Not Everybody Recovered from the Great Recession

March 21st 2015

Yes, the recession is technically over. Yes, the economy is doing better. But chances are, you’re a lot more likely to feel the positive vibes if you’re white. The Black community, meanwhile, is probably still asking itself: wait, what recovery?

That’s the upshot of a new report from the Fed Up Coalition, an alliance of several economic justice organizations including the Economic Policy Institute, the AFL-CIO, and the Working Families Party, among others. The report documents the acute economic disparity faced by African-Americans in today’s economy and advocates for specific policies that the Federal Reserve can implement to address the problem and help decrease the racial wealth gap in the United States.

So How Bad Is It?

Probably worse than you think: the numbers are simply staggering. Remember how bad the economy was during the height of the Great Recession, when it seemed like we all knew someone who had either lost a job or just couldn’t find work after college? The permanent reality of the Black community is even worse than that. According to the report, the nationwide unemployment rate at the peak of the Great Recession in October 2010 was 10.0 percent. As of January 2015, the national African-American unemployment rate was even higher, at 10.3 percent—more than double the current unemployment rate among whites. Even more shocking: the state with the highest unemployment rates among whites — Nevada at 7 percent — still has a lower rate than the state with the lowest unemployment rate for Blacks (Virginia at 8 percent). The racial disparity in unemployment is so bad that the worst state for whites is still better than the best state for Blacks.

What About Wages?

Unemployment disparities aren’t the only issue. For the Black community, jobs that are available are paying less and less. For one thing, the Great Recession made things worse for everyone: the economy has regained the total number of jobs that it lost during the economic collapse, but those jobs aren’t in the same industries and they don’t pay nearly as well. Nearly 2 million mid- and higher-wage jobs that existed before the recession have been replaced by work in lower-wage industries. Even still, whites still saw their median wages grow between 2000 and 2014, even if that growth was a paltry 2.5 percent. The Black community has actually seen its median wages fall during that same time, to the tune of 3.4 percent.

All told, the combination of chronically high unemployment and wage erosion has led to a cratering of African-American wealth. According to the report, the economic prosperity of the 1990s led to a narrowing of the wealth gap between African Americans and whites. In 1989, Black households had about 6 percent of the wealth of their white counterparts, but by 2001 that number had more than nearly tripled to 16 percent. But the Great Recession gave almost all those gains back, by 2013 that figure was back down to 8 percent.

So What Does This Have to Do With the Federal Reserve?

Put most simply, the Federal Reserve is the central bank of the United States and is responsible for setting the country’s monetary policy to help manage economic conditions. One of the tools in the Fed’s arsenal is the raising or lowering of interest rates, which affects the cost of borrowing. Lower interest rates can help stimulate the economy: if borrowing money is cheaper, capital can flow more freely, which leads to increases in investment, job growth, and wages. The downside of low interest rates is the risk of inflation, which occurs when upward pressure on prices and wages erodes the purchasing power of money. High inflation makes money worth less, which can eat away at the value of savings and investments. Higher interest rates, by contrast, reduce the risk of inflation by making money more expensive, but also slow economic growth in the process.

In December of 2008, in an attempt to do everything possible to stimulate the economy in the face of recession, the Fed set interest rates as low as they could go, “target range between 0 and ¼ percent.” In other words, zero. Even as the economy has recovered, interest rates have stayed there ever since.  One might normally expect a six-year run of rock-bottom interest rates to lead to high inflation, but that hasn’t happened—in no small part due to the fact that while jobs have recovered, wage growth is still weak.

Nevertheless, as the unemployment rate continues to decline, the Fed is signaling that an interest rate increase is in the works soon. While this might make the financial sector happy because it increases the rate of return of investments, traditional economic theory dictates that it will needlessly hamper both job and wage growth at a time when inflation is not a concern by any objective measure. As the Fed Up report indicates, this could once again turn into a situation where Wall Street gets what it wants at the expense of Main Street — but with the Black community suffering the most.

So What Should the Fed Do Instead?

The report urges the Fed to keep interest rates low to prevent needlessly applying the brakes to the continued economic recovery, such as it is — but that’s not all. Right now, the Fed sets targets for its desired inflation rate and unemployment rate. But those statistics often don’t give the most accurate picture of the nation’s economy: the unemployment rate, for instance, doesn’t account for people who are underemployed, employed at jobs that pay less than their experience and qualifications merit, or people who have been without work for so long that they have simply given up trying. According to the report, the Fed should change its targets to focus on targets for full employment and wage growth, which are better indicators of how well actual people are doing in the economy than the inflation rate and the technical unemployment rate.

And then there’s the question of who is making the decisions. The members of the Regional Federal Reserve Banks’ Board of Directors are overwhelmingly white and male and come predominantly from the financial sector. The report argues that a more transparent process in selecting the Board of Directors and the Regional Bank Presidents will help ensure that the people who make decisions about Federal Reserve policy will consider how policies affect Main Street—both in white communities and black communities—just as much as the financial giants in Lower Manhattan.

Recently appointed Federal Reserve Chair Janet Yellen has talked about broadening the range of economic indicators that the Fed uses to make its policy decisions, and that’s a good thing — but she’s fighting an uphill battle. Given how opaque and complex these macroeconomic fights can be, it’s a relief to know that there are community groups that are paying attention and giving her some backup.

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