Poverty and Prosperity: Prospects for Reducing Racial/Ethnic Economic Disparities in the United States

Because of slow and uneven growth in male earnings and family incomes over a quarter of a century, poverty and inequality in earnings and family income in the United States were higher at the end of the twentieth century than they were in the early 1970s. The economy experienced sustained recoveries during both the 1980s and the 1990s, yet during these decades economic growth did not trickle down very vigorously to the bottom 40 per cent of the population.

The official poverty rate fell every year between 1993 and 1999 from 15.1 per cent to 11.8 per cent for all persons, about the same as the 1973 rate, 11.1 per cent. In 1999, the poverty rate was 23.6 per cent for African-Americans and 22.8 per cent for Hispanics, but only 7.7 per cent for non-Hispanic whites. America has never been wealthier as a nation, but millions of families still have difficulty making ends meet, and racial/ethnic disparities remain substantial.

This paper focuses on trends in racial/ethnic disparities in employment, earnings and family income over the last quarter of the twentieth century. It also reviews several areas in which persisting racial inequalities affect life chances. These include racial disparities in wealth, how perceptions of racial inequalities affect emotional well-being, perceptions of racial discrimination, and views on racial integration. In addition, it will offer a public policy agenda for reducing racial/ethnic economic disparities.

Primary attention is be paid to the labour market, as most economists agree that the main cause of growing inequality over this period was the rising value of worker skills to employers. That is, earnings differentials between the most educated and least educated, and most experienced and least experienced workers increased dramatically.

However, there is less consensus about both the relative importance of various causes of the increased earnings differentials by education and experience, and the extent to which other factors contribute to rising inequality. No single factor can account for most of the increases in inequality, but several factors are important.

Labour-saving technological changes have increased the demand for skilled workers who can operate sophisticated equipment, and have simultaneously reduced the demand for less-skilled workers, many of whom have been displaced by automation. Global competition has increased worldwide demand for the goods and services produced by skilled American workers in high-tech industries and financial services, and has reduced demand for workers in heavy manufacturing industries.

Less-skilled workers increasingly compete with low-wage production workers in developing countries. Immigration has increased the size of the low-wage workforce and the competition for low-skilled jobs. Institutional changes, such as the decline in the real value of the minimum wage and shrinking unionization rates, have also moved the economy in the direction of higher earnings inequality.

The authors conclude that, despite much progress over the past 40 years, the United States remains divided along racial and class lines. Given current economic trends and public policies, these divisions are not likely to narrow significantly in the coming decade.

Sheldon Danziger is Henry J. Meyer Collegiate Professor of Public Policy and co-director of the National Poverty Center at the Gerald R. Ford School of Public Policy, University of Michigan. Deborah Reed is director of the Population Program and research fellow at the Public Policy Institute of California. Tony N. Brown is assistant professor of sociology at Vanderbilt University.