Dr. King and full employment: some evidence

January 17th, 2017 at 7:38 am

I wanted to add some quantitative analysis to my WaPo piece from yesterday, which argued for remembering the importance Dr. King’s “institutional” analysis, which gives a far greater role to power and systemic norms than your basic market-forces analysis.

I noted that Dr. King became increasingly committed to full employment—the slide below is from the March on Washington for Jobs and Freedom—as evidence developed in the 1960s and 1970s was beginning to show the importance of very tight labor markets for African-Americans.

Source: History.com

Here’s a bit of empirical backup. The first figure shows the Census Bureau’s series of black and white real median family incomes against the unemployment rate. The cyclicality of the series is evident, but there are only a few episodes wherein very low unemployment persisted for a few years: mainly in the 1960s and 1990s, periods associated with rising median incomes for blacks and whites.

Sources: Census, BLS

In fact, a simple regression of the log change in real black median income on a flexible specification for the unemployment rate (at t, t-1, and squared) explains 39 percent of the variance in the dependent variable (results for whites are similar), more than you might expect given the fact that income formation is a pretty complex phenomenon.

Turning to low incomes, Census also provides 20th percentile family incomes by race, though the data for blacks begins in the mid-1960s. Not only did black incomes shoot up in the full employment 1990s, but they grew faster than white low incomes, partially closing the racial income gap at the 20th percentile.

Source: Census

Applying the same model just noted to black 20th percentile real incomes and forecasting the series based only on unemployment shows a remarkably good fit given the simplicity of the model (the forecast is “dynamic,” meaning the forecast using predicted, not actual, values for changes in the DV, a tougher test of the model’s accuracy).

Source: Census, BLS, my analysis

OK, some caveats. One reason many economic indicators for blacks were so positive in the 1990s had to do with the disproportionate share of working-age African-Americans in prison, and thus left out of the data (a “selection bias”). And as I stressed in the WaPo piece, tight job markets make it more costly to discriminate; they don’t eradicate discrimination.

This final chart provides a simple way to underscore this last point. It is widely known that the black unemployment rate tends to be twice that of the white rate, but many assume that this is largely due to the lower educational attainment of African-Americans. In fact, black unemployment is higher for every education group. The relative difference is somewhat larger for high-school or less, but the figure reminds us that even were blacks to achieve education parity with whites, their jobless rates would likely remain higher.

Source: BLS

These are both highly relevant caveats re the impact of discrimination and the criminal justice system, but they do not change the fact that it takes persistently very tight labor markets to give black workers the bargaining clout they need to get ahead, a fact Dr. King picked up on long ago.

Especially as team Trump takes the field, it’s especially important for the Federal Reserve to keep these racial dynamics forefront in their plans for balancing full employment and price pressures. Preemptive rate hikes may well dampen or even reverse the real gains blacks (and whites) just started making, as can be seen at the end of the above figures.

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7 comments in reply to "Dr. King and full employment: some evidence"

  1. Prairie Populist says:

    Yeah! It seems obvious that labor must remain tight for long enough to affect wages. There is inertia in such a large system. Think if all the decisions that have to be made by employers and potential job seekers alike to produce a measurable change.

    On a large ship, the first thing that happens when you put the helm over is – – – nothing. In fact the ship may slow just a little because the rudder creates drag. After a while the compass may move ever so slowly, indicating that the ship is turning.

    I dont undestand why everyone in power is freaking out about the prospect of wage-push inflation when labor force participation is so low and unions are a minor factor.

  2. Dave says:

    One reason I’m a Trump supporter is because I know he believes in tight US labor markets.

    When labor markets are slack, we become bigots to the realities of life. We become monsters by picking the froth of the populace.

    This is no way to run a country. We need to understand each other, we need to accept our faults and not demand perfection. Using foreign labor is very destructive to our culture, and some Trump backers seem to understand that.

    We’re not perfect on paper. I’m not perfect on paper. But I’m incredibly productive! I can outproduce 90% of people, but our system is not recognizing it. What has gone wrong? Trump seems to get it.

  3. Dave says:

    We are social beings. Krugman became much more active when I and others began following and egging him on. It takes a group. Nobody does this alone.

    I stopped following Krugman a while back. I don’t read him anymore. I believed he was building a God complex, and it was disturbing me. I had to break the cycle of social approval.

    I like watching Jared. If Biden picked Jared as an advisor, that is good enough for me. Biden is a good man trying to do the right things. His economist of choice is also a good man, I’m sure.

    We are real people with real lives that are trying to make this country a better place. It isn’t easy, but once in a while things align and we find success.

  4. Dave says:

    It is very hard to take the stand we’ve taken. Nobody seems to agree. But we trudge along knowing that we’re right. Once in a while we’re vindicated.

    We know what was ripping this nation apart, and Trump is going to fix it. I know some people don’t like his tone. His supporters are not racist, however. They’re American.

    I feel totally vindicated by Trump’s populist message. I feel like I finally won the argument.

    We’re not irresponsible. This is the way the world has to go. This is the right thing at the right time.

  5. Dave says:

    The one thing that would make me feel ok is just an acknowledgement from someone like yourself that I added something to the conversation. That all of this effort was worth something.

    I feel like I threw away a large part of my life on things that nobody will ever understand. It doesn’t feel good. We can go a certain distance in the believe that we’re right, but eventually we break down and need some reassurance. I have broken down, and I need some reassurance.

  6. Dave says:

    I haven’t had any problem with Trump like other have. This will explain why:

    I have always understood Trump. When he’s attacked he will attack back with double the intensity. He says a lot of things to win the existing debate. This is a problem with our current press and media: you have to win now.

    He knows the media, press and existing outlets. He works them, but much of what he says is a tool not a position.

    The US needed this.

  7. ron sann says:

    May I suggest a different interpretation of the data. Note the following two key data points
    – less than a high school degree 14.1% unemployment
    – Bachelor degree 3.9% unemployment (basically full employment)

    Thus this issue can also be described as a skills and accomplishment challenge.