U.S. Department of the Treasury

By: Counselor for Racial Equity Janis Bowdler and Assistant Secretary for Economic Policy Benjamin Harris
 

Racial inequality is the unequal distribution of resources, power, and economic opportunity across race in a society. While the discussion of racial inequality in the United States is often focused on economic inequality, racial inequality also manifests itself in a multitude of ways that alone and together impact the well-being of all Americans. This includes racial disparities in wealth, education, employment, housing, mobility, health, rates of incarceration, and more.¹

In her January 2022 remarks at the 2022 ‘Virtual Davos Agenda’ hosted by the World Economic Forum, Secretary of the Treasury Janet Yellen stated, “A country’s long-term growth potential depends on the size of its labor force, the productivity of its workers, the renewability of its resources, and the stability of its political systems.” This concept underpins the Biden Administration’s economic growth strategy, which Secretary Yellen has coined “modern supply side economics.” According to Secretary Yellen, modern supply side economics “prioritizes labor supply, human capital, R&D, and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality.”² This reflects a recognition that despite an aim to advance economic growth, many policies in areas such as access to the labor market, housing, and infrastructure have not benefited all Americans. This has impacted the ability of communities of color, rural communities, and other historically marginalized people to fully participate in and benefit from the nation’s prosperity. Our economy as a whole cannot be as productive as possible unless all individuals are given the opportunity to be as productive as possible. As a result, the legacies of structural racism continue to hamper economic growth for everyone. Furthermore, some economic policies that would directly benefit Americans of all races and ethnicities have been undermined by zero-sum arguments that play to fears that one group will benefit at the expense of another. 

There are, of course, moral, legal, microeconomic, and other reasons to promote a more just and equitable society. In a series of blog posts over the coming months, we will focus on the economic argument for reducing racial inequality. The economic cost of racial inequality is borne not just by the individuals directly faced with limited opportunities, but also has spillovers to the entire U.S. economy. Especially as the country becomes more racially diverse (see Figure 1), inequality poses an ongoing threat to our individual and collective economic welfare.
 

Figure 1: Changing Racial and Ethnic Composition of the U.S. Population

_{Notes: Hispanic refers to anyone of Hispanic ethnicity, regardless of race. The remaining groups exclude anyone of Hispanic ethnicity. Prior to the 1980 decennial census, individuals were not directly asked about whether they were of Hispanic origins. For data before the 1980 decennial census, Hispanic is imputed by IPUMS. 
Source: Treasury calculations using U.S. Census Bureau data from IPUMS. Steven Ruggles, Sarah Flood, Sophia Foster, Ronald Goeken, Jose Pacas, Megan Schouweiler and Matthew Sobek. IPUMS USA: Version 11.0 [dataset]. Minneapolis, MN: IPUMS, 2021. https://doi.org/10.18128/D010.V11.0}
 

Deputy Secretary of the Treasury Wally Adeyemo emphasized this argument in his September 2021 blog post: “The exclusion of communities of color from the ladder of economic opportunity holds back economic growth for the entire country. Pursuing racial equity is a vital opportunity to drive innovation and boost growth across the U.S. economy.”³ When people gain access to the resources they need to build their economic future and withstand financial shocks, it is not just good for individuals and their families, but it also benefits the communities where they live, work, and invest, with beneficial spillovers to the economy as a whole. Likewise, when investments are made that allow millions of people who have been held back economically to reach their full economic potential, it gives the United States an important advantage in an increasingly competitive global economy. We cannot afford to leave talent and opportunity on the table.

Below we briefly discuss the origins and persistence of inequality in the United States, highlight some of the key economic indicators of its impact, and give an overview of the issues we will explore in more depth in future posts.

