speeches · March 4, 2003

Speech

William Poole · President

Booms, Recessions, and the Economically Disadvantaged SchoolofBusinessandManagement UniversityofArkansasatPineBluff PineBluff,Arkansas March5,2003 It is a great pleasure to be here today, AsIwillexplain,reviewinglong-runlabormarket especially given that I’ve gotten to know trendssuggeststwomainfindings.First,disad- Chancellor Davis through his service on vantagedworkershaveinfactmadegreatstrides the board of the Little Rock Branch of the overthelastquartercentury.Second,improve- Federal Reserve Bank of St. Louis. The Federal mentsineducationandearningshavebeenpar- Reserve relies on the dedicated service of people ticularlymarkedforblackwomen. like Dr. Davis who are members of Federal Beforeproceeding,Iwanttoemphasizethat Reserve boards all over the country. These board theviewsIexpressherearemineanddonot membersarepartofanetworkofhighlyinformed necessarilyreflectofficialpositionsoftheFederal citizens who provide information to us about ReserveSystem.Ithankmycolleaguesatthe business conditions and who help us to commu- FederalReserveBankofSt.Louis,especially nicate better with communities large and small. HowardWall,fortheirassistanceandcomments, Myfocustodayisthelabormarket,andespe- butIretainfullresponsibilityforerrors. ciallythesituationfacedbythosewhoareeco- nomicallydisadvantaged.Peopleonthebottom rungsofoursocietyalwayshavethegreatestprob- LONG-TERM TRENDS lemsatatimeliketoday,wheneconomicgrowth Recentdecadeshaveseensignificantimprove- islow.TheU.S.economyenteredarecessionin mentsintherelativewellbeingofhistorically March2001andunemploymentbegantorise. disadvantagedgroups,particularlywomenand TheNationalBureauofEconomicResearch,which blacks.Bythebroadestmeasureofwellbeing— officiallydatesbusinesscycleturningpoints,has income—thesegroupshavemadeadvancesin notyetdeclaredanendtotherecession.However, bothabsoluteandrelativeterms.I’llfocusonreal theeconomyhasbeengrowingslowlyforovera medianincome—definedasincomeadjustedfor year;I’llhazardaguessthattherecessionended inflationofthoseemployedandaged15andolder. inlate2001orearly2002.Thatsaid,growthhas Between1970and2001,therealmedianincome notbeenrobustandconsequentlythenumberof ofblackmenroseby27percent,whichwasnearly jobshasbeenaboutflatafterdeclinesin2001. threetimesthegrowthforwhitemen.Overthe Unfortunately,disadvantagedmembersofour sameperiod,realmedianincomeforallwomen societyaretypicallydisproportionatelyaffectedby roseby60percentandforblackwomenby70 recessions,includingtherecessionof2001.I’ll percent.Averageincomegrowthforwhiteand documentsomeofthefactsofthatsadregularity. blackwomenwas,respectively,sixandseven Althoughtherecessionhasbeenpainfulfor timesthegrowthseenbythemedianwhiteman. many,Idonotwanttoconcentrateentirelyon Asaconsequence,theverylargeincome thataspectofthesituationinthelabormarket. gapsthatexistedin1970havefallensomewhat. 1 ECONOMICFLUCTUATIONS Theaveragewomanin1970hadayearlyincome 1970,55percentofwhites,butonly34percent thatwasonly34percentthatofaman,butby oftheirblackcounterparts,hadcompletedhigh 2001thisgaphadbeenreducedbytwo-thirds. school.By2000,thegaphadnarroweddramati- Forblackwomen,theincomegaphasbeenmore cally,sothat79percentofblacks,compared alonggenderratherthanraciallines.In1970,the with84percentofwhites,hadcompletedhigh averageblackwomanearned91percentwhata school. whitewomanearnedinayear.Thisrelatively Becauseacollegeeducationincreasinglyhas smallgaphas,forthemostpart,disappeared.By becomethekeytoeconomicsuccessforindivid- 2001,theaverageincomeforblackwomenwas uals,itisalsoimportanttonotehowaccessto 