Diversity and inclusion: A tale of two economies

Part III: The Path to an Inclusive Labor Market Recovery

Summary

Whether a recession is mild or severe, it tends to affect the Black or African American labor market more than other groups. Consequently, long-term unemployment appears to be a durable trend within the Black labor market. In this third and final installment, we take a deeper dive into the implications of long-term unemployment and conduct scenario analysis.

The first simulation assumes, all else equal, that the Black or African American and national labor markets experienced the same paces of recovery.

• Under this simulation, the Black labor market shows significant improvement by following the same recovery pace that the national market observed.

• For example, during the expansionary phase following the 2007-09 recession, the projected Black unemployment rate is lower by 0.27 percentage points (pp) per quarter, on average, than the actual Black unemployment rate during that period.

• The faster recovery of the Black labor market also boosts the national recovery pace, driving a 1.15pp total drop in the U.S. unemployment rate over the recovery phase from the Great Recession.

The second simulation repeats the process of Scenario One, but assumes that the Black women and national labor markets experienced the same paces of recovery.

• There would have been a 10.65pp increase in employed Black women had they experienced the same pace of recovery that the overall labor market observed during the post-Great Recession era.

• The faster recovery among Black women reduced the aggregate unemployment rate by 1.85pp in the expansion following the Great Recession.

• By the same token, the faster recoveries among Black women caused the national unemployment rate to decline by 0.71pp following the 2001 recession and 1.11pp after the 1990‑91 downturn.

Our findings ultimately suggest that an intersectional approach provides a clearer and more holistic picture of the labor market's health. By identifying subgroups that play a major role in their broader community's labor market, we are able to discern targeted considerations for policymakers, such as those at the Federal Reserve Board, who aim to maximize employment in a broad-based and inclusive manner. In turn, the scenarios presented here suggest that focusing on specific groups, such as Black women, can have major implications for the national labor market.

Introduction

In Part I of this series,1 we introduced an approach to analyzing the unemployment recovery across different communities based on race/ethnicity and gender and measured the economic damages from the COVID recession. We found that the pandemic resulted in asymmetric damages to some segments of the population, and the pace of recovery from the subsequent recession has varied. In Part II, we applied our framework to the past three business cycles (recessions in 2007-09, 2001 and 1990-91). Our analysis suggests that each recession has produced asymmetric damages, and the severity of those damages varies greatly by community.

Whether a recession is mild or severe, it tends to affect the Black or African American labor market more than other groups. Consequently, long-term unemployment appears to be a durable trend within the Black labor market. In this third and final installment, we take a deeper dive into the implications of long-term unemployment and conduct scenario analysis. Does the Black or African American unemployment rate's slower pace of recovery have implications for the national labor market?

What is long-term unemployment?

Multiple challenges arise when workers are disconnected from employment for prolonged periods. Long-term unemployment is tracked on a monthly basis by the Bureau of Labor Statistics (BLS) and is formally defined as an unemployment spell of 27 weeks or more. The loss of a job certainly has a profound impact on an individual, but the effects go beyond just income. The deterioration of social networks tends to make reemployment more difficult. As months pass, reaching out to former colleagues or other professional contacts can become an onerous experience. The longer a worker is unemployed, the greater the chance they lose their skills, or their skills become obsolete. Even when employment growth picks up, the long-term unemployed may not have the skills or education required by the new available jobs.

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