Fed Study: Discrimination Is Causing Growth in the US Racial Pay Gap

Fed Study: Discrimination Is Causing Growth in the US Racial Pay Gap

Last year, an alarming report from the left-leaning Economic Policy Institute found that the gap in income between black and white Americans had grown from 1979 to 2015, with black men earning 22.0 percent less, and black women making 34.2 percent less, than white men with the same education, experience, and geographical location. A new study by the Federal Reserve Bank of San Francisco confirms that finding, showing that the black-white wage gap has been growing and furthermore, that economic factors do not explain why.

The hourly wage ratio of the average black male to his white male counterpart shrank from 80 percent in 1979 to 70 percent in 2016, the San Francisco Fed finds. Black women earned 95 percent of what white women made in 1979, but that has gone down to 82 percent in 2016. While some of the gap can be explained by attributes such as location, education, working hours, job type, etc., the reason for its growth is less tied to those factors and economists are struggling to explain the increase. The Fed says this “implies that factors that are harder to measure—such as discrimination, differences in school quality, or differences in career opportunities—are likely to be playing a role in the persistence and widening of these gaps over time.” Eshe Nelson at Quartz adds:

In fact, additional research by the San Francisco Fed showed that black people with bachelor’s degrees saw the earnings gap with their white counterparts increase by more than for high-school graduates. … Ultimately, it seems that discrimination—whether in the “unexplained” category, or more structural racial bias that exists in educational systems and elsewhere—is widening the disparity in wages between black and white workers. Time alone will not close this gap, researchers conclude. … time seems to be making it worse.

One factor that may also account for the recent rise is that black workers are hit harder by recessions and recover more slowly than the rest of the labor market. It’s very likely that the cumulative effect of the recessions of 1987 and the late 2000s reversed, or even worsened, any progress made from the late 1960s to the early 80s. Bloomberg’s Jeanna Smialek and Jordyn Holman idenfity why this is such a problem:

The fact that the gap has lingered and even worsened over time also means that a stronger labor market, which politicians often cite as a remedy for black workers’ economic disadvantage, probably won’t permanently narrow the divide. … Black workers have consistently higher unemployment than their white counterparts, but that divide is highly cyclical: In strong labor markets, it shrinks, but then it skyrockets again during recessions. Black wage gaps change less across business cycles.

When economists can attribute wage disparities to factors such as location and education, it places an onus on sympathetic lawmakers to work to improve those conditions in the interest of shrinking the gap. With growth in the wage gap attributable specifically to discrimination in the workplace, on the other hand, employers need to make the push on their own. Initiatives such as banning salary history, identifying and eliminating bias in all stages of the employee life cycle, and creating a culture of inclusion so minorities are inclined to stay can all be a part of this effort. Neither lawmakers nor corporate leaders, however, can change people’s minds about the existence and effects of systemic discrimination.

Until companies take stronger action against discriminatory behavior within their ranks, the black-white wage gap will likely continue to grow. Many leading companies have taken steps in the right direction, but there’s clearly still a long way to go.