Inequality in employment, education and earnings has cost the US economy nearly US$22.9 trillion over the past 30 years, a sum that is likely to increase as minority populations expand, said a paper from economists, including San Francisco Federal Reserve President Mary Daly.
“The opportunity to participate in the economy and to succeed based on ability and effort is at the foundation of our nation and our economy,” the authors wrote.
“Unfortunately, structural barriers have persistently disrupted this narrative for many Americans, leaving the talents of millions of people underutilized or on the sidelines. The result is lower prosperity, not just for those affected, but for everyone,” they added.
The paper, which was published in the Brookings Institution’s Brookings Papers on Economic Activity journal yesterday, calculates how inequality in the economy has affected growth since 1990.
The paper’s authors include Shelby Buckman of Stanford University, San Francisco Fed community development vice president Laura Choi and Lily Seitelman of Boston University.
The new research adds to a growing body of literature that seeks to measure the effects of inequality in the US.
Last year, economists Dana Peterson and Catherine Mann found that closing racial gaps would have garnered an additional US$16 trillion in the US economy since 2000.
Economists, including William Darity and Lisa Cook, among others, have done extensive research to show the cost of racial biases, and that these are inherent in the labor market.
“This is a simple exercise, in many ways, to demonstrate an important point, which is that the gains to GDP are for everyone and closing the gaps isn’t a zero-sum game,” Daly said by telephone.
“It’s not just that we’re rearranging distributionally the proceeds from the same-sized pie, we’re actually improving the size of the pie and then distributing the proceeds from that improvement — so that’s a different game than what many people think about when they think about equity,” Daly added.
The economists who wrote the Brookings paper measured the cost of inequality in a series of labor and employment indicators.
Disparities — such as the average black man earns US$8 less per hour than his white counterpart, an unchanged gap in employment rates between black and white men since 1990, and a widening wage gap between black and white women — contribute to a loss of potential economic output.
The authors wrote that educational attainment is not, by itself, a solution to the disparities because of a substantial utilization gap among ethnic groups.
White and Asian Americans are much more likely than their black and Hispanic peers to be employed in a job that requires the level of education that they achieved, rather than a job that requires a lesser degree than was actually achieved.
“The persistent and large differentials in the employment opportunities of racial and ethnic minorities, even after controlling for educational attainment, point to considerable underutilized human resources that if more equitably allocated could boost aggregate output,” the authors wrote.
Future output is likely to be even more affected as the size of large minority groups — like Hispanic Americans — is projected to continue growing, they added.
“Given that the population share of racial and ethnic minorities continues to rise, the gains will only grow in the future,” they said.
“More equitable allocation of talent by education, employment and jobs improves innovation, invention and entrepreneurship, which set the foundation for growth today and growth in the future,” the authors wrote.
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