The Fed, full employment, African-Americans, and an event that brings it all together

March 3rd, 2015 at 10:16 pm

As a tireless (some would say tiresome) advocate for full employment and the benefits it yields for working people, you can imagine how I was thrown by this NYT headline over a piece by economics reporter Bin Appelbaum:

Black jobless rates remain high, but Fed can’t do much to help.

“Shots fired!” as the kids say.

I find this hard to believe in the following sense. Black unemployment has averaged almost twice that of overall unemployment since the monthly data begin in 1972 (avg: 1.9, with standard deviation of 0.15, so not a ton of variation around that mean). Crudely, that implies that if overall unemployment fell from 6% to 5%, the black rate might fall more in percentage point terms, from 12% to 10%.

Next, if the Fed can push down the overall unemployment rate, which is certainly within its purview and, at a time like this, its job description, then the headline seems off.

Now, there are important nuances in play here.

First, these relationships are not always so clean. Over the long, strong recovery of the 1990s, black unemployment fell 4.5 points compared to 2.1 points for whites (and 2.5 points overall). Over the 1980s recovery, black unemployment—which was about 20% at the end of the deep early 1980s recession—fell 8.5 points compared to 4.7 for whites.

Those comparatively big declines show the disproportionate benefits that blacks reap from lower unemployment and, conditional on the Fed’s ability to lower unemployment, they belie the NYT headline. I could make similar claims based on wages and incomes, but I’m bound by secrecy for now (more on that in a moment).

However, more recently, that relationship isn’t generating such impressive results. Over this recovery, black and white unemployment have declined by similar amounts (4.5 points for blacks; 3.8 for whites). And, as Appelbaum points out, real median wages have fallen twice as much for blacks as for whites.

But that’s kinda the point: until recently this has been a uniquely weak recovery, and as such, tells us little yet about the extent to which full employment will lift the relative economic fortunes of black workers.

If we get to and stay at full employment, I’m confident it will work as it has in the past, based both on the history briefly cited above and on some truly exciting results from a new paper we’ve commissioned for our full employment project on the benefits of full employment to black workers, written by the economist Valarie Wilson from the Economic Policy Institute.

Valerie will be highlighting the results at an event we’re holding in DC on March 30th so far be it from me to steal her thunder. But she’s got some panel data regressions (which provide lots more observations and variance than the simple time series comparisons noted above) showing the impact of lower unemployment on black compared to white median wages, and man…all’s I can say is I’m employing great restraint not to just print them right here and now!

Here’s another point worth considering. Various economists on team full employment have been trying to get the Fed to hold off on its interest rate liftoff, but Appelbaum writes: “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.”

That may be true in the following sense: if the Fed raises rates a little bit in 2015q4 instead of 2015q3, I doubt it will matter that much to anyone in the real economy (though financial markets would make a huge deal out of it). Similarly, if they hold to a 5.4% full employment rate and a firm 2% inflation ceiling that mustn’t be breached, or if they shift from being data driven to shooting at the phantom menace of inflation that’s allegedly hiding out of sight from the data just around the corner—well then, yeah, they won’t much help those who depend on lasting full employment to catch a break.

He’s also got a point re underlying problems. Even full employment may not be enough to reach the millions of workers with criminal records who face uniquely high barriers to the job market. I’ve written about fair-hiring policies to reach these workers, and so has Appelbaum.

But check this out: I mentioned our March 30 event. Well, another speaker on the panel that morning will be the guy from whom I learned all I know about fair-hiring, Maurice Emsellem from the National Employment Law Project.

I know what you’re thinking: what about macro, what about Fed policy? How can you call yourself a full employment maven and leave that out? Did I forget to mention our keynote speaker? A fella named Bernanke…Ben Bernanke. Here’s the flyer. Be there and be square.

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4 comments in reply to "The Fed, full employment, African-Americans, and an event that brings it all together"

  1. Carl says:

    You’re right -recoveries don’t reach many African Americans. Whatever of this that is not attributable to underlying economic realities within these populations is simply due to HR departments filtering out “black-sounding names”

    Other populations that don’t recover that well are the poor, less educated.

