Racial Disparities in the Labor Market

Workforce Currents
Ashley Bozarth
February 28, 2018

Primary Issue
Current research tells us that racial gaps in wages, employment, and labor participation have widened over recent decades. Many factors contribute to these disparities, including difficult to measure dynamics like discrimination, criminal conviction history, and skills gaps.

Some policy implications to address these disparities include:

  • Strengthen federal antidiscrimination enforcement by collecting wage data from employers.
  • Reduce some barriers to employment for released prisoners through fair-chance hiring practices.
  • Address the skills gap through career pathways opportunities.

Continue reading to learn about research related to labor market disparities and details about these policies.

Existing research
Although the unemployment rate for blacks was 7.7 percent as of January 2018, the rate has fallen steadily since the recovery from the Great Recession. However, it remains more than 3 percent higher than the total unemployment rate. Recent research from the Federal Reserve System documents racial gaps in employment, labor force participation, and wages over time. A Federal Reserve Board of Governors study finds blacks have experienced significantly higher unemployment as well as involuntary part-time employment over the past four decades. Blacks also have had relatively lower labor force participation, driven in part by leaving the labor market in higher numbers.1 Racial gaps fluctuate over time and tend to narrow with lower unemployment, such that racial gaps widened during the Great Recession and contracted since the recovery.

In terms of wages, disparities between white and black workers have grown since the 1970s, though not in a linear fashion. According to a recent brief by the San Francisco Fed, in 1979 black men and women earned on average 20 percent and 5 percent less than their white counterparts, respectively. By 2016, the gap had expanded to 30 percent for black men and 18 percent for black women.

Factors contributing to disparities
Employment, labor force participation, and wage disparities between black and white workers are only partially explained by differences in education, age, marital status, industry/occupation, part-time status, and where people live. In fact, the San Francisco Fed brief notes the wage gap has expanded between blacks and white college graduates, indicating a postsecondary degree alone will not eliminate racial inequalities in the labor market. So what other factors account for these disparities? The majority of this difference across numerous studies is unexplained. Unobservable factors have grown over the past 40 years (not linearly), contributing to a widening racial gap over time.

Some of this gap has to do with a decrease in manufacturing jobs in the Midwest, a stagnant minimum wage, and decline in unionization starting in the 1980s, which disproportionately affects black male workers, according to Bound and Freeman. Since the 1980s, union membership has continued to wane for all workers, but at higher rates among blacks. Although many states have enacted minimum wage policies above the federal level ($7.25 per hour), few states in the South have done so, where over 50 percent of black workers reside, reports the Economic Policy Institute.

Incarceration rates, particularly among black males, also likely contribute to gaps in labor force participation. At the end of 2016, black male residents comprised 32 percent of state or federal prisoners, but only 6 percent of the total U.S. population, based on Bureau of Justice Statistics. A University of Georgia and University of Minnesota joint study estimates 15 percent of black adult males have been in prison at least once as of 2010, up from 6 percent in 1980. This increase is steeper than the total male population, which rose from 2 percent to 5.6 percent over 30 years. In addition, one-third of all black males had a felony conviction in 2010, compared to 13 percent in 1980. Higher incarceration rates may be attributed to racial bias in the law enforcement system. Evidence shows that blacks are arrested for drug offenses at higher rates than whites, despite similar drug usage rates.

Bureau of Justice Statistics show that across 30 states, roughly three-quarters of prisoners were rearrested within five years of release. In addition to high recidivism rates, individuals with criminal records, particularly people of color, often have more barriers to employment. A study of New York City finds black job applicants with criminal records were half as likely to receive callbacks or job offers than equivalent white job seekers. Unequal responses to criminal backgrounds among different racial and ethnic groups may be leading to some of the disparities in the labor market. Barriers to work may affect the labor force participation rate of males, which has seen an overall downward trend in past decades. A Kaiser Family Foundation, New York Times, and CBS News poll reported around one-third of nonworking men aged 25 to 54 have criminal records.

