Poverty and Prosperity: Have Racial/Ethnic Minorities Been Left Behind in the United States?
Poverty and inequality in male earnings and family income in the United States were higher at the end of the twentieth century than they were in the early 1970s. The economy experienced sustained recoveries during the 1980s and the 1990s, but economic growth did not trickle down very vigorously to the bottom 40 per cent of the population.
The official poverty rate fell a bit every year between 1993 and 1999, from 15.1 per cent to 11.8 per cent of all people, about the same as the 1973 rate (11.1 per cent). Yet in 1999 the poverty rate was 23.6 per cent for African-Americans and 22.8 per cent for Hispanics, but only 7.7 per cent for non-Hispanic whites. America has never been wealthier as a nation, but millions of families still have difficulty making ends meet and racial/ethnic disparities remain large.
Our paper focuses on trends in racial/ethnic disparities in employment, earnings and family income over the past quarter-century. It also reviews trends in racial attitudes over this period and the extent to which these have altered in response to economic changes, and discusses public policy options for reducing racial/ethnic disparities in economic well-being.
Primary attention will be paid to the labour market, as most economists agree that the main cause of growing inequality over the period in question was the rising value to employers of workers’ skills. That is, earnings differentials between the most-educated and least-educated, and most-experienced and least-experienced, workers increased dramatically.
However, consensus is lacking on both the relative importance of various causes of the rising returns to skills and how much other factors contribute to rising inequality. No single factor can account for most of the inequality increases, but several factors are important.
Labour-saving technological changes have increased the demand for skilled workers who can run sophisticated equipment, while simultaneously reducing the demand for less-skilled workers, many of whom have been displaced by automation. Global competition has increased worldwide demand for the goods and services produced by skilled American workers in high-tech industries and financial services, while reducing the demand for workers in heavy manufacturing industries.
Lower-skilled workers increasingly compete with low-wage production workers in developing countries. Immigration has increased the size of the low-wage workforce and competition for low-skilled jobs. Institutional changes, such as the decline in the real value of the minimum wage and shrinking unionization rates, have also moved the economy in the direction of higher earnings inequality.