More on how the Fed can boost minority outcomes

March 4th, 2015 at 11:14 am

A few more points regarding this question of the extent to which the Fed can help boost economic outcomes for African-Americans. As I and numerous others have noted, the NYT piece underappreciates the disproportionate boost black employment, earnings, and incomes get from full employment. More on that in a moment.

I asked my CBPP colleague Chad Stone what he thought about all this and I found his answer resonant:

Appelbaum wrote: “It’s not obvious, however, that holding down borrowing costs for a little longer would be an effective way to address the underlying problem. Indeed, the problem is a good illustration of the limits of monetary policy.”

But what if he’d said:  monetary and fiscal stimulus can eliminate labor market slack due to inadequate demand, and tight labor markets are a necessary condition for reducing unemployment, especially black unemployment, which is persistently higher than white unemployment.  But other policies are necessary to reduce structural unemployment (the “underlying problem”?), which remains a particular concern among African Americans.  Even in the very tight labor markets at the end of the 1960s and the end of the 1990s, the black unemployment rate was much higher than the white unemployment rate.

Next, I think this figure, while simple to the point of simplistic, is instructive. I just ran two simple VARs, one with ‘ all’ and ‘white’ unemployment rates and the other with ‘all’ and ‘black’ rates. Then you shock ‘all’ (+2 s.e.’s) and see how the shock plays out on black and white unemployment over the next few months. As you see, the black response is multiples of the white response. Not a surprise, and I’m of course not saying it’s any kind of complete model–just a way of showing an important correlation that could and should be tapped by a Fed that we need to be weighting full employment more heavily than phantom inflationary pressures right now.


Source: BLS, my calculations


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One comment in reply to "More on how the Fed can boost minority outcomes"

  1. Fred Donaldson says:

    The Washington Post answers the question why so many minorities are poorer than their efforts warrant – too low pay, which discourages underpaid people from even working in this country, versus staying home and living on benefits. Fair pay would encourage work, but cost companies in profits. WP wage story is here. It is stark and will get little analysis in most quarters: