People of Color in the US Should Brace for the Next Recession
|Abdul El-Sayed||Apr 29, 2019|
Unless you’re a member of royalty or have inherited immense wealth, you’ve likely gone through good and bad times financially. These periods of wealth and scarcity often synchronize with the cycles of economic expansion and contraction — one of America’s sad and enduring truths is that not all booms and busts are created equal.
Statistically, white people are more likely to experience less hardship during economic recessions; they are also likely to bounce back faster as unemployment falls, home prices rebound, and stock markets rally. A decade after the worst economic crisis since the Great Depression, minority households still struggle to recover what little wealth they had accumulated by 2007, right before the housing market caught on fire and 8.6 million US jobs went up in smoke. “The original source of the recession — the collapse of the housing market — had an impact on the Black-white wealth gap,” Jennifer Laird, an assistant professor of sociology at Lehman College who studied the racial elements of the last recession, told The North Star. “It eroded a lot of the gains in wealth that we had seen among Blacks relative to whites. The damage was large and we still haven’t seen a recovery from that.”
Just when it seems like minority households might be recovering lost ground, economists warn that another recession could happen as soon as next year. Since 1970, the US has endured seven recessions, each lasting an average of about 11 months followed by an average six-year period of growth before the next contraction. The shortest recession, in 1980, lasted six months but was followed a year later by a painful 16-month recession.
The Great Recession, which lasted from December 2007 to June 2009, made worse the pernicious racial wealth gap, largely because minority families are disproportionately dependent on home ownership as their only tool for accumulating wealth. This made them targets of usury during the out-of-control mortgage lending market of the early 2000s.
“Black homeowners were harder hit by the recession than white homeowners because they were more likely to have been offered predatory sub-prime loans, even when they met the income thresholds for regular loans,” Kristen Lewis, co-director of Measure of America, a nonprofit research group of the Social Science Research Council, told The North Star by email.
White households were disproportionately able to endure the housing market crash because they likely own a variety of assets, including higher levels of home equity, savings, retirement accounts that rebound with the stock market, a second vehicle, or other real estate holdings. This mixture of assets, coupled with their ability to more easily borrow money, means white households likely have adequate moorings for weathering financial storms. Unfortunately, the racial wealth gap will likely continue if there isn’t a profound economic transformation and sustainable political will to close the racial wealth gap once and for all. So far, the US has done a terrible job at this.
According to a report from the Institute for Policy Studies, a progressive think tank, the median wealth of Black and Hispanic families has languished at less than $10,000 between 1983 and 2016, when adjusting for inflation. If current trends continue, the median white family will have $174,000 in wealth (the value of all household assets minus all household debt) by 2050 while the median Hispanic household will have only $8,600 in wealth, and Black median household wealth will be $600 — less than the current price of an iPhone.
Because minority households are more likely to work in jobs with lower pay and fewer (if any) benefits, they are more likely to live paycheck-to-paycheck and have a smaller (if any) financial cushion of accumulated wealth. This means they are more likely to bear a recession’s immediate cost by losing their jobs across sectors of the economy.
For example, federal cutbacks that occur during recessions more broadly impact Black women because they’re over-represented in public sector jobs. A slowdown in consumer demand for manufactured goods is particularly painful for Black men who work in manufacturing. When construction activity idles, Hispanic men take a hit, while Hispanic women suffer when hotels and restaurants lose business. Beyond job losses, how the next downturn impacts communities of color will depend largely on what type of recession materializes.
If the recession is a short bump in the unemployment rate and a big correction in the stock market, there will be minimal impact on minority households since they’re far less likely to hold any stock, even in meager 401(k)s. However, if the recession causes significant job losses over time and drives down housing prices, people of color will again lose what little wealth they accumulated since the last recession.
Another aspect of the disproportionate harm minorities receive from recessions has to do with how many whites react to economic hardship. Gabriel R. Sanchez, a University of New Mexico political scientist, co-authored a study published last year that suggested a strong correlation between feelings of economic insecurity and heightened racial animosity, stereotypes, and racism among non-Hispanic whites. The conclusion mirrors a similar study by the London School of Economics that correlated rising unemployment with prejudicial attitudes against people of other races by native-born British whites.
“Racial bias is somewhat latent,” Sanchez told The North Star. “It’s there, but it doesn’t usually expose itself unless it’s triggered by . . . an economic threat.” Heightened animosity against people of color and immigrants make it harder to re-enter the workforce after job loss during recessions.
There’s another factor at play that has more to do with class than race. Christian E. Weller, a senior fellow at liberal public policy advocacy organization the Center for American Progress, said that it has taken progressively longer periods of time for workers to recover over the last three recessions.
“What the last three recessions have shown us is that the burden of the recession falls much more on workers than it used to,” Weller told The North Star. “Prior to 1990, businesses would go under, capitalists would lose some money in the stock market. Now, corporations are doing really well, which means high-income earners recovered their losses very quickly whereas the typical worker now has to wait much longer for the labor market to recover, even from a relatively mild recession.”
Indeed, tens of millions of workers still earn less than they did before the recession, and hourly wage growth has only recently started to tick closer to where it was prior to the Great Recession. Meanwhile, the S&P 500 index, a common measure of gains and losses in stock ownership, has jumped well over 200 percent, boosts from which the bottom half of US households earn little or nothing.
All lower-income workers feel the pain of economic downturns caused by factors beyond their control. But for people of color, recessions are more likely to cause critical financial stress, making worse long-standing issues related to poverty. There are no easy solutions to fixing the pernicious racial wealth gap. Politicians will have to implement reforms that would be unpopular among the beneficiaries of the status quo. Leveling the playing field for all Americans will require long-term solutions to build intergenerational wealth among communities of color, as well as the political courage to implement policies to rebalance the nation’s wealth regardless of the pushback from wealthier constituents.
About the Author
Angelo Young is a NYC-based reporter, editor, and writing coach who enjoys pondering world events and idle chatter on the subway. He has more than a decade of news editing experience with bylines in Newsweek, International Business Times, Salon, Arab News, The Daily Star (of Lebanon), Mexico Business magazine, The News (of Mexico City) and The Oklahoma Daily.