In his long career as a University of Michigan labor economist, Don Grimes never focused his research on race-based income inequality.
“I’ve always believed in the power of markets,” Grimes told me. “I figured the markets would sort this out.”
But a new study he, and U of M colleagues Gabriel Ehrlich and Michael McWilliams conducted for the Southeast Michigan Council of Governments (SEMCOG) rattled Grimes’ belief that the invisible hand would smooth income inequality along racial lines.
“We’re going to have to figure out a way to deal with it,” said Grimes, the study’s lead author. “I’m beginning to think [a market solution] just isn’t going to work.”
SEMCOG asked Grimes and his colleagues to examine whether the benefits of the recent economic expansion, the longest in U.S. history, were widely shared in the seven-county region of Livingston, Oakland, Macomb, Monroe, St. Clair, Washtenaw and Wayne counties. The region is home to 4.7 million people, nearly half the state’s population.
Grimes said the results of the study, which covered the years 2012 through 2018, were “depressing.”
While whites, Hispanics and Blacks in southeast Michigan all saw household incomes climb in the period, there were wide disparities among those groups, particularly between whites and Blacks.
“White residents of Southeast Michigan were approximately four times more likely than Black residents to live in higher-income households and twice as likely as Hispanic residents,” the study found.
Grimes said economic disparities between whites and Blacks are probably even higher now in the coronavirus pandemic because a larger percentage of whites are able to work at home in higher-paying jobs.
Jobless data bolsters that contention. In August 2019, there was a 2 percentage point gap in the unemployment rate between whites and Blacks. That gap rose to 7.6 percentage points last month.
“There is clearly a race component here,” Grimes said about his study results.
Economic disparities between Blacks and whites in Michigan, once surprisingly narrow, have widened considerably over the past 40 years, according to a recent study by Michigan State University economists Charles Ballard and John Goddeeris.
Black men in the state earned 91% as much as white men between 1976 and 1981, but their income fell to 76% of earnings by white men from 2012 to 2017, according to Goddeeris’ and Ballard’s research.
Black women earned, on average, 15% more than white women between 1976 and 1981, but their earnings fell to 15% less than white women between 2012 and 2017.
Forty years ago, Blacks in Michigan were the highest-earning Black workers in the country.
Today, the typical Black man in Michigan earns 20% less, adjusted for inflation, than he did 40 years ago. The real earnings of Black women also have fallen, but by a lesser amount.
Much of the earnings decline of Black men, in particular, can be attributed to the steep decline of good-paying jobs in the auto industry. Those job losses also have taken a toll on the earnings of whites, but hit Blacks even harder, Ballard said.
The gap in Black earnings compared to whites in Michigan has grown wider over the past 40 years than in any other state, according to the MSU economists.
A lot of the income disparity between Blacks and whites is a result of higher educational attainment by whites, who also are more concentrated in higher-paying occupations than Blacks. But not all of it.
But Goddeeris and Ballard found that even among the college educated, Black workers with the same educational attainment as whites are paid less.
Ballard said he and Goddeeris found that only about half of the income disparity between Blacks and whites can be explained by educational and occupational differences. He hesitated when I asked him about the other half.
“It probably has to do with the legacy of all sorts of discriminatory practices that have taken place over a long period of time,” he said.
Narrowing the gap is essential from moral and fairness perspectives. But why does it matter to the broader economy, which was booming before the coronavirus pandemic took it down?
Ballard said the overall state economy would be much healthier if Blacks were treated equitably in the workplace.
“What I see is that we have a lot of Black workers who are not as productive as they could be,” he said. “That’s just waste, and economists don’t like waste.”
Ballard recommends a variety of public policy solutions to improve the plight of Black workers. Among them: raising the minimum wage, boosting the earned income tax credit, improving urban schools, strengthening enforcement of workplace discrimination laws and promoting labor unions.
“Anything that could be done to reduce income gaps would help Black workers relatively more,” Ballard said.
Employers also must step up by addressing racial inequalities in the workplace. Many have pledged to do so in the wake of George Floyd’s death at the hands of Minneapolis police officers in May.
Children also are suffering from the economic impacts of racial disparities, “suggesting the disturbing prospect that those disparities will persist to future generations,” the U of M economists wrote.
Nearly 75% of Black children in Southeast Michigan lived in low-income households in 2018, according to the U of M study, well above the national average of 64.7%.
The U of M economists called their findings on the economic conditions of children “our most distressing results.”
Efforts by policymakers and employers to address racial economic disparities, or the lack of them, will determine if Black lives really do matter.
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