US economy

The structural problem the US never fixed


The unemployment rate for African Americans is still about as low as it’s ever been, about a percentage point lower than its lowest point in the last cycle. That is unambiguously good, and something the president has been — justifiably — eager to point out, for example in this year’s State of the Union address, but also every other month or so on Twitter.

The challenge with comparing white and black unemployment in a US expansion is that there’s a well-documented cyclical trend of convergence during an expansion, and divergence during a recession. That means you can’t “fix” the gap, even in an extraordinary expansion like the one we’re having right now. It closes, it widens. That’s a structural problem. The business cycle doesn’t affect white Americans the way it does black Americans.

And right now, three months of data show the gap widening again:

First, all the caveats. Most significantly, there’s a lot more month-to-month variation in the black unemployment numbers. It’s a smaller number, and there’s going to be more noise. But the trend is now three months old. And while a three-month trend isn’t enough for a conclusion, it is enough for a question.

In 2010, Kenneth Couch of the University of Connecticut and Robert Fairlie of UC Santa Cruz looked at this gap in a paper for the journal Demography titledLast Hired, First Fired? Black-White Unemployment and the Business Cycle.” They found that black workers are the first to suffer when the cycle turns (emphasis ours):

Considerable evidence is presented that blacks are the first fired as the business cycle weakens. However, no evidence is found that blacks are the last hired. Instead, blacks appear to be initially hired from the ranks of the unemployed early in the business cycle and later are drawn from nonparticipation. The narrowing of the racial unemployment gap near the peak of the business cycle is driven by a reduction in the rate of job loss for blacks rather than increases in hiring.

The authors went back to this data for another paper in 2016 and found a structural shift in the early years of the Great Recession (emphasis again ours):

one of the most important changes that occurred in labour market dynamics in the Great Recession was a sizeable decrease in the base probability of moving from being unemployed to employed among blacks. The probability of making this transition, independent of business cycle conditions decreased by more than 2 percentage points while controlling for a range of possible confounders. This particularly striking and consistent result across estimates suggests that the sharp decline in demand associated with the Great Recession overwhelmed normal processes of labour market dynamics, with blacks bearing the largest brunt of this impact through a reduced probability of being rehired.

You can see this in the graph above. The Great Expansion has been good for black employment, and has closed the gap to its lowest level ever. But the Great Recession was also particularly bad for black employment, and raised the gap as high as it had been since the 80s.

Here’s another way to look at it. There are structural differences all over the labour market. When things are great, all the gaps close. When things get bad, all the gaps widen. The Great Expansion has been good for everyone. The Great Recession was bad for white women, worse for white men, much worse for black women, and catastrophic for black men:

And there’s the barest beginning of a trend that shows the gap, particularly for black men, starting to widen again.


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