98percentthatofwhitewomen. highereducationhascontributedtotheincome Forblackmen,theriseinrelativeincome trends.Here,theracialgaphasnotclosednearly overthelast30yearsorsowasnotnearlyasdra- asmuchasitdidforhighschoolattainmentbut, maticasitwasforwomen.In1970,themedian thenagain,therewasmuchmoretobedoneat yearlyincomeofblackmenwas59percentwhat theoutset.In1970,ablackmalewasonlyabout itwasforwhitemen.By2001,ithadbecome71 30percentaslikelytohaveacollegedegreeasa percentoftheaveragewhitemale’syearlyincome. whitemale.By2000,blackmaleswerenearly60 Althoughthisindicatessomeprogress,thereis percentaslikelytohaveacollegedegree. obviouslyalongwaytogo. Forwomen,themoresignificantchangesin Anotherwaytolookatthegainsthathave educationalattainmenthaveoccurredwithrespect beenmadebydisadvantagedgroupsistolookat tohighereducation,ratherthantosecondary thoseatthebottomoftheincomescale.Asociety’s education.Even30yearsagotherereallywasn’t successcannotbemeasuredsolelybyhowit muchofagapbetweenthesexesintheratesat providesfortheaverageperson,butalsobyhow whichtheycompletedhighschool.Butatthe itprovidesforthoseatthelowend.Accordingto collegelevel,thestoryhasbeenquitedifferent thechangesinthepovertyrate,thestoryforblacks andmorecomplicated.In1970,awhitewoman ismuchthesameasIhavebeenoutliningwith wasonly57percentaslikelyastohaveacollege regardstoincome.In1970,thepovertyratefor degreeasawhitemale,butby2000thisstatistic whiteswas9.9percent,whileforblacksitwas hadincreasedto84percent.Forblackwomen, morethanthreetimesashigh—33.5percent.In relativetoblackmen,therereallyhasnotbeena 2002,thepovertyrateforwhitesdifferedlittle gendergap.Evenbefore1970,ablackwomanwas fromits1970level,butforblacksithadbeencut aboutaslikelyasablackmantohaveacollege byone-third.Again,whilethedatashowthat degree.Infact,forthelastfewyears,thepercent- substantialprogresshasbeenmade,theyalso ageofblackwomenwhohavecollegedegreeshas showhowmuchmoreneedstobedone. beenconsistentlyhigherthanthepercentageof Sofar,Ihavebeenspeakingonlyaboutthe blackmenwhodo. progressthathasbeenmadeintermsofbroad Therelativelygreatereducationalattainment measuresofeconomicwellbeing.Buttotruly andincomeofblackwomencomparedtoblack understandthesegains,wemustunderstandwhat menisarecurringpartofthestory:Overthelast progresshasbeenmadeinprovidingthemeans 30yearsormore,thegainsineconomicopportu- ofachievingthem.Inparticular,ifwelookatthe nityandwell-beinghavebeenrelativelygreater dramaticimprovementsineducationalattainment, forblackwomenthanforblackmen.While,on wecanseethesourceofmuchoftheprogress, average,blackmenhaveseenprogress,black alongwiththedistancewestillhavetogo. womenhaveseenmore.Inadditiontoeducational Onemajorachievementhasbeenanarrowing attainment,gainsofblackwomenareapparent oftheracialgapintheattainmentofahighschool inemploymentoutcomes.Bymostmeasures, diploma.Inwhatfollows,I’llconcentrateon blackwomenhavesucceededinreducingorelim- educationalattainmentforthose25andolder.In inatingemploymentgapsbetweenthemselves 2 Booms,Recessions,andtheEconomicallyDisadvantaged andwhitewomen.Butforblackmen,thegaps itgiventhatemploymentgainswereminimalin havebeenlargerandmuchmorepersistent. 