Racial skills gaps could also account for a part of the unexplained causes of labor market disparities. An analysis from Neal and Johnson indicates lower test scores among blacks coming out of high school leave them less prepared as they enter the labor market.2 Family and school environments influence these score variations, including parental income and education, student-teacher ratio, disadvantaged student ratio, dropout rate, and teacher turnover rate.

While skills gaps stemming from school quality and other environmental factors play a role in employment and wage gaps, employment discrimination remains a significant cause for disparities. A recent analysis from the National Academy of Sciences gathers all available hiring discrimination studies between 1989 and 2015. The study finds that levels of employment discrimination have not changed since the late 1980s. Over time, white applicants have been over one-third more likely to receive callbacks for interviews than blacks with comparable qualifications. A study by researchers from Harvard, Princeton, and the University of Chicago showed black job seekers in New Jersey were offered fewer wages on average and were also likely to accept lower offers. In the aforementioned New York City study comparing job applicants with criminal backgrounds, black and Latino applicants with clean records had the same results as white applicants who recently got out of prison.

Policy implications
Labor market participation, employment, and wage trends make it clear black job seekers and workers experience disadvantages in the labor market. Although the following proposed changes to policies and modifications to existing programs may address only part of these nuanced and systemic issues, these ideas serve to propel discussions forward about what policymakers and workforce practitioners could do to narrow the widening racial gap.

  • Strengthen federal antidiscrimination enforcement by collecting wage data from employers. The U.S. Equal Employment Opportunity Commission (EEOC) enforces Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, sex, national origin, and religion. To track employer behavior, the EEOC currently collects the number of employees of federal contactors with 50 to 99 employees and private employers with 100-plus employees by race, ethnicity, and sex. In 2016, EEOC submitted a revised proposal that private employers with 100-plus employees provide wage data by race, ethnicity, and sex. Employers would also submit hours worked of employees within each race/ethnicity/sex and wage category to track part-time or seasonal work. The proposal expands upon an original plan from the Office of Federal Contract Compliance Programs and is based on research from President Obama’s National Equal Pay Task Force, a commissioned study by the National Academy of Sciences, and a 2015 pilot study on collecting pay data. The EEOC states this additional data would strengthen its ability to combat workplace discrimination and help employers self-evaluate and comply with regulations, with the hopes of reducing wage gaps for women and workers of color.

  • Reduce some barriers to employment for released prisoners through fair-chance hiring practices. Nationwide, 30 states and over 150 cities/counties have adopted "ban the box" policies, such that job seekers do not have to have to report arrests or convictions on initial applications. In 2012, the EEOC put out a Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions, stating "National data supports a finding that criminal record exclusions have a disparate impact based on race and national origin. The national data provides a basis for the Commission to investigate Title VII disparate impact charges challenging criminal record exclusions." Some states and localities have used elements of this guidance to adopt fair-chance hiring policies beyond just banning the box. These policies may include delaying inquires about conviction history until a conditional offer has been made, assessing the age and relevance of individual convictions, and creating clear pathways to file complaints against employers. Enforceable penalties for noncompliance are a necessary part of ban the box and fair-chance hiring practices. They may deter the potential unintended consequence of employers disproportionately rejecting people of colors’ applications based on assumptions of criminal records, a possibility put forth in a National Bureau of Economic Research analysis. The National Employment Law Project provides lessons learned for implementing fair-chance hiring laws in San Francisco, Seattle, and the District of Columbia.

