Reducing Racial and Gender Gaps in the Labor Market Could Bring Great Benefits to Ninth District States
Expanding opportunities for workers to continue their education, find jobs, earn higher wages and work longer hours would boost state economies. In a simulation carried out by researchers across the Federal Reserve system, racial / ethnic elimination (hereafter identified as racial) and gender gaps in labor market outcomes have increased economic output in each of the six states of the Federal Reserve Ninth District by one-quarter to one-third.
The public can explore these results using a new interactive data tool which indicates by how much the work-related portion of each state’s gross domestic product (GDP), or total economic output, could increase if the gender and race gaps in the labor market were closed. The simulation is adapted from the methodology of a recent working document by economists at the Federal Reserve Bank of San Francisco, who used national survey data to estimate the economic benefits to the U.S. economy from closing the race and gender gaps in the labor market. To build on this work, a team of additional researchers from across the Federal Reserve system extended the San Francisco Fed’s approach to assess potential state-level gains. The simulation draws on 15 years of data from the US Census Bureau to estimate the economic implications of disparities in four key work-related metrics and highlights the economic issues for creating a more equitable future. (For more information on the methodology used to create the tool, see the box below.)
In the Ninth Federal Reserve District, which we serve at the Federal Reserve Bank of Minneapolis and which covers Minnesota, Montana, North Dakota, South Dakota, 26 counties in Northwestern Wisconsin and the Peninsula Michigan’s top simulation, the simulation estimates that the state- The level of economic gains resulting from narrowing the race and gender gaps in labor market measures over the period 2005-2019 would have varied by $ 3.9 billion. dollars a year in South Dakota to $ 64 billion a year in Michigan. Differences in the scale of earnings between states are largely the result of differences in the size and composition of the population; the smaller or more racially and ethnically diverse the state, the smaller the dollar amount of potential economic gain. Nonetheless, each of the gains is significant in the context of each state’s economy. Although the simulation does not formally estimate the impacts of adjusting particular policies, the finding is clear: when individuals are able to participate fully in the labor market, the economy as a whole benefits.
Increase in production through increased employment-to-population ratio
One of the labor market measures included in the tool is the employment-to-population ratio, defined as the share of the civilian population of working age in a geographic area that is currently occupied. In the Ninth District states, this measurement is often lower among blacks and Native Americans than among whites, Asians and Latin Americans of the same state, as well as among women compared to men. According to the simulation, if the gaps between the employment-to-population ratio by race and sex had been closed between 2005 and 2019, economic output would have increased by almost $ 1 billion per year in the less populated states of Montana, of North Dakota and South Dakota. ; $ 6 billion a year in Minnesota and Wisconsin; and $ 16 billion a year in Michigan.
In the United States, unpaid household responsibilities, such as maintenance, housework, and operational duties, fall disproportionately on women and are not reflected in measured employment statistics, a reality that is evident. reflected in lower paid employment levels among women and fewer hours of paid work. work versus men. To the extent that some of these responsibilities would be transferred to men in the thought experiment at the heart of this article, thereby reducing men’s economic output, our calculations of the gains from reducing gender gaps are overestimated. For households with children, the simulated results highlight the role of accessible and affordable child care in enabling parents to seek employment opportunities.
Boost thanks to hourly earnings
Data from 2005-2019 shows that in the Ninth District, men of a given race almost always earn a higher average hourly wage than women of the same race in each state. In 30 combinations of state and race categories (for example, comparing Asian men and Asian women in South Dakota), the average hourly earnings reported by men were higher than those of women of the same race across the board. the cases except two.
Racial differences in hourly earnings are also apparent. Asian men are the highest paid in half of the six states in the Ninth District, with white men being higher or equal elsewhere. In each state, Native American women or women of color are the group with the lowest hourly wages.
Hourly earnings also vary across states’ economic landscapes. In North Dakota and South Dakota, rural states with economies focused on the agriculture and energy sectors, average hourly earnings are generally lower than in neighboring states, but highest for white men; in more industrialized states, Asian and white male workers have the highest average hourly wages.
But what if these gaps did not exist? The income gaps that the simulation explores to close over the period 2005-2019 are significant, ranging from a gap of $ 8 per hour (47%) between Native American women and white men in Montana to a gap of $ 12 an hour (63%) between Latin American women and white Minnesota men. Due to the scale of the disparities and the number of workers involved, the simulation shows that in every state, measures to eliminate racial and gender gaps in average hourly earnings could have increased GDP from billions to tens of billions. dollars per year.
Gains from expanding access to paid working hours
For all Ninth District states and racial categories, the data shows that men report working more paid hours per week, on average, than women. Additionally, in all but one of the 30 state-race combinations analyzed, the average weekly hours across all racial categories of men is at least 40 – a common benchmark for full-time work in the United States. United – and in all racial categories of women. is less than 40. Among women, the differences in average weekly hours worked by race are minimal or non-existent. In contrast, among men, the differences by race are typically three to four hours per week, and up to ten per week in a state.
According to the simulation, the total gains that could have resulted from narrowing these racial and gender gaps in average weekly hours worked are $ 1 billion per year in the rural states of Montana, North Dakota, and Dakota. from South ; over $ 7 billion a year in Minnesota and Wisconsin; and $ 13 billion a year in Michigan.
Benefits of better education
People with more than a high school diploma can more easily access higher paying jobs. This makes the existing racial and gender gaps in the proportion of workers with at least a bachelor’s degree sobering: among workers in the Ninth District, the gaps in college graduation between white men and women. the race-sex group with the lowest achievement level range from 16 percentage points in North Dakota to 24 percentage points in Minnesota.
The reduction in these educational attainment gaps translates into simulated state-level earnings of up to $ 1.4 billion per year from increased hourly earnings. These gains are in addition to other benefits for states when individuals attend university, such as increased civic participation and better health outcomes, which are not captured by the simulation.
Gaps can be filled
Fairer participation in the labor market translates into healthier and safer lives for individuals and families. It also improves the economic and social stability of communities: the results of a more equitable economy could be increased tax revenues and home ownership, among other benefits.
The Federal Reserve’s analysis and interactive tool demonstrate that reducing racial and gender gaps in both the type work and how it is paid (reflected in educational attainment and hourly earnings) and amount (reflected in employment rates and hours worked) that labor market participants can access would lead to shared economic gain.
Changes at state and local levels can lead to powerful economic changes. This reflective experience provides an entry point for conversations between community stakeholders who explore the causes and solutions to disparities in the labor market. In the Ninth District, action to close these gaps can be a way to improve prosperity for all.