2002andremainsotothecurrentday. Onewaytohighlightthecomplexitiesofthe Thiseconomicturbulenceslowedtheprogress situationistolookatthesharesofthevarious ofdisadvantagedgroups,whotraditionallybear adultpopulationsthatareemployedatdifferent disproportionateburdensduringeconomicslow- pointsintime,whereadultsaredefinedasthose downs.Althoughtheprogressineducational whoare20andolder.Theratioofemployment attainmentwasfairlyconsistent,theprogressin topopulation—whichI’llcallthe“employment economicwell-beingwasactuallysetbackduring ratio”—isagoodindicatoroftherateatwhich severalperiods. Inparticular,althoughwhiteandblack membersofagroupactivelyparticipateinthe womendidn’thavedramaticallydifferentaverage economy.In1972,theemploymentratioforwhite incomesin1970orin2001,blackwomenactually maleswas79percent,comparedwith73percent lostgroundrelativetowhitewomenthroughout forblackmales.By2000,theemploymentratio the1980s.Althoughtheriseintheincomeof forwhitemaleshadfallenby5percentagepoints whitewomenrelativetowhitemenwasfairly whileforblackmalestheratiohadfallenby7 continuousandrecessionproof,thedramatic percentagepoints.Thus,despitetherelativegains improvementinblackwomen’sincomedidnot ineducationalachievementforblackmen,the beginuntil1989.Similarly,forblackmen,until gapbetweenwhiteandblackmeninthepercent- 1989,therewaspracticallynomovementin agewhoareemployedhasactuallygrownover incomerelativetowhitemen.Almosttheentire thelast30years. gainoccurredinthe1990s.Further,thefallin Thestoryforblackwomenhasbeenvery thepovertyrateforblackswasalmostentirelya different.In1972,theshareofblackwomenwho 1990sphenomenon,asitdidnotgobelow30 wereemployedwasactually6percentagepoints percentuntil1995. higherthanforwhitewomen.Sincethen,women Recessionswreakhavocontheprogressof ofallraceshavebeendrawnincreasinglyinto disadvantagedgroups,particularlyblacks.This theworkforce,risingfrom41to58percentofthe unfortunatefactcanbeseenbylookingatthe populationbetween1972and2000.Althoughit effectsrecessionshavehadonthegapsinemploy- wasn’ttruefortheentireperiod,in2000,theshare mentratios.Theexactnumbersdifferfromone ofblackwomenwhowereemployedwasstill recessiontoanother,buttheclearregularityis higherthantheshareofwhitewomenwhowere. thatthegapbetweentheemploymentratiosof blackandwhitementendstoriseduringreces- sionsandfallduringexpansions.Butexpansions THE BUSINESS CYCLE AND THE closethegapmoreslowlythanrecessionsopen DISADVANTAGED it.Between1972and2000,foreachyearofreces- sionittookthreeyearsofexpansionforthegap ItisimportanttonotethattheprogressIhave toreturntoitspre-recessionlevel. describeddidnotoccursmoothlyovertheperiod. Recessionshavebeenevenmoredestructive Between1970and2000,theeconomywent totherelativeprogressofblackwomen.Infact, throughsomerockypatches.Wesawfivereces- foreachyearofrecessionoverthelast33years, sions,ahugerunupininflationinthe1970s, ittookabout4yearsofexpansionforthegap andalongfightagainstinflationinthe1980s betweenblackandwhitewomen’semployment and1990s.Followingapost-warhighinunem- ratiostoreturntoitspre-recessionlevel. ploymentin1982,theeconomythengrewona Therefore,oneofthekeystoimprovingthe sustainedbasis,exceptforabriefrecessionin relativestatusofdisadvantagedgroupsisforthe 1990-91.Weagainexperiencedamildrecession economytomaintainsteadyandsustainedeco- in2001,althoughthisonehasalingeringfeelto nomicgrowth.WeattheFedareconvincedthat 3 ECONOMICFLUCTUATIONS thecriticalcontributionwecanmaketoward dropintheunemploymentrate.Afterpeakingat maximumsustainableeconomicgrowthisto 7.8percentinJuneof1992,theoverallunemploy- maintainlowandstableinflation-pricestability, mentratefellsteadilythroughoutthe1990s, forshort.Whenpricesareunstable,businesses reaching4.0percentbytheendof1999,whereit andhouseholdsfacemoreuncertaintyaboutthe hoveredforanotheryear.Whenwedisaggregate future,makingitmoredifficultforthemtoplan theseunemploymentnumbers,itbecomesappar- efficiently.Whenpeopleplaninefficiently, entthattheexpansionwasverybeneficialfor unavoidablemistakesaremorecommon,which