January 18, 2008 | EPI Issue Brief #241
What a recession means for black America by Algernon Austin
Recessions hurt. And they hurt the poor and socially marginalized populations the most. As we face the prospect of the second recession of the decade and consider the merits of various stimulus packages, it is useful to examine what a recession would mean for black America.
The late 1990s produced a full employment economy and significant absolute and relative economic gains for blacks. This Issue Brief contrasts the benefits of a national full-employment economy with the harm caused by the 2001 recession and the weak job growth that followed.
Black America's permanent recession
In the best of times, many African American communities are forced to tolerate levels of unemployment unseen in most white communities. The 2001 recession pushed the white annual unemployment rate up from a low of 3.5% in 2000 to a high of 5.2% in 2003. During the same period, the black unemployment rate shot up from 7.6% to 10.8%. National recessions take African Americans from a bad situation to a worse one.
In 2007, the black unemployment rate was 8.3%. This figure is still above the pre-recession low and more than twice the white unemployment rate. Goldman Sachs estimates that a new recession would increase the national unemployment rate to 6.4% by 2009.1 For African Americans, the unemployment rate would be expected to rise to 11.0%.2
African Americans lose income relative to whites
The low unemployment rates of the 1990s led to positive gains in the black/white income ratio. In 1995, the median black family earned 60.9% of what the median white family did. By 2000, the ratio had climbed to a record high of 63.5%. The effect of the 2001 recession and the weak economic recovery was to undo all of those gains—and then take away some more. By 2005, the median black household earned only 60.2% of the median white household, 0.7 points lower than it was in 1995. 3
But median family income does not tell the entire story. The 2001 recession and weak recovery hurt the poorest African Americans the most. In 1995, the poorest fifth of black families only earned on average 43.0% of what the poorest fifth of white families earned. Again, the economic growth of the late 1990s was a significant boon. The black/white average income ratio for the poorest fifth increased to 49.9% in 2000. By 2005, it had fallen back to 43.4%. Among blacks, the poorest black families lost the largest share of their income gains from the late 1990s.4
Another recession will likely reduce the median family income for all Americans by about 4%. However, for blacks, the decline would be about 6%, leaving the average African American family $2,400 poorer.5 Again, this loss of income will hurt the poorest fifth of African Americans the most.
Additional social costs
Associated with the strong economy of the 1990s, there were significant declines in the black violent crime rate and the black teen pregnancy rate. Between 1993 and 2001, the black violent crime rate declined by 60%.6 Between 1990 and 2004, the black teen pregnancy rate declined by 46%.7 These improving trends have ended, and it is likely that the worsening economic conditions of African Americans since 2001 have played at least a partial role.
At the community level, criminologists find a correlation between violent crime rates and socioeconomic disadvantage.8 At the national level, too, the black violent crime rate has recently been strongly correlated with black poverty rates.9 Therefore, it is not surprising that the historic crime decline of the 1990s ended with the reversal of economic fortunes that African Americans experienced at the beginning of the 21st century.
Based on a study of five countries including the United States, the Alan Guttmacher Institute reports "across all of the focus countries, young people growing up in disadvantaged economic, familial and social circumstances are more likely than their better-off peers to engage in risky behavior and have a child during adolescence."10 Given that socioeconomic disadvantage has increased for African Americans since 2000, it is not entirely surprising that black teen pregnancy rates have started to rise again.
Another recession would likely continue these negative trends. The black violent crime rate and the black teenage pregnancy rate both will likely rise. Once again, the negative effects of these trends will hurt the poorest African Americans most.
What black America needs
Even when the national unemployment picture is good, the black unemployment rate is more than twice that of the white unemployment rate. This means that in what looks like good economic times nationally, most of black America is still experiencing a recession. When white America is in recession, black America is in an economic depression.
Faced with the prospect of another recession, what black America needs is what all of America needs: a stimulus package that will help average Americans and those with the most insecure jobs. The lesson from black America is that the poorest among us are most hurt by recessions. Stimulus proposals based on tax cuts for the wealthy or for business owners are not likely to provide immediate relief to those still hurting from the 2001 recession, much less protect them from the additional damage of a new one.
A better approach would be to boost the economy by 1) providing targeted supports through expanded unemployment insurance and broad- based tax rebates, 2) providing assistance to states to prevent tax increases or spending cuts, and 3) directly stimulating job growth by accelerating funding for infrastructure, particularity for bridge and school repair. (See EPI's Strategy for An Economic Rebound for more details.)
While the discussion above is based on national data about African Americans, it is important to remember that some black communities are better off than average and some are worse off. Also, although the discussion is about African Americans, the findings likely apply to a degree to other poor minority communities and to the poorest white communities, as well. For example, the violent crime decline for whites has also stalled, and the teen pregnancy rate for whites has also increased in the latest data from the National Center for Health Statistics.11
Notes
1. U.S. Economics Analyst, Issue 08/02, January 18, 2008, p. 3.
2. Based on an analysis of historical economic data by Jared Bernstein.
3. Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America 2006/2007. An EPI book. (Ithaca, N.Y.: Cornell University Press. 2006) p.51. http://www.stateofworkingamerica.org/
4. Author's analysis of tables F-3 white and F-3 black, 2005 dollars, Historical Income Tables, U.S. Census Bureau, http://www.census.gov/ hhes/www/income/histinc/ineqtoc.html.
5. Based on an analysis of historical economic data by Jared Bernstein.
6. Author's calculations of violent crime rates from the Bureau of Justice Statistics, http://www.ojp.usdoj.gov/bjs/glance/tables/ racetab.htm.
7. Author's calculations of birth rates for 15-19-year-olds from Table 4, Health in the United States, 2006 (Hyattsville, Md.: National Center for Health Statistics, 2006), p. 135.
8. Marc Mauer, Race to Incarcerate (N.Y.: The New Press, 2006), pp. 177-186.
9. For the years 1976 to 2005, the correlation between the black poverty rate and the black violent crime victimization rate is 0.92. Author's analysis of Census poverty rates for all people and Bureau of Justice Statistics victimization rates.
10. Heather Boonstra, Teen Pregnancy: Trends and Lessons Learned, The Guttmacher Report on Public Policy, February 2002, Vol. 5, No. 1, http://www.guttmacher.org/pubs/tgr/05/1/gr050107.html.
11. See Teen Birth Rate Rises for the First Time in 15 Years, National Center for Health Statistics, December 5, 2007, http:// www.cdc.gov/nchs/pressroom/07newsreleases/teenbirth.htm.