  • Address the skills gap through career pathways opportunities. The aforementioned San Francisco Fed and Federal Reserve Board of Governors research indicates that wage, employment, and labor market participation disparities occur across educational attainment and level of experience. To address these gaps, states and municipalities could support career pathways opportunities that align education and training programs, support services, and industry needs to help individuals earn credentials or degrees and advance in their jobs. It may be a daunting task for localities to coordinate existing workforce resources and serve the needs of people with a wide array of skill sets and experience. The National Skills Coalition developed a "pathway elevator" tool for states to evaluate how to align certain populations’ skills needs with regional labor demands. This approach requires states to choose target populations based on socioeconomic or demographic characteristics, skills needs, or program enrollment (such as SNAP, the Supplemental Nutrition Assistance Program, or TANF, Temporary Assistance for Needy Families). The elevator strategy also emphasizes cross-program participation and a system to document shared outcomes of programs that simultaneously serve individuals. For instance, someone may receive SNAP benefits, enroll in adult basic education, and take a credit-earning course at a community college. Linking data across programs in terms of education, employment, and wages indicates which pathways provide better employment outcomes. Since career pathways programs consider the needs of students and workers across age, experience, and skill set, they can be effective tools to address existing labor disparities.

More work needs to be done to understand the reasons for racial gaps in the economy, including the extent to which discrimination affects labor market outcomes for people of color. Federal, state, and local policies and programs could expand upon this research, working to eliminate disparities and increase economic opportunity for all workers.

Ashley Bozarth is a research analyst in the Center for Workforce and Economic Opportunity. The views expressed here are the author’s and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

Sources

Bound, John and Richard Freeman (1992). "What Went Wrong? The Erosion of Relative Earnings and Employment among Young Black Men in the 1980s." Quarterly Journal of Economics 107: 201–32.

Cajner, Tomaz, Tyler Radler, David Ratner, and Ivan Vidangos (2017). "Racial Gaps in Labor Market Outcomes in the Last Four Decades and over the Business Cycle." Finance and Economics Discussion Series 2017-071. Washington, DC: Board of Governors of the Federal Reserve System.

Carson, E. Ann (2018). "Prisoners in 2016." U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics.

Daly, Mary C., Bart Radler, and Joseph H. Pedtke (2017). "Disappointing Facts about the Black-White Wage Gap." FRBSF Economic Letter 2017-26. Federal Reserve Bank of San Francisco.

Durose, Matthew R., Alexia D. Cooper, and Howard N. Snyder (2014). "Recidivism of Prisoners Released in 30 States in 2005: Patterns from 2005 to 2010." Bureau of Justice Statistics Special Report, NCJ 244205.

Edwards, Ezekiel, Will Bunting, and Lynda Garcia (2013). "The War on Marijuana in Black and White." New York: American Civil Liberties Union.

Fryer, Roland G., Devah Pager, and Jӧrg L. Spenkuch (2015). "Racial Disparities in Job Finding and Offered Wages." The Journal of Law and Economics 56(3).

Mitchell, Ojmarrh and Michael S. Caudy (2013). "Examining Racial Disparities in Drug Arrests." Justice Quarterly 32(2): 288–313.

Neal, Derek A. and William R. Johnson (1996). "The Role of Pre-Market Factors in Black-White Wage Differences." Journal of Political Economy 104: 869–895.

Pager, Devah, Bruce Western, and Bart Bonikowski (2009). "Discrimination in a Low-Wage Labor Market: A Field Experiment." American Sociological Review 74: 777–779.

Quillian, Lincoln, Devah Pager, Ole Hexel, and Arnfinn H. Midtbøen (2017). "Meta-Analysis of Field Experiments Shows No Change in Racial Discrimination in Hiring over Time." National Academy of Sciences 114 (41): 10870–10875.

Shannon, Sarah K.S., Christopher Uggen, Jason Schnittker, Melissa Thompson, Sara Wakefield, and Michael Massoglia (2017). "The Growth, Scope, and Spatial Distribution of People with Felony Records in the United States, 1948–2010." Demography 54(5), 1795–1818.

Wilson, Valerie and William M. Rodgers III (2016). "Black-White Wage Gaps Expand with Rising Wage Inequality." Washington, DC: Economic Policy Institute.

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1 Labor force participation is defined as being employed or actively seeking work. It does not include individuals who are discouraged and stopped searching for jobs. See the U.S. Bureau of Labor Statistics explanation for more information.

2 Data are from the Armed Forces Qualification Test obtained from the National Longitudinal Survey of Youth.