Origins and Persistence of Racial Inequality in the United States

Racial inequality in the United States today is rooted in longstanding behaviors, beliefs, and public and private policies that resulted in the appropriation of the physical, financial, labor, and other resources of non-white people. While a review of the origins of racial inequity is beyond the scope of this blog, it is important to note the prominent role of inequitable and harmful policies—dating back to before the country’s founding. These include attacks on Native Americans’ political status and expropriation of their land, the reliance on slavery to underpin a significant portion of the colonial and then U.S. economy, and the Jim Crow laws and other formal and informal policies that enforced segregation and severely limited opportunities for non-white Americans. The millions of African Americans who left the southern United States to escape Jim Crow laws faced formal and informal employment, housing, and educational discrimination in destination cities in the North and West.⁴ Native Americans who survived the military conquests of the mid-19th century were subject to policies that disenfranchised them, forced their assimilation and relocation, and removed Native children from their households. Anti-Latino sentiment, which grew in the 19th century as emigration from Mexico to the United States increased in the years following the Mexican-American War, grew further following the Great Depression due to concerns that Mexican Americans were taking jobs from European-Americans.⁵ Similarly, anti-Asian sentiment grew following the arrival of Chinese immigrants during the California Gold Rush, which was manifested in the Chinese Exclusion Act prohibiting the immigration of Chinese laborers beginning in 1882, and was ignited again after the bombing of Pearl Harbor, with the establishment of Japanese internment camps by executive order, which resulted in the forced relocation and internment of about 120,000 Japanese Americans.⁶

While the most targeted racist laws and policies have been repealed or otherwise abandoned, subsequent policies, uneven enforcement of equal protections, and a failure to invest in individuals harmed by de jure and de facto discrimination has resulted in vastly limited opportunities and stark inequities between white and non-white Americans that have continued to this day. For example, maps drawn by the Home Owners Loan Corporation, a now defunct federal agency, to portray the relative riskiness of lending across neighborhoods in the 1930s were used by banks to deny access to credit to residents of the lowest-rated neighborhoods, who were often racial and ethnic minorities, though these policies also hurt poor white individuals.⁷ Moreover, this conduct depressed home ownership rates, house values, and rents and increased racial segregation in low-rated neighborhoods in subsequent decades, highlighting the lasting, negative economic consequences of racism on the community and on future residents of these neighborhoods, regardless of race.⁸ These and other policies and actions not only led to continued racial disparities in access to resources and opportunities, they also led to differences in the extent to which people of different races benefit from the resources and opportunities they already possess.⁹

These disparities are evident in the persistent over-representation of Black and Hispanic Americans among the population in poverty in the United States and in the widening of the racial wealth gap in recent decades.¹⁰ While the poverty rates for all racial and ethnic groups had been declining prior to the COVID-19 pandemic (see Figure 2), the gaps between the rates for Black and Hispanic Americans and non-Hispanic white Americans has remained relatively constant since the early 2000s. At the same time, the gap in average net wealth between Black and Hispanic households and non-Hispanic white households has widened significantly (see Figure 3).

Figure 2. Poverty Rate by Race and Hispanic Origin: 1959 to 2019

Figure 3. Household Net Worth by Race and Hispanic Origin: 1989 to 2019

_{Source: Federal Reserve Board, https://www.federalreserve.gov/econres/notes/feds-notes/wealth-inequality-and-the-racial-wealth-gap-20211022.htm}
 

Racial disparities in outcomes predictive of future success appear early in life. In 2010, math skills at kindergarten entry were over half a standard deviation higher for white students than for Black or Hispanic students, with similar disparities in reading skills.¹¹ These disparities in educational outcomes continue into higher education. In 2019, 40 percent of white adults had earned a bachelor’s degree compared to just 26, 19, and 17 percent of Black, Hispanic, and American Indian or Alaska Native adults, respectively.¹²

Large educational disparities, coupled with racial discrimination in the labor market and other factors, lead to pronounced differences in economic security across racial groups. In 2019, the unemployment rate was 6.1 percent for both Black and American Indian or Alaska Native adults, compared to just 3.3 and 2.7 percent for white and Asian adults, respectively. Similarly, the rate for Hispanic adults was 4.3 percent and only 3.5 percent for non-Hispanics.¹³

In addition, Black and Hispanic adults continue to have considerably lower earnings than White or Asian adults. Median household income in 2020 was roughly $46,000 and $55,500 for Black and Hispanic workers, respectively, compared to $75,000 and $95,000 for white and Asian households, as shown in Figure 4. These earnings differences have changed little since 1970 and are one of the primary contributors to the persistence of the racial wealth gap. In 2019, the median white family had $184,000 in family wealth compared to just $23,000 and $38,000 for the median Black and Hispanic families, respectively.¹⁴

Racial disparities in educational and economic outcomes not only impact the economic well-being of racial and ethnic minorities, they have also been shown to inhibit economic growth for the U.S. economy as a whole, which affects the economic security of every American, regardless of race. For example, recent research by economists Chang-Tai Hsieh, Erik Hurst, Charles I. Jones, and Peter J. Klenow shows that up to 40 percent of growth in U.S. GDP per capita between 1960 and 2010 can be attributed to increases in the shares of women and Black men working in highly skilled occupations, likely due to changes in social norms that previously hindered talented women and Black men from pursuing their comparative advantage.¹⁵ This research suggests that sexist and racist social norms prevented the U.S. economy from reaching its full potential and that working to ensure that every American has an equal opportunity to pursue the career he or she chooses should improve economic outcomes for all.

Figure 4. Real Median Household Income by Race and Hispanic Origin: 1967 to 2020

Racial gaps in well-being extend beyond educational attainment and economic security. Health disparities, for example, also begin early in life and persist over the lifespan. Black and Hispanic Americans face higher rates of child abuse,¹⁶ lead exposure,¹⁷ obesity in childhood,¹⁸ and chronic illness in adulthood than white Americans.¹⁹ These groups often experience restricted access to quality health care, an issue further illuminated by the recent global pandemic. Compared to white non-Hispanic Americans, Hispanic, Black non-Hispanic, and American Indian or Alaska Native non-Hispanic Americans are 1.8, 1.7, and 2.1 times more likely to die from COVID-19.²⁰ Moreover, as the COVID-19 pandemic has shown, the inequitable distribution of healthcare in the United States can negatively impact the health of all Americans, including those with access to high-quality services.

In addition, people of color in the United States are over-represented in neighborhoods with high poverty rates. In 2019, nearly a quarter of American Indians or Alaska Natives, 21 percent of non-Hispanic Black people, and 17 percent of Hispanic people lived in high-poverty neighborhoods, defined as Census tracts with a poverty rate of 30 percent or higher. In contrast, only 4 percent and 6 percent of white and Asian or Pacific Islander people lived in high-poverty neighborhoods.²¹ High-poverty neighborhoods often lack vital resources and amenities like good schools, large and affordable grocery stores, reliable public transportation, and safe and clean community spaces that enable residents to succeed in the classroom and on the job.

It is important to note that while we have reliable measures and data sources to define the differences in many outcomes between racial and ethnic groups over the past forty years, our ability to trace racial inequality back further and examine the country’s progress since the end of slavery is limited by the quality and quantity of data available. For example, greater disparities exist within the Asian American and Pacific Islander group than are often evident in aggregate data, and data on Native communities in the United States is usually inadequate for any in depth analyses. Moreover, for some outcomes such as wealth, our ability to measure contemporary differences is also limited by data availability.

Roadmap for this Blog Series

Upcoming posts will discuss in greater depth the extent of racial inequality in economic security and explain how differences in in educational opportunity and attainment, neighborhoods and environmental factors, health and access to healthcare, and employment and job quality, contribute to and are caused by the persistence of racial disparities in economic well-being. Each post will highlight important facts, discuss how key outcomes have evolved over time, and emphasize the connections with other components of economic inequality, with the goal of calling attention to areas where more work is needed to advance racial equity. In addition, we will discuss issues related to data quality and coverage that affect our ability to truly understand the trajectory of racial inequality in the United States.