Confronting Racial Economic Inequality: A Case of the United States of America
By Rohit Harlalka
Since time immemorial, equality has been at the helm of every African- American national’s dream. With hundreds of protests and revolts ravaging through their hearts and efforts, even in today’s 21st century, this dream remains far from realised. Built on the exploitation and occupational segregation of people of colour, the U.S. economy has witnessed stark inequality when it comes to the wages and incomes of the white and black people. Discrimination can be of many kinds. For example, discrimination on grounds of gender, race, ethnicity, religion, etc. In this article, we focus on discrimination in labour markets where workers with similar skill levels receive different wages owing to the varying skin colour, i.e. white or black.
Blacks in the United States, have experienced harsh labour market discrimination during much of twentieth century and it still continues today. Until the commencement of the Civil Rights Act of 1964, it was legal to not hire a black worker irrespective of the skills, i.e., experience, educational qualifications, etc. A few studies have shown that 1964 was responsible for the narrowing of this wage gap in the late 1960s and the early 1970s. For example, the ratio of the earnings of black male employees to that of their white counterparts had increased from 62% in 1964 to 75.3% in 2013 (Source: Bureau of Labour Statistics). Over the years, although the wage differential between the black and white workers have not changed, the latter group continues to earn much more than the former.
Figure 1 shows the median income that the different categories of workers earn in a weak. It is evident from the graph that it is the black women who are the worst affected by the discriminatory practices. While both men and women of the white category earn more than the blacks, white men earn substantially higher than any other category, giving them an unprecedented economic advantage over the others. Figure 2, therefore, compares the wages of black men and women with that their white male counterparts. It can be inferred from the same that even though the wage differential has not changed much over the past 20 years, it remains at a significantly high level. As of the first quarter of 2020, white men continue to earn 29% higher than black men, 39% higher than black females and 35% higher than the entire black population. These numbers stand higher than the end of 2003 where the wage differential stood at 26%, 37% and 33% for the aforementioned groups, respectively.
(Source: U.S. Bureau of Labour Statistics)
Figure 2: Wage Differential (in %)
(Source: U.S. Bureau of Labour Statistics)
So why does this kind of discrimination occur? Is there an external factor contributing to it? Like intentional government policies or economic behaviour. Research shows that there are four primary reasons behind the racial discrimination in the labour market:
1. The Competitive Markets and Societal Norms
Gary Becker (1930), a Nobel Laureate was amongst the first to analyse the economics behind discrimination. According to him, discrimination by a firm situated in a locality with a large minority population can lead to reduction in its own profits. For example, if a bigoted owner of a firm refuses to pay the blacks as per their productivity, then these workers would leave and other profit seeking employers would hire them. Therefore, in a competitive market, employers who are more affectionate towards the colour of money than that of the skin will have an incentive to take decisions pertaining to buying, selling and hiring, solely on the basis of the economic factors.
However, Figure 3 shows us that this is not the truth. In America, none of the workers are paid incomes equivalent to their productivity. However, the black men and women are paid significantly lesser than their white counterparts. In 2015, when the overall labour productivity increased by 62.7% in America, black men witnessed a 7.2% decline in their median hourly wage and black women experienced a mere 12.8% rise in the same. The rising gap between the growth rate of wages and productivity of the workers is a testimony of this fact and represents a flaw in the above given logic.
Figure 3: Wage Growth vs Productivity Growth
(Source: EPI analysis of unpublished Total Economy Productivity data from Bureau of Labour Statistics)
Gary, B. (1930) rationalizes the above fact by arguing that market forces are not powerful enough to bring forth a change in the societal norms. These discriminatory practises can emerge at various levels, i.e., among managers, workers or even the customers. For example, if a manager, who believes in the equal opportunities and is personally not prejudiced but has workers or customers who consider the blacks as “inferior”, then his fair practises might lead to either a refusal to buy the firm’s products from the customers or a unionization and/ or resignations from his workers. These would eventually lead to losses for the firm, thereby, compelling the manager to practise discriminatory laws against the black workers. Therefore, even the competitive market forces urge the firms to follow non-discriminatory practices, the societal norms act as a barrier to it.
