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Deep racial disparities in the labor market

While productivity has risen in the United States, wages continue to lag. Six years into the economic recovery from the Great Recession, too many Minnesotans lack the quality jobs that would allow them to support themselves and their families. This brief digs deeper into data on wage growth, income inequality and Minnesota’s deep racial disparities in the labor market. The brief also describes policy choices that would ensure that hard work pays off and builds a strong economic future for all.

While Minnesota is recovering from the Great Recession, many working Minnesotans still struggle to reach economic security. Even though unemployment is back to pre-recession levels, workers have not seen substantial wage growth. Wages aren’t keeping up with the cost of living, and many families can’t meet their basic needs for child care, transportation, housing and health care.

Even six years into the economic recovery, too many Minnesotans still lack the quality jobs that would allow them to support themselves and their families:
image1006831• Wages are lower than in 2000, when adjusted for the impact of inflation.
• Many Minnesota workers, including over half of Minnesota workers without a college degree, earn less than what it takes to support a family.
• Minnesota’s economic success is not reaching all communities; people of color are more likely than other Minnesotans to be underemployed or unemployed.

State policy choices play a role in building a future where all Minnesota workers benefit from the economic growth they help create. Policymakers can ensure that Minnesotans’ hard work pays off and build a strong economic future for us all by improving job quality standards, ensuring Minnesotans can get good jobs, and supporting low-wage workers as they climb into the middle class. Specific steps in this direction include expanding access to earned sick time, making child care affordable for more families, boosting family incomes through an increased Working Family Credit, and ensuring access to driver’s licenses, regardless of immigration status.

The Economic Recovery is Not Yet Bringing Strong Wage Growth
Minnesotans want to work and succeed. However, the benefits of Minnesota’s economic growth are not reaching all those who contribute to the state’s economic success.

The recession took its toll on wages, and the recovery is not yet resulting in substantial wage growth in Minnesota. Low-wage workers’ wages haven’t gotten back to 2007 levels, the year before the Great Recession hit. And wages for all wage groups are still hovering around 2000 levels, the year before the previous recession hit. In fact, in 2014 low-wage workers were still making less than they did in 1998 when inflation is taken into account, and median-wage workers’ wages were around the same as in 1999. High-wage workers are making about the same as they did in 2000.

This lack of wage growth has occurred despite rising U.S. productivity, which has increased by 6.6 percent since the recession, and by 21.6 percent since 2000.

Over a longer time span, high-wage workers have seen the fastest wage growth. Their wages grew by 21.3 percent from 1979 to 2014, while median-wage workers’ wages grew by 13.0 percent and low-wage workers’ wages only increased by 5.4 percent, after adjusting for inflation. Again, wage growth has lagged substantially behind national productivity growth, which rose by 62.7 percent since 1979.

The fact that high-wage workers have seen much stronger wage growth has contributed to worsening wage inequality in Minnesota. In 1979, the median wage of high-wage workers was 2.4 times higher than the median wage of low-wage workers. That gap has increased, and in 2014, high-wage workers’ wages were 2.8 times higher than low-wage workers’. Hard work should pay off, but the benefits of economic growth haven’t been broadly shared.

image1006840Many Workers Can’t Afford the Basics
Stagnant wages mean that too many Minnesota families are unable to afford a basic standard of living. The Minnesota Department of Employment and Economic Development calculates that both parents in a family of three need to earn $16.34 per hour to afford their basic needs. However, there are not enough jobs that pay these wages, especially for workers with less education. In 2014, more than half of all Minnesotans without a college degree made less than this wage.

This living wage only covers a basic needs budget that includes necessary expenses that Minnesota families face, such as the cost of food, child care, housing and health care. It does not include money for savings, entertainment, eating out or vacations. The living wage standard varies across the state, from $11.59 in Stevens County to $19.05 in Isanti County.

Low-wage workers are important to the state’s economy. They work at grocery stores and take care of Minnesota’s children, and they spend their paychecks at local businesses. These workers are integral to our state’s economy, yet today too many of them don’t earn enough to support a family.

People of Color Earn Lower Incomes, Are More Likely to be Unemployed or Underemployed
Minnesota is an above-average state in many ways. We have a high share of residents participating in the labor force, a higher median income than many other states and a lower unemployment rate. However, this disguises the fact that people of color in Minnesota lack the same opportunities that white Minnesotans enjoy.

In Minnesota, people of color are more likely to be unemployed or underemployed than white Minnesotans. In 2014, while Minnesota’s overall unemployment rate was 4.0 percent, the unemployment rate was 11.7 percent for African-Americans and 7.0 percent for Hispanic Minnesotans.

Full-time work is an important path to economic security. About 1 in 7 part-time workers in Minnesota would prefer to work full-time, and this problem is much more prevalent among people of color. More than 1 in 4 African-American part-time workers and more than 1 in 5 Hispanic part-time workers want full-time work.

Workers of color are also more likely to be underemployed, a more comprehensive measure than unemployment that also includes other workers who are not able to find the work they need. While overall 1 in 11 Minnesota workers are underemployed, 1 in 7 Hispanic workers, 1 in 5 African-American workers and 1 in 8 Asian workers are underemployed.

The finding that people of color are more likely to lack full-time work that meets their skills is reflected in the fact that people of color generally have lower incomes than white Minnesotans. While the median income for Minnesota households was $61,500 in 2014, the median income for Hispanic or Latino Minnesotan households was only two-thirds of that, and black Minnesotan households had earnings less than half the state’s median income.

People of color are making up an ever larger share of our workforce, but our economy is not making full use of their skills and abilities. With a tightening labor market and a labor shortage on the horizon, it’s crucial for the state’s economic future that all Minnesotans have the opportunity to reach their fullest potential in the labor market.

People of Color Are More Likely to Lack Full-Time Work (2014)
Share of part-time workers who want full-time work Unemployment Rate Under-employment Rate
All Minnesota Workers 14.4 percent 4.0 percent 8.7 percent
African-American Workers 27.5 percent 11.7 percent 21.4 percent
Hispanic Workers 21.7 percent 7.0 percent 14.7 percent
Asian Workers data unavailable data unavailable 12.3 percent

Read full report at www.mnbudgetproject.org

October 6, 2015
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