groupsthatbegantheperiodintherelatively leadstogreatervariabilityingrowthandemploy- worstsituations:blacks,teenagers,andtheless ment.Pricestabilitywasanecessaryingredient educated. ofthe1990sexpansion.Ifinflationhadn’tbeen Theunemploymentpictureforblackswas keptincheckthroughoutthedecade,theresult prettygrimin1992,whentheunemployment wouldhavemostcertainlybeenslowergrowth, rateforthisgroupaveraged14.2percent.That andslowerprogressfordisadvantagedgroups. ratefellto7.3percentbytheendof2000,which Ibelievethatimprovedmonetarypolicysince waslowerthanatanytimesince1972.Interest- the1970shascontributedtoareducedfrequency ingly,blackunemploymentcontinuedtofallfor andseverityofrecessions.Thebusinesscycle morethanayearaftertheunemploymentratefor expansionsof1982to1990and1991to2001were whiteshadleveledoff.So,althoughtheunem- bothmuchlongerthantheaveragecycleexpan- ploymentrateforwhitesremainedlowerthan sionovertheperiodforwhichwehaveabusiness forblacks,continuedeconomicgrowthmeant cyclechronology,whichstartsinthe1850s.The thattheunemploymentgapbetweenwhitesand samestatementholdsifweconfineattentionto blackskeptnarrowing.Thedeclineintheblack unemploymentratefrom14.2percentto7.2per- theperiodsinceWorldWarII.Moreover,thereces- centbetween1992and2000isameasureofour sionsof1990-91and2001wereconsiderablyless nation’sprogressduringthe1990s,buttheremain- severethantheaveragerecession.Sustaining ingsubstantialgapbetweenblackandwhite businesscycleexpansionsdoeshelptocement unemploymentisameasureofthedistancewe theprogressofdisadvantagedgroups,andreduc- stillhadtogo. ingtheseverityofrecessionsreducesthemagni- The1990sexpansionalsomeantgoodnews tudeofthesetbacksthatoccurduringrecession. regardingtheteenageunemploymentrate,defined Becausesustainedexpansionsasoccurredin astherateforthose16to19yearsold.Theteenage the1990sareimportanttoimprovingthewell unemploymentratein1992averaged20.1percent beingofallAmericans,weshouldtakeacloser forallraces.Bytheendofthedecade,therate lookatthatdecadetoseehowthebenefitsofits hadfallentoaround13percent,a30-yearlow. economicexpansionwerespread.I’dliketo Blackandwhiteteenageunemploymentrates broadenthediscussionabittoincludedisadvan- werebothattheirlowestlevelsin30years, tagedgroupsotherthanwomenandblacks.In althoughtheteenageunemploymentpicturefor particular,Iwouldliketoseehowsomegroups whiteswasstillmuchbetterthanthatforblacks. thatbeganthe1990sintheworsteconomicshape, Well-educatedworkers,ofcourse,werehighly includingteenagersandthoseatthelowestends valuedbyemployersinthe1990s.Nevertheless, oftheeducationandincomedistributions,also thelesseducatedclearlyreapedbenefitsfrom enjoyedsubstantialgains. theeconomicexpansion.In2000,theunemploy- mentrateforthoseolderthan25whodidnothave ahighschooldiplomaaveraged6.3percent,hav- THE 1990s EXPANSION ingfallenfromahighof12.2percentinmid-1992. Becauseitisthemostwidelyusedindicator Forthosewithahighschooldiploma,butno oflabor-marketperformance,letmestartwiththe collegetraining,unemploymentaveraged3.5 4 Booms,Recessions,andtheEconomicallyDisadvantaged percentin2000,havingfallenfrom7.3percent inthelowgroup;by2000,only29percentof inmid-1992. householdswereinthelowgroup.Households Althoughtheseunemploymentratesindicate inthemiddlegroupfellfrom29percentto28 successinbringingthosewithoutcollegedegrees percentofallhouseholds.Thehighgroup,there- intoemployment,theunemploymentratefor fore,wentfrom37percentto43percentofall collegegraduatesofonly1.7percentin2000 households.Ishouldnotethatthisevidenceisby showsthetremendousimportanceofimproving nomeansdefinitive,butitdoesillustratethatthe theeducationofcitizens.Eventoday,according sustainedeconomicexpansionraisestheeco- tothelateststatisticsforJanuaryofthisyear, nomicwellbeingofmanyofthoseatthelowend. whichshowedanationalunemploymentrateof 5.7percent,theunemploymentrateforthose25 andolderwithacollegedegreewas3.0percent. 