The following opinion paper was written by Bernard E. Anderson, Whitney M. Young Jr. Professor Emeritus at Wharton, and a Senior Fellow at the Wharton Center for Human Resources. Anderson was also the assistant secretary of labor in the Clinton administration.
In July, the economy continued on a steady, measured recovery course from the pandemic, but racial gaps in the labor market persist.
White workers’ employment rose 1.1 million compared to just 12,000 black workers, a large gap in relative employment growth. Although the unemployment rate among blacks fell by one percentage point to 8.2%, it is still well above the white rate of 4.8%. Bottom line: African Americans stay in the galley as the economic train moves steadily towards recreation and full employment.
Significant fiscal stimuli are accelerating the recovery. Employment is increasing and job vacancies are exceeding the recruitment rate in most industries. Yet the economy remains a long way from achieving the maximum employment target under the dual mandate of the Federal Reserve. Last month’s job report showed long-term unemployment of 8 million workers, well above the pre-pandemic reported levels.
The pandemic has created labor market conditions unprecedented in previous economic downturns. The impact on unemployment has been heavily concentrated in a few industries that rely on face-to-face interaction, industries where the workforce is dominated by low-wage women. In order to contain the spread of the COVID-19 virus, lockdowns and social distancing have been imposed.
“African Americans stay in the galley as the economic train moves steadily towards recreation and full employment.”
As vaccinations increased, the locks were lifted and social distancing eased. The increased business activity led to a demand for labor. Many workers have been called back from vacation, but employers reported labor shortages in many industries. A number of factors help explain labor shortages, including childcare obligations of working mothers, improved and growing entitlement to unemployment benefits, more retirement and longer job searches by workers looking for better jobs and incomes.
The pandemic also led to structural changes in the labor market. The expanded use of the Internet for consumer spending, group communication, and corporate production will change the relationship between work and production. It will take some time for structural change to strike a new balance in the relationship between labor demand and supply. In some cities, the pandemic also devastated a number of minority-owned small businesses that are unlikely to return during the economic recovery.
The economic prospects for the near future are good. GDP, which was 6.5% in the first quarter, is expected to grow over the next three quarters. Monthly job creation is expected to exceed 700,000 by the end of 2021, and the unemployment rate is expected to fall to 4.0% by the end of 2022.
Two major uncertainties cloud the forecast: inflation and real estate prices and sales. The Fed considers the recent surge in inflation to be temporary and due to bottlenecks and supply constraints related to the rapid economic recovery from the pandemic. If inflation does not subside in the next few months, the Fed promised to use its instruments, ie interest rates, reserve requirements and open market operations, to bring inflation under control. The aim is to achieve an inflation rate of just over 2.0% in the long term. The downside is that an increase in interest rates slows economic growth and increases unemployment. But that can be done without driving the economy into recession.
The Federal Reserve is required to implement monetary policy under the dual mandate of maximum employment and price stability. But “maximum employment” is not full employment. Maximum employment is measured using a number of metrics, including labor force participation rate, employment / population ratio, the number of long-term unemployed, involuntary unemployment, wage developments and other metrics.
Demographic disparities are not taken into account when measuring maximum employment and, while monetary policy is an effective tool in achieving maximum employment, it does not play a role in eliminating demographic employment disparities. Only government policy interventions through education, vocational training, direct employment and the enforcement of anti-discrimination measures can eliminate racial disparities in employment and unemployment.