America’s racial wage gap has been shrinking for the past five years, as a historically tight labor market exerts pressure on the margins. But the difference between what Black Americans and white Americans earn began this century as wide as it was in the 1950s. And recent progress under pressure from the pandemic still puts the median wage of Black workers 21% below that of white workers, according to the Economic Policy Institute. Rising borrowing costs, too, may start to slow the job creation that has been narrowing the gap. An ongoing push for higher pay in lower-wage jobs, as well as corporate commitments to diversify workforces, can help to offset this trend.
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By Cate Chapman, Editor at LinkedIn News
In the early 2000s, the wage gap between Black and white workers in the U.S. was as large as it had been in 1950.
That is a shocking statistic and a sign of the country’s deep racial inequality. Over the past five years, however, the story has changed somewhat: The wage gap, though still enormous, has shrunk. “It’s a pretty meaningful reversal,” Elise Gould, a senior economist at the Economic Policy Institute, told me.
In today’s newsletter — on Juneteenth — I’ll try to explain why the gap has narrowed and what would have to happen for it to narrow more. After all, even with the recent progress, the median Black worker makes 21 percent less than the median white worker.
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1. A strong economy
There appear to be three main causes of the recent trend, and the most significant is the country’s tight labor market. The unemployment rate has been falling for most of the past decade and has recently been near its lowest levels since the 1960s.
Tight labor markets help almost all workers, and they tend to help disadvantaged workers the most. As Gould put it, “When employers can’t be quite as choosy — when employers have to look beyond their network — that can provide more opportunities for historically marginalized groups.”
This dynamic helps close the Black-white wage gap because Black workers are overrepresented among low-wage workers. (A Times story set in Philadelphia went into more detail, focusing on Markus Mitchell, a worker there.) The Hispanic-white wage gap has also declined recently.
William Spriggs, a labor economist and Howard University professor who died unexpectedly this month, often made this point. In one of his last interviews, Spriggs told my colleague Ben Casselman that he was concerned the recent Federal Reserve interest-rate increases would weaken the labor market and undo the recent progress of Black workers.
“You should see from this moment what you are truly risking,” Spriggs said. (If you have a few minutes this morning, I recommend reading his Times obituary.)
Of course, inflation is also a serious economic problem, which is why the Fed has raised rates. But the recent narrowing of racial wage inequality is a reminder that the Fed faces risks both from doing too little to fight inflation and from doing too much. “Tight labor markets make almost everything else easier,” said Suzanne Kahn, a historian who works at the Roosevelt Institute, a think tank.
2. The Fight for $15
More than a decade ago, a group of fast-food workers in New York City began agitating for a higher minimum wage. They attracted the support of Senator Bernie Sanders, the leaders of the Service Employees International Union and other high-profile allies. The movement became known as the Fight for $15.
It has not persuaded Congress to lift the federal minimum wage, mostly because of opposition from congressional Republicans. The federal hourly minimum has been $7.25 since 2009, even as inflation has eroded its value. But the Fight for $15 movement has helped change policy in states and cities.
A minimum wage well above $7.25 is a broadly popular idea, including among many Republican voters and independents. Ballot initiatives to raise the minimum wage have passed over the last decade in Arizona, Arkansas, Colorado, Florida, Missouri, Nebraska, Nevada and several other states. As a result, the effective national minimum wage — a weighted average of state minimum wages, adjusted for inflation — has risen to nearly its highest level in 40 years (before falling a bit lately because of high inflation.)
Minimum-wage increases tend to shrink the racial wage gap for the same reason that tight labor markets do: Black workers disproportionately work in low-wage jobs. As a result, one powerful way to reduce racial inequality is to reduce economic inequality.
The flip is also true. The racial wage gap widened in the 1980s, 1990s and early 2000s mostly because income inequality was soaring.
3. Black Lives Matter
After a Minneapolis police officer murdered George Floyd on May 25, 2020, racial inequity became a focus of intense national attention. Many companies promised to diversify their work forces and leadership ranks, and some took concrete action.
At Fortune 500 companies, for example, Black board members occupied less than 9 percent of all board seats in 2020, according to Deloitte. By last year, the number had risen to 12 percent (compared with 14 percent of the U.S. population). It remains unclear how widespread the changes in corporate America have been; corporate boards obviously make up a tiny share of jobs. But the recent emphasis on diversity has probably played at least a modest role in narrowing racial gaps.
There is a larger point here. Yes, a reduction in economic inequality can substantially shrink the Black-white wage gap. But that gap will never approach zero so long as racial inequities remain as large as they are in the U.S. today.
The problem is not only that Black workers disproportionately work in low-wage job categories; it’s also that Black Americans make less money on average than similar white Americans. According to the Economic Policy Institute, a typical Black worker last year made 13 percent less than a typical white worker who was the same age and gender, had the same amount of education and lived in the same region. And the racial wealth gap is even larger than the wage gap.
Related: A new book, “Just Action,” offers policy ideas for reducing residential segregation, much of which is the legacy of subsidized mortgages that were designed to exclude Black Americans. Today, write the authors, Richard and Leah Rothstein, “Placing ‘Black Lives Matter’ signs is not enough.”
