measured, needs to occur. 

Business Case

The last case provides a business rationale for economic equity. The analysis suggests that economic equity creates additional disposable income that circulates through the broader economy. Earlier in the post, I used narrowing racial inequity as the example, but the gaps below suggest that this also applies to women, Latinos, people with a disability, and workers who are suffering from anxiety and depression.

• Women who work full time earn 83% of what white men working full time do. Full-time Black and Latino women earn 72% and 77% relative to white men.Estimates come from the Bureau of Labor Statistics and are the average of median earnings of full-time workers in the first three quarters of 2022.
• Although the employment-to-population ratio of people with a disability has recovered from its low of 16.7% in May 2020, today’s ratio is just 21.2%, a fraction of the 65.4% for those without a disability.
• During the pandemic, 37.3% of adults reported moderate-to-severe anxiety, a 6.1 percentage point jump from 2019. Over the same period, 30.2% of adults reported moderate-to-severe depression, four times higher than prior to the pandemic.

To demonstrate the broad-based benefits of racial income equity, we used Black buying-power data from the University of Georgia’s Selig Center for Economic Growth and population and household income data from the U.S. Census to estimate the actual and potential buying power that Black households could possess if there were greater income equity. (The full table can be viewed in the appendix below.)

Our most recent estimates, using 2020 and 2021 data, indicate that if communities pursued equity in the form of narrowing Black-white differences in household income, Black purchasing power could jump from $976 billion to a potential $1.6 trillion in the U.S.This annual estimate is similar to the estimates of Shelby Buckman, Laura Choi, Mary Daly and Lily Seitelman. Their 2019 estimates, which focus on earnings and total labor compensation at the individual level by both race and ethnicity, range from about $730 billion to $1.28 trillion. The largest potential gains would occur in Texas, New York, California, Georgia and Florida.

For the states that make up the Federal Reserve’s Eighth District,Headquartered in St. Louis, the Eighth District includes Arkansas, southern Illinois, southern Indiana, western Kentucky, northern Mississippi, eastern Missouri and western Tennessee. achieving Black-white household income equity would potentially generate $202 billion in additional Black disposable income. It is important to note these estimates are just for one year.

What sectors of the economy would benefit the greatest from this additional disposable income entering the economy? Because households typically spend the largest portion of their incomes on housing expenses, a big part of these gains would likely go to businesses that construct homes and provide housing goods and services. Businesses in the food, transportation and health care sectors could also see large increases in their revenue.The estimated shares come from the 2021 Consumer Expenditure Survey (PDF).

More research is needed to better gauge the underlying conditions that limit greater economic equity. Yet these four cases provide a clearer understanding of the broader benefits from more equitable participation in the American economy.

Notes

1. 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 no more than a high school diploma; 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+).
2. These were presented in an August 2022 Bridges article. This blog post provides greater detail on each one.
3. The percentages for Black and white people are based on my calculations using data from Table 2 of the 2021 “Work Experience of the Population” release.
4. In 2009, the United Way of Northern New Jersey published its first ALICE report. The acronym represents a community’s households that can’t afford a “survival” budget.
5. Human priorities are defined as follows: government social benefits to persons (Social Security and Medicare benefits), housing and community services, health, recreation and culture, elementary and secondary schools, higher education, libraries, and income security (disability, retirement, welfare and social services, and unemployment). Retirement comprises social insurance funds, including old age, survivors, and disability insurance (Social Security Trusts), and railroad retirement; it excludes government employee retirement plans. These government expenditures are computed as a share of gross domestic product; data are derived from the national income and product accounts: Table 3.16 and Table 1.1.5.
6. The data are derived from the following sources: Labor share comes from the Bureau of Labor Statistics’ Office of Productivity and Technology, and median household income and income equality measures come from the U.S. Census Bureau’s historical income tables.
7. Estimates come from the Bureau of Labor Statistics and are the average of median earnings of full-time workers in the first three quarters of 2022.
8. This annual estimate is similar to the estimates of Shelby Buckman, Laura Choi, Mary Daly and Lily Seitelman. Their 2019 estimates, which focus on earnings and total labor compensation at the individual level by both race and ethnicity, range from about $730 billion to $1.28 trillion.
9. Headquartered in St. Louis, the Eighth District includes Arkansas, southern Illinois, southern Indiana, western Kentucky, northern Mississippi, eastern Missouri and western Tennessee.
10. The estimated shares come from the 2021 Consumer Expenditure Survey (PDF).