Jared Bernstein: Unemployment, Black Unemployment and The Fed

The Fed, full employment, African-Americans, and an event that brings it all together

March 3rd, 2015

As a tireless (some would say tiresome) advocate for full employment and the benefits it yields for working people, you can imagine how I was thrown by this NYT headline over a piece by economics reporter Bin Appelbaum:

Black jobless rates remain high, but Fed can’t do much to help.

“Shots fired!” as the kids say.

I find this hard to believe in the following sense. Black unemployment has averaged almost twice that of overall unemployment since the monthly data begin in 1972 (avg: 1.9, with standard deviation of 0.15, so not a ton of variation around that mean). Crudely, that implies that if overall unemployment fell from 6% to 5%, the black rate might fall more in percentage point terms, from 12% to 10%.

Next, if the Fed can push down the overall unemployment rate, which is certainly within its purview and, at a time like this, its job description, then the headline seems off.

Now, there are important nuances in play here.

First, these relationships are not always so clean. Over the long, strong recovery of the 1990s, black unemployment fell 4.5 points compared to 2.1 points for whites (and 2.5 points overall). Over the 1980s recovery, black unemployment—which was about 20% at the end of the deep early 1980s recession—fell 8.5 points compared to 4.7 for whites.

Those comparatively big declines show the disproportionate benefits that blacks reap from lower unemployment and, conditional on the Fed’s ability to lower unemployment, they belie the NYT headline. I could make similar claims based on wages and incomes, but I’m bound by secrecy for now (more on that in a moment).

However, more recently, that relationship isn’t generating such impressive results. Over this recovery, black and white unemployment have declined by similar amounts (4.5 points for blacks; 3.8 for whites). And, as Appelbaum points out, real median wages have fallen twice as much for blacks as for whites.

But that’s kinda the point: until recently this has been a uniquely weak recovery, and as such, tells us little yet about the extent to which full employment will lift the relative economic fortunes of black workers.

If we get to and stay at full employment, I’m confident it will work as it has in the past, based both on the history briefly cited above and on some truly exciting results from a new paper we’ve commissioned for our full employment project on the benefits of full employment to black workers, written by the economist Valarie Wilson from the Economic Policy Institute.

Valerie will be highlighting the results at an event we’re holding in DC on March 30th so far be it from me to steal her thunder. But she’s got some panel data regressions (which provide lots more observations and variance than the simple time series comparisons noted above) showing the impact of lower unemployment on black compared to white median wages, and man…all’s I can say is I’m employing great restraint not to just print them right here and now!

Here’s another point worth considering. Various economists on team full employment have been trying to get the Fed to hold off on its interest rate liftoff, but Appelbaum writes: “It’s not obvious, however, that holding down borrowing costs for a little longer would be an effective way to address the underlying problem. Indeed, the problem is a good illustration of the limits of monetary policy.”

That may be true in the following sense: if the Fed raises rates a little bit in 2015q4 instead of 2015q3, I doubt it will matter that much to anyone in the real economy (though financial markets would make a huge deal out of it). Similarly, if they hold to a 5.4% full employment rate and a firm 2% inflation ceiling that mustn’t be breached, or if they shift from being data driven to shooting at the phantom menace of inflation that’s allegedly hiding out of sight from the data just around the corner—well then, yeah, they won’t much help those who depend on lasting full employment to catch a break.

He’s also got a point re underlying problems. Even full employment may not be enough to reach the millions of workers with criminal records who face uniquely high barriers to the job market. I’ve written about fair-hiring policies to reach these workers, and so has Appelbaum.

But check this out: I mentioned our March 30 event. Well, another speaker on the panel that morning will be the guy from whom I learned all I know about fair-hiring, Maurice Emsellem from the National Employment Law Project.

I know what you’re thinking: what about macro, what about Fed policy? How can you call yourself a full employment maven and leave that out? Did I forget to mention our keynote speaker? A fella named Bernanke…Ben Bernanke. Here’s the flyer. Be there and be square.

Reprinted with permission from  jaredbernsteinblog.com

More on how the Fed can boost minority outcomes

March 4th, 2015 at 11:14 am

A few more points regarding this question of the extent to which the Fed can help boost economic outcomes for African-Americans. As I and numerous others have noted, the NYT piece underappreciates the disproportionate boost black employment, earnings, and incomes get from full employment. More on that in a moment.

I asked my CBPP colleague Chad Stone what he thought about all this and I found his answer resonant:

Appelbaum wrote: “It’s not obvious, however, that holding down borrowing costs for a little longer would be an effective way to address the underlying problem. Indeed, the problem is a good illustration of the limits of monetary policy.”

But what if he’d said:  monetary and fiscal stimulus can eliminate labor market slack due to inadequate demand, and tight labor markets are a necessary condition for reducing unemployment, especially black unemployment, which is persistently higher than white unemployment.  But other policies are necessary to reduce structural unemployment (the “underlying problem”?), which remains a particular concern among African Americans.  Even in the very tight labor markets at the end of the 1960s and the end of the 1990s, the black unemployment rate was much higher than the white unemployment rate.

Next, I think this figure, while simple to the point of simplistic, is instructive. I just ran two simple VARs, one with ‘ all’ and ‘white’ unemployment rates and the other with ‘all’ and ‘black’ rates. Then you shock ‘all’ (+2 s.e.’s) and see how the shock plays out on black and white unemployment over the next few months. As you see, the black response is multiples of the white response. Not a surprise, and I’m of course not saying it’s any kind of complete model–just a way of showing an important correlation that could and should be tapped by a Fed that we need to be weighting full employment more heavily than phantom inflationary pressures right now.