    An even larger set of sub-populations that don’t recover are just about everyone else that HR departments discriminate against– those over 40, unattractive people, those without college degrees, those without ‘the correct’ (Ivy League) degrees, those who are overqualified (more than 10 years of experience), and most importantly, NO ONE HIRES THE UNEMPLOYED (You need a job to get a job). On top of this one has to go around to the hiring manager to even get a chance at getting rejected by anything but a computer!

    Basically, with all of these biases, one has to be attractive, Ivy-League educated, age 25-35, upper-middle class or upper-class, and already employed person who has made contact with the hiring manager before even applying.

    • Smith says:

      For someone white, attractive, 35, Ivy League educated, upper middle or upper class, with over 10 years of experience, mostly likely 13 years from graduation, not including internships, who are overqualified, they’d better have managed their career properly with good contacts to the hiring manager before applying. At that point (though I don’t necessarily fall into any of those categories) being overqualified is an impediment to being hired. I would agree the most important factor is to be employed.
      With all these advantages why even bring up the possible impediments to this privileged class?
      Because as Krugman, Piketty, Saez, and others have repeatedly pointed out, even the winners get unlucky sometimes. Yes, I’m being Petty, but it’s important. The gains in the economy have been all or mostly all going to the 1% and .1% and barely trickling down sometimes to the 5% and 10% struggling to get by on $150,000 to $250,000 a year in income. (you could look it up here are the dollar amounts here is the surprising trend since 2000 ) Why you may ask doesn’t this segment rebel against their greedy bosses in the 1% and .1% if their incomes are stagnating for 10 years? Nonsense, they know where their interests lie in the system as it’s set up, more or less instinctively, despite the “hardship” endured. That top 10% collaborates with the 1% and .1% in running the country.

      Side note, you left out women, who face unequal pay, and people on work visas (high and low skills) who essentially have no labor rights, so your privileged class should be further narrowed to male U.S. citizens, unless you consider the fact women and legal immigrants sometimes replace the privileged class for lower wages, not that anyone would trade places. It just helps explain the domination of the 1%.

      • Carl says:

        Haha. You’re spot on. Even with all those privileges, one still has to behave and manage one’s career perfectly.

        I’m 40, white, male, went to all the right schools, currently work with a very well known international organization, but I grew up dirt poor, the last of ten children of an immigrant who knew no English until his early years, wasn’t WASP, and have endured every social and economic hardship that social services agencies have on their disadvantage checklist, so I’ll never fit in with the ‘cool kids’/ upper-class preppy crowd, even if I’ve made it out of that and do alright career-wise. In professional situations, I put on the right veneer of a background of a class didn’t grow up in. At home with friends, I am myself. Code switching.

        Oh,I forgot to mention the importance of cultivating an uber preppy look, as well. I learned this way back in college. Back then, unless you had the right clothes and shoes (I honestly did not know what Sperry shoes were), you were “eww, working class…”/ AKA a piece of garbage.

        So, yeah, one has to play along with the elites. or fight for one of the many crappy jobs/lives at the bottom of the economic pile.

  2. dwb says:

    “Even full employment may not be enough to reach the millions of workers with criminal records who face uniquely high barriers to the job market”

    You are only half right here. When employers have far more applicants than positions they screen them (going so far as to make a secretarial job require a bachelors degree). But dig deep into the bowels of a truly tight labor market (like North Dakota until recently), you will find employers are happy to have warm bodies and train them. Dig deep into any company, you will find valued employees violating any number of HR “policies” so long as they get the work done. Good managers know how to get around HR when necessary – whether it’s a bank or a retailer.

    Employers will always follow the path of least resistance. You can force employers to consider as many applicants as you want, but if they have 5 applicants for 1 position, mandates don’t have any effect. When “can you start today” is a need, employers forgo all that other screening (with some exceptions, like banking and govt job where its required by law).

    There is a reason that as the labor market tightens, companies dig deeper into the lower skill pool. When the cost of training is lower than the cost of turnover, employers will train. Strong growth reduces inequality.

    The Fed needs to let wage gains happen. If inflation gets to 4% they always have the option of raising rates to 346% to crush the economy.