2. Level of Education
Existing research also focuses on the differences in the level of education between the Black and White population as a reason for this existing wage differences. Table 1 shows the proportion of the respective category that has completed High School or a Bachelor’s degree. As is evident, the data shows that in 2019, while 89.5% of white men completed high school, only 85.3% of black men graduated from the same. Similarly, 3.3% fewer black women completed their high school as compared to their white counterpart. Furthermore, the numbers fall by a greater amount when we look at completion rates for “Bachelor’s degree or higher”, where as compared to 33.5% of white men, only 19.5% of black males completed the given level of education. Therefore, lower levels education of the black workers, in part, explains the concurrent wage differential.
Table 1: Proportion of Students Completing the Level of Education
(Source: United States Census Bureau)
3. Government Policies
The black people in the U.S. were forced to work as slaves for a very long period of time. During this, they were given no choice but to work in brutal conditions as workers in the agricultural fields, domestic servants and petty daily bread earners. As per studies, some slaveholders made the blacks do work worth $14 trillion (in today’s dollar). These enslaved people cooked and served food, ploughed and sowed fields, cleaned houses, harvested and packaged crops. They also raised, milked and butchered livestock, carried luggage, cut hair and provided child care services. When these slaves tried to run away, the U.S. federal laws such as the Fugitive Slave Acts of 1793 and 1850 helped ensured that they were recaptured by imprisoning anyone who aided in their escape or fining police officials who failed to arrest alleged runaways.
Although slavery was abolished in the United States in 1863, all occupations were not made open to the Black workers. On the other hand, officials of the Freedman’s Bureau encouraged Black workers to remain in the same occupation that they were carrying out as slaves. Ironically, this is the same organisation that was vested with the power to help the formerly enslaved black workers attain freedom. Moreover, these efforts to occupationally marginalise the Black workers was enhanced via the enactment of the Jim Crow laws that led to the codification of the role of Black people in the Southern economy and society. For example, if the Black people worked in any occupation other than domestic servitude or farming, they were strictly penalized in states like Southern Carolina. Furthermore, if the black people abandoned the signed labour contract or broke any rules, there were arrested and due to a loophole in the 13th Amendment, sent back to unpaid labour on plantations owned by the whites. Even certain emigrant-agent laws were implemented to prevent the interstate movement of the black workers and prohibited recruiters from posting advertisements in communities dominated by the Black population.
These were aggravated by the technological advancements in the mid- twentieth century which led to reduced demand for farm labour and domestic work in the southern U.S. This caused a rapid reduction of Black workers in U.S. farms and domestic environment and a simultaneous concentration of the same group in low- wage service jobs such as sewing machine operators, barbers, taxi drivers and chauffeurs, etc. Sequentially, the devaluation of domestic and agricultural jobs and the simultaneous need for cheap labour, resulted in the rising employment of African American and Latinx workers in agriculture and household services. Surprisingly, this trend continues its persistence till date.
Therefore, a few economic changes combined with the government polices led to concentration of Black workers in certain low paying jobs. This is evident from figure 4. While Asian, Black or African American and Hispanic or Latino, comprise 36% of the U.S. workforce, they account for 58% of miscellaneous agricultural workers, 74% of baggage porters, bellhops and concierges and 70% of maids and housekeeping cleaners. Further, figure 5 shows the annual median wage by occupation for the year 2018. These are the occupations that have majority workers of Black skin colour. The graph is a testimony of the fact that the employment opportunities available to the unfortunate minority group has very less pay as compared to other occupations. For example, where all the other occupations had a median annual salary of $38640, food servers earned only $23290 in 2018. The Jim Crow rules and slavery devalued these occupations and pain of which is still born by these minority groups.
(Source: U.S. Bureau of Labour Statistics)
4. Underfunding of Anti-discrimination agencies
The Black activists in the U.S. earned a landmark civil rights legislation in the 1960s. This created several federal agencies disbursed with the authority to penalize people and institutions that practised discriminatory laws. Although, these new laws marked for a turning point in the history of ethnic and racial discrimination, these organisations were never truly funded to be able to implement their strategies to the full extent. For example, the U.S. Equal Employment Opportunity Commission was created in 1965 to enforce all rules and regulations that prohibited discriminating job applicants and existing employees on the basis of colour, race, sex, religion, genetic information, age, national origin or disability. Although, the organisation receives thousands of complaints everyyear, due to insufficient funds and number of staff members, it fails to help the victims. Figure 6 shows that while the U.S. population grew by 44% from 227 million to 327 million between 1980 and mid-2018, the EEOC’s inflation adjusted budget fell from $412.1 million to $379.5 million in the same time period. Furthermore, even the number of EEOC employees saw a decline of 1422 people.
(Source: U.S. Census Bureau)