2000-2003 SLOWDOWN Theunemploymentrateforthosewithsomecol- Sofar,I’vesaidlittleaboutwhathashappened legewas4.8percentandforthosewithlessthan since2001.Foronething,manyofthedataseries ahighschooldiplomawas8.5percent. thatIhavereferredtoarenotyetavailableforthe Unemploymentratestellonlypartofthe lasttwoyears.But,moreimportantly,Iwanted employmentstory.Duringanyperiodwhen tohaveaseparatediscussionofthemostrecent employmentopportunitiesareexpanding,two yearsbecausetheyhavebeenquitedifferentfrom thingshappen:First,morepeoplebecome theyearsthatprecededthem.Mostnotably,the employed;and,second,moreofthosereported nationalunemploymentratebegantorisein asbeingnotinthelaborforcedecidetoenter,or Octoberof2000—reaching6percentbytheend reenter,thelaborforce.Althoughbothofthese of2002.Theeconomyenteredanofficiallydesig- effectsareimportant,newspaperreportersand natedrecessioninMarch2001.Eventhoughthe TVnewscasterstendtolookonlyatthefirstand economyhasbeenexpandingforayearorso,the toignorethesecond. AsIdiscussedearlier,employmentratios labormarkethasnotshowntherapidimprove- highlightoneofthegreatsuccessesofthe1990s mentsthatoftenaccompanyrecoveryperiods. expansion—bringingincreasingsharesofwomen Let’sbeginbydisaggregatingthechangesin andblacksintoemployment.Between1992and theunemploymentratesbyraceandeducation 2000,theemploymentratioforwhitewomenrose level.Ifpastexperienceisaguide,wewould by3.1percentagepoints;thatofblackmenrose expecttoseethattherecentslowdownhashad by3.5percentagepoints.Comparethesenumbers largereffectsonthelesseducatedandonblacks— tothoseforthe20previousyears.Between1973 andithas.Thetotalunemploymentratefor and1992,theshareofblackmenwhowere thoseagedover25roseby1.5percentagepoints employedactuallyfellby8.7percentagepoints. betweenthethirdquarterof2000andthethird Butthereallyastoundingexperiencebelongsto quarterof2002,whiletheunemploymentratefor blackwomen:Between1973and1992,theshare thosewithcollegedegreesroseby1.1percentage ofblackwomenemployedgrewby7.1percentage points.Also,theblackunemploymentexperience points,andthenbyanother7.7percentagepoints hasbeensomewhatworsethanthis,withthe between1992and2000. overallunemploymentraterisingby1.8percent- Foranotherperspective,wecandivideallof agepointsandtherateforcollegegraduatesrising thehouseholdsintheUnitedStatesintothreereal by1.6percentagepoints. incomecategories:thoseinthelowgrouphave Itisinterestingtonote,however,thatthe incomesbelow$25,000,thoseinthemiddlegroup pictureisdifferentforblackmencomparedwith haveincomesbetween$25,000and$50,000,and blackwomen.Forblackmen,theincreaseinthe thoseinthehighgrouphaveincomesabove unemploymentrateforthosewithcollegedegrees $50,000.In1992,34percentofhouseholdswere roseverylittle.Forblackwomen,theopposite 5 ECONOMICFLUCTUATIONS occurred,astheincreaseinunemploymentfor boomtimes,butthisflexibilityturnsagainst thosewithcollegedegreesactuallyrosebymore womenduringslowdowns. thantheoverallunemploymentrate. Economicslowdownsusuallycausepeople notonlytolosetheirjobsbutalsotoleavethe SUMMING UP laborforcealtogether.Duringthisslowdown, IknowthatI’vegivenyouahugedoseof womenwholosttheirjobsweremorelikelythan numbers;evenifyouhadbeenmadlytakingnotes mentoleavethelaborforceratherthanlookfor youcouldnothavegottenthemall.Ifyouare anewjob.Thus,changesinunemploymentrates interestedinlookingