The state of communities of color in the U.S. economy

The Great Recession of 2007-2009 produced widespread employment losses for communities of color and white families alike--losses that have yet to be overcome amid the still tentative economic recovery. All U.S. households were severely hurt by the recession but communities of color experienced larger losses than whites.

This also means that, as the economic recovery deepens and the labor market recovers, communities of color will have to climb out of a deeper hole to regain the same level of economic security as they had before the crisis.

The level of economic security enjoyed by communities of color before the housing and financial crises drove our economy into the ditch was far lower than that of white families (though better than their current circumstances). The last business cycle, which lasted from the beginning of the last economic recession in March 2001 to the beginning of the Great Recession in December 2007, did little to close the economic gap between communities of color and white families and in some cases even exacerbated the difference in economic security. The Great Recession thus made a bad situation worse.

Many communities of color, particularly African Americans and Latinos, experienced similar hardships during this recession even though their experience during the preceding business cycle varied substantially.

African Americans saw few economic gains during the last business cycle, with stagnant or declining home-ownership and wages, high unemployment rates, and low employment rates even as the economy grew. Latinos, in comparison, saw comparatively strong jobs gains that were reflected in other gains, particularly in home-ownership, during the last business cycle. Those gains, though, were insufficient to provide a buffer for Latinos once the recession hit, leading Latinos to lose most of the ground gained during the previous business cycle.

The data show that Asian Americans’ employment and earnings are generally on par with those of whites, but the data are dominated by Chinese and Indian Americans. Other Asian nationalities, among them Vietnamese Americans and Cambodian Americans, are struggling to recover from the Great Recession, but limited data disguise the diversity within the Asian-American community. Still, even the existing data for Asian Americans show substantial economic struggles in the worst recession, alongside economic hardships for white families.

The diverse consequences of the Great Recession and the ensuing tepid recovery for communities of color in our nation are evident in different sets of data. Specifically the data show:

Substantial differences in economic security exist by race and ethnicity. The unemployment rate for African Americans, for instance, was 15.8 percent in the fourth quarter of 2010, compared to 12.9 percent for Latinos, 7.3 percent for Asian Americans, and 8.7 percent for whites.

Home-ownership rates tell a similar story. In the third quarter of 2010, the home-ownership rate for African Americans was 45.0 percent. The home-ownership rate for Latinos was 47.0 percent, and the home-ownership rate for whites was 74.7 percent.

Racial and ethnic differences have worsened or stayed the same during the recession and recovery. Unemployment rates rose faster for African Americans and Latinos than for whites while home-ownership rates fell faster. Trends for poverty rates, health insurance coverage, and retirement savings also show widening gaps by race and ethnicity throughout the recession and recovery after 2007.

Economic security losses during the recession and recovery exacerbated the already weak situation for African Americans. They experienced declining employment rates, rising poverty rates, falling home-ownership rates, decreasing health insurance and retirement coverage during the last business cycle from 2001 to 2007. The recession that followed made a bad situation much worse.

The recession and recovery quickly eliminated the modest gains that Latinos had seen during the last business cycle. Latino home-ownership rates in 2010, for instance, were again close to their levels in 2001 even though Latino home-ownership rates had risen from 2000 to 2007.

The main lessons from the data are threefold. First, all families struggled with the prolonged economic and labor market slumps, regardless of race or ethnicity. Second, economic differences by race and ethnicity remained intact during the crisis, meaning that communities of color went into a deeper economic hole than whites. Third, the most recent economic downturn quickly translated into a lot of economic pain for communities of color since they had seen few gains, either with respect to jobs, earnings, or both, during the preceding business cycle. The data suggest that communities of color face continued structural obstacles to gain the same economic opportunities as white families, even during good economic times.

This implies three policy lessons. First, policymakers need to pay continued attention to the weak labor market to ensure there is a rising tide that can lift all boats. Second, policies intended to create more jobs need to include provisions that particularly target communities of color. Third, policymakers need to put in place policies that go beyond the immediate need for job creation for everybody to help erase differences in economic security and opportunity by race and ethnicity.

The unemployment rate is one of the most fundamental tools to understanding the overall health of the labor market. At the end of 2010, the unemployment rate for African Americans and Latinos remained considerably higher than that of white and Asian Americans. In the fourth quarter of 2010, the unemployment rate for white Americans was 8.7 percent, while the unemployment rate for Asian Americans was 7.3 percent. Comparably, the unemployment rates for African Americans and Latinos at the end of 2010 were 15.8 percent and 12.9 percent, respectively.

In December 2007, the start of the last recession, the quarterly unemployment rate for whites was 4.2 percent, or 4.5 percentage points less than three years later. Similarly, the unemployment rate for Asian Americans was 3.7 percent, or 3.6 percentage points lower than at the end of 2010. The unemployment rate for African Americans was 8.6 percent in December 2007, or 7.2 percentage points lower than in December 2010. And the unemployment rate for Latinos had increased by 7.1 percentage points by December 2010 from a level of 5.8 percent in December 2007. The increases in the unemployment rate over the past three years started from higher levels for communities of color than for whites and they rose much faster for communities of color than for whites.

These numbers are troubling, especially because these trends perpetuated racial and ethnic differences from the last business cycle, which lasted from March 2001 to December 2007. The unemployment rate for African Americans was 8.1 percent in March 2001 and the unemployment rate for Latinos was 6.0 percent, compared to 3.4 percent for Asian Americans and 3.7 percent for whites. These gaps remained by December 2007, which meant that communities of color entered the most severe recession since the Great Depression from a position of relative economic weakness compared to that of whites and some parts of the Asian-American community.

These structural differences in unemployment rates by race and ethnicity meant that communities of color fell into a deeper hole in terms of economic security during the recession and that communities of color will need to see much stronger growth than is the case for whites to climb back out of this hole. Communities of color are in more desperate need of policy attention to jobs, wages, and benefits than whites to just recover the losses they suffered during the recession since they experienced sharper economic security losses.

Employment-to-population ratio
People typically don’t want to be unemployed. They want to have a job. A reasonable indicator of the employment opportunities for each community is the employment-to-population ratio, which shows the share of people in a community who have a job. A higher number suggests more job opportunities and a lower number indicates fewer job opportunities. And a decline in the employment-to-population ratio means that job growth is not keeping up with population growth, while an increase in the employment-to-population ratio shows that job growth outpaces population growth.

The employment-to-population ratio measures how well employment gains and losses are keeping up with population changes. The employed share of the population for whites stood at 59.1 percent in the last quarter of 2010, compared to 58.4 percent for Latinos, 59.9 percent for Asian Americans, and 52.4 percent for African Americans. Employment opportunities were especially hard to come by for African Americans three years into the business cycle that started in December 2007.

Employment opportunities disappeared more quickly for communities of color than for whites over the past three years. The percent of whites with a job dropped 4.4 percentage points since the start of the recession, while the rate for Latinos declined 6.1 percentage points, for African Americans fell by 5.4 percentage points, and for Asian Americans decreased by 4.4 percentage points. The decline in the employment-to-population ratios for all population groups indicates that job growth has fallen well below population growth over the past three years, more so for African Americans and Latinos than for others.

These current figures are a marked decline from where they were in March 2001 when the last business cycle began. At that point, 64.9 percent of white Americans and 65.9 percent of Latinos were employed, 65.3 percent of Asian Americans had jobs, and 60.5 percent of African Americans found work.

The struggles of communities of color are even more stark when examining how well actual employment levels live up to the employment levels, relative to the respective populations, at the end of 2007. This comparison gives a sense of how deep the jobs hole currently is for each population group. By comparing current employment to pre-recession employment we can gauge how much damage the recession did to employment prospects.

At the end of 2010, white Americans’ actual employment level was 93.4 percent of their pre-recession employment level, meaning that employment was almost seven percent below where it needed to be to put whites just back to where they were at the start of the recession. For Asian Americans that number was 93.1 percent, for African Americans it was 90.7 percent, and for Latinos it was 90.8 percent. African Americans and Latinos were thus in a much deeper employment hole by the fourth quarter of 2010 compared to the start of the recession in December 2007.

The last business cycle, though, was already marked by weak employment growth. Job growth fell behind population growth for almost all groups, even before the Great Recession hit. The employment-to-population ratio for whites declined by an average annual rate of 0.2 percentage points per year between March 2001 and December 2007, while the ratio declined by an average annual rate of 0.4 percentage points for African Americans, 0.1 percentage points for Asian Americans, and 0.2 percentage points for Latinos.

These employment data show two crucial points. First, all population groups were in a weaker economic position at the end of the last business cycle (December 2007) than at the beginning of that business cycle (March 2001). So during an economic upturn they experienced an erosion of economic prosperity. Second, economic security declined more sharply for African Americans and Latinos, and possibly for some parts of the Asian-American community, than for whites.

Part-time employment
As the economy struggles, increased part-time employment rates indicate the severity of economic hardships for families across the country. Employers are hiring few people, if any at all. Many job seekers thus turn to part-time employment to at least have a job. The important indicator for the weakness in the labor market is the change in the share of people working part time, since other social, cultural, and economic factors can determine the level of part-time employment.

In the fourth quarter of 2010, 15.5 percent of African Americans, 16.9 percent of Latinos, 15.6 percent of Asian Americans, and 18.6 percent of whites worked fewer than 35 hours each week. These levels mirrored much larger increases in part-time employment for communities of color than for whites. African Americans and Latinos have seen more significant increases in part-time employment compared to whites and Asian Americans.

The share of Asian Americans working part time has gone up by 2.1 percentage points over the past three years, while the share of part-time workers has increased 1.7 percentage points in the same period. The numbers again show faster increases in economic weaknesses for communities of color than for whites since their shares of part-time workers have risen faster than was the case for whites.

Weekly earnings
People not only need a job but also a job that pays well enough to make ends meet. Median weekly earnings–defined as half of all households with incomes that are above the median and the other half with incomes below the median–shed some light on the quality of jobs that Americans hold. The numbers indicate that Latinos and African Americans continue to hold lower-quality jobs relative to their white and Asian-American counterparts as they typically earn significantly less money per week. As of the third quarter of 2010, the last period for which we have data, African Americans’ usual median weekly earnings were $623 in 2009 dollars and Latinos earned $532. In comparison, whites made $774 each week, while Asians earned $871.

This earnings gap is no thing new. Throughout the decade, African Americans and Latinos have consistently brought home less money each week compared to whites. At the beginning of the last business cycle in March 2001, whites’ median usual weekly earnings stood at $731. African Americans earned $582 weekly, or 79.7 percent of what whites did, while Latinos earned $493 weekly, or 67. 4 percent of what whites made on average. By the end of the last business cycle in December 2007, African Americans earned, on average, about 82.8 percent of what whites earned, and Latinos earned 73.1 percent of what whites did. This suggests that, despite a slight narrowing, large earnings gaps persisted at the start of the Great Recession.

These gaps widened as the economy began to recover from the recession. In the third quarter of 2010, African American and Latino families earned 80.5 percent and 68.8 percent of what whites made, respectively. Communities of color thus not only saw job opportunities disappear more quickly than was the case for whites, but the quality of their jobs also fell more during the recession than was the case for whites.

Household income
Household income statistics provide the most comprehensive measure of the current economic resources that households have available. In addition to wages, household income incorporates other forms of revenue received, such as unemployment insurance, child support payments, social security, and rental income. The data report the median household income, which is the income level that splits all households into two equal groups–half of all households have incomes that are above the median and the other half have incomes below the median.

In 2009, the last year with available data, median household incomes were substantially lower for communities of color than for whites. The median household income of African Americans was $32,584 in 2009 dollars, more than 40 percent less than that of whites, who earned $54,461. And Latinos had a median income of $34,088, or about 30 percent below that of whites in 2009. Asian Americans had a median income of $65,469 in 2009, which was about 20 percent higher than that of whites.

All groups saw sharp income decreases during the Great Recession. The median income of whites fell by $2,353 from 2007 to 2009 in 2009 dollars; the median income of Asian Americans dropped by $2,913; the median income of African Americans decreased by $2,502; and the median income of Latinos dropped by $1,974. In relative terms, this meant a decrease of 4.1 percent for whites, 4.3 percent for Asian Americans, 4.9 percent for Latinos, and 7.1 percent for African Americans. Once again, the data show a sharper erosion of economic security for communities of color than for whites.

The decreases during the recession continued the trend from the last business cycle, when median incomes also declined. On the whole, incomes have declined across the board this decade. African Americans and Latinos were hit the hardest. Since 2000, African Americans’ household incomes decreased 1.4 percent per year, while the median income for Latinos declined 0.9 percent annually.These rates are significantly higher than that of whites, whose incomes declined 0.5 percent per year, and for Asian Americans, whose median income dropped by 0.7 percent each year between 2000 and 2009.

Combined with the fact that African-American and Latino household incomes started the decade lagging behind those of whites, the steady decrease in household income at accelerated rates only serves to widen the earnings gap.

The percentage of the U.S. population living below the poverty line increased for all racial groups in the recession, more so for communities of color than for whites.

In 2009, more than one in four Latino (25.3 percent) and African-American families (25.8 percent) lived below the poverty line. Conversely, poverty rates among white Americans and Asian Americans were 9.4 percent and 12.5 percent, respectively.

These figures show more pronounced increases in the poverty rates for communities of color than for whites during the recession. The poverty rate increased by 1.3 percentage points for African Americans, by 3.8 percentage points for Latinos, and by 2.3 percentage points for Asian Americans from 2007 to 2009. The comparable increase for whites was 1.2 percentage points during that period.

These increases in the poverty rate followed a worsening or unchanged poverty situation for all groups. In 2000, the poverty rate among African Americans was 22.5 percent, rising to 24.5 percent in 2007. For Latinos the poverty rate in 2000 was 21.5 percent, the same as in 2007. The poverty rate for Asian Americans in 2007 was 10.2 percent, rising from 9.9 percent in 2000, and the poverty rate for whites increased from 7.4 percent in 2000 to 8.2 percent in 2007.

All groups saw rising poverty throughout the past nine years. These increases, though, occurred from much higher levels of poverty for minorities than for whites, exacerbating severe economic security in communities of color.

Health insurance provides access to medical care. The cost of coverage is often prohibitive, and coverage rates reflect the economic well-being of families across the country. In 2009 (the last year with available data), 12.0 percent of white Americans lacked health insurance. The number of uninsured African Americans was 9.0 percent higher than white Americans in 2009, with 21.0 percent. Latinos had the largest share of uninsured people with 32.4 percent in 2009. And 17.2 percent of Asian Americans lacked health insurance in 2009. Communities of color were clearly a lot more economically insecure than whites.

The share of people without health insurance increased in all groups during the recession. The share rose by 1.6 percentage points from 10.4 percent in 2007 for whites, by 1.5 percentage points from 19.5 percent for African Americans, by 0.3 percentage points from 32.1 percent for Latinos, and by 0.7 percentage points from 16.8 percent for Asian Americans.

These increases reversed the improvements of health insurance coverage for some groups while exacerbating the losses during the last business cycle for others. The share of whites without health insurance rose from 9.1 percent to 10.4 percent between 2000 and 2007, and from 18.3 percent to 19.5 percent for African Americans. The shares, though, fell from 32.6 percent to 32.1 percent for Latinos, and from 17.5 percent to 16.8 percent for Asian Americans. Most of these meager gains were erased in the recession that followed.

The gap between white and nonwhite home-ownership rates remains significant at the end of the decade. As of the third quarter of 2010, the home-ownership rate was 74.7 percent for whites, while only 47.0 percent of Latinos were homeowners. The home-ownership rate for African Americans was 45.0 percent.

These data show declining home-ownership rates for communities of color and rising rates for whites during the recession. The white home-ownership rate fell by 0.2 percentage points from 2007 to the third quarter of 2010. The African-American home-ownership rate fell by 2.7 percentage points from 47.7 percent to 45.0 percent, and the Latino home-ownership rate decreased by 1.5 percentage points from 48.5 percent in December 2007 to 47.0 percent in the third quarter of 2010.

In the previous business cycle, whites and Latinos saw increased home-ownership rates while African Americans did not. From 2001 to 2007, the home-ownership rate for whites increased 1.2 percent, from 74.3 percent in 2001 to 75.2 percent in 2007. [5] The home-ownership rate for Latinos rose a whopping 5.1 percent in the last business cycle. Their overall home-ownership rose to 49.7 percent in 2007 from 47.3 percent in 2001. African-American home-ownership rates declined in the same time period, dropping 1.1 percent from 2001 to 2007. The African- American home-ownership rate was 47.7 percent in 2001 and 46.2 percent in 2007. The decline in the African-American home-ownership rate from 2001 to 2007 only exacerbated their struggles in the recession.

Similarly, foreclosure rates provide some insight as to how well communities of color are faring in the financial and economic crisis. The current foreclosure rate on loans issued between 2005 and 2008 was 4.52 percent for whites. For Asian Americans, the rate was 4.60 percent. Latinos and African Americans had significantly higher foreclosure rates, at 7.69 percent for Latinos and 7.90 percent for African Americans.

When controlling for income, disparities still exist, especially for African Americans. Among low-income Americans of all groups, African Americans received 14.8 percent of loans but made up 21.0 percent of the foreclosures. Among middle-income Americans, African Americans received 12.3 percent of all loans but are 18.0 percent of the foreclosures. Even among those with high incomes, African Americans constituted a disproportionate share of all foreclosures. The picture is similar for Latinos. In all income categories, the share of Latino homeowners in foreclosures outnumber their share of total loans, although the differences to whites are not quite as stark as for African Americans.

Similarly, planning and saving for retirement can place financial burdens on families. The percentage of individuals with employer-based retirement plans from the private sector declined across the board in 2008. Less than half of African Americans–45.6 percent–had access to employer-based retirement savings, down 1.5 percentage points from 2007. Less than a third of Hispanics–30.3 percent–had employer-based retirement plans, down 0.3 percentage points from 2007. Whites also saw a decline, with only 56.6 percent having employer-based retirement plans, down one percentage point from the year before.

Access to employer-based retirement plans has slowly declined since 2002, the earliest this data is available. The percentage of African Americans with these plans has declined 0.3 percentage points annually, while the percentage of whites with these plans has declined 0.2 percent annually. Hispanics have the lowest of access to such plans, but their decline since 2002 has been slower–0.1 percentage points a year.

Communities of color face ongoing systematic economic inequalities in the 21st century. Though many have been remedied by progressive policy making and community conscientious practices, much is left to do to equalize the economic tide for communities of color. The following are key policy recommendations from the Center’s Progress 2050 project that would help alleviate these inequalities.

Unemployment benefits provide much needed assistance to unemployed individuals and their families while they work to find a new job. Unemployment insurance is especially important for communities of color because they face higher levels of unemployment and significantly lack wealth.

The source and reasons for these disparities are well-documented but the bottom line is that unemployment insurance would provide critical assistance to unemployed individuals and their families while they find a new job and would enable those out of work to keep putting food on the table and pay their bills.

Moreover, there’s a strong economic case for continuing these benefits. Unemployment benefits are one of the most effective and efficient ways to boost demand, which is what our economy needs. Economists estimate that the economy grows by $1.61 for every dollar spent on unemployment benefits because recipients typically spend all of their benefit payments quickly.

A return to a noncontroversial, non-expendable perception of unemployment insurance is critical for communities we know are vulnerable to the racial wealth gap and long-term job seeking. If we do not ensure the long-term viability of unemployment benefits, conscripted economic inequalities will continue to flourish in the forms of chronic debt, lower asset holdings, and patterned economic deficits for communities of color, detrimentally impacting our economy overall.

Authors: Christian E. Weller, Jaryn Fields, Folayemi Agbede, Center for American Progress