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Tuesday, November 19, 2019

Cleveland Fed Says Earnings Gap to Blame for Racial Wealth Gap (Or: Pay Black People More)

Posted By on Tue, Nov 19, 2019 at 3:24 PM

click to enlarge Protesters taped fake money to their clothes; Frank's Fat Cat Festival Protest (6/28/17) - SAM ALLARD / SCENE
  • Sam Allard / Scene
  • Protesters taped fake money to their clothes; Frank's Fat Cat Festival Protest (6/28/17)

One of the most striking statistics revealed Monday evening at the Federal Reserve Bank of Cleveland, during a panel discussion about the persistence of the racial wealth gap, came from Jill Rizika, Executive Director of the local nonprofit Towards Employment.

Towards Employment helps people with criminal backgrounds and other barriers get into jobs, and Rizika explained that her organization had begun a skills-based hiring initiative which sought to "equalize the playing field" for local job seekers. The goal, she explained, was to encourage employers to focus on the skills required for particular jobs as opposed to educational credentials or years of experience.

After taking skills tests facilitated by TE, 940 people secured employment through the initiative. Rizika reported that black and white participants were hired at equal rates.

"That's pretty exciting," she said, "because the black unemployment rate in Northeast Ohio is three times that of the white unemployment rate."

But that wasn't the striking statistic. Rizika also reported that of those 940, blacks earned just 49 percent of what their white counterparts earned. And the white participants with the lowest scores ended up earning more than $5,000 more each year than the black participants with the highest scores.

While Rizika noted that this was a small sample size, it nevertheless demonstrated the persistent barriers that black workers face in a discriminatory labor market.

These comments arrived after Federal Reserve Bank of Cleveland economist Daniel Carroll presented research about the racial wealth gap. Carroll and the Fed's s Dionissi Aliprantis created an economic model, he said, to try to isolate the causes of the racial wealth gap and why it has remained virtually unchanged since 1962, even with the passage of a suite of Civil Rights laws in the 60s.

Wealth, as Carroll explained, refers simply to the total value of what one owns minus the total value of what one owes. It's another way of referring to one's "net worth." And since 1962, the average wealth of black families has remained at about 14 percent of white families. That means that the wealth gap has remained at about 86 percent.

Per the researchers' findings, the single-most influential contribution to the persistence of this gap — more than differences in returns on investments or differences in inheritance size, a natural bi-product of historical wealth inequality — is the persistence of the earnings gap. Blacks simply do not earn as much as whites. 

Working to close the earnings gap, though it will take time, would be the most effectual way to narrow and eventually close the racial wealth gap. 

Rizika's comments helped clarify why the earnings gap remains so high. Discrimination in the labor market is one significant factor. Concentrated poverty and a lack of educational resources in hyper-segregrated neighborhoods is another. A third is the bias of the U.S. criminal justice system.

"Black Ohioans are more likely to be arrested than whites for similar offenses," Rizika said, "and they are incarcerated at six times the rate. While blacks represent only 13 percent of Ohio's population, they make up 44 percent of the prison population." (That's only slightly better than in 1990, for the record, when black people made up 10.6 percent of the state population, but 48 percent of the prison population.)

The effects of incarceration extend long after release. Rizika described something called "collateral sanctions," which refers, among other things, to the more than 850 laws and rules that limit job opportunities for those with criminal convictions.

"One in four Ohio jobs is blocked or restricted if you have a conviction," Rizika said, "and the jobs available to those affected by collateral sanctions pay, on average, $4,700 less and are growing twice as fast." 

She cited a national statistic that said serving time reduces one's annual earnings by 40 percent. That happens to be the current earnings gap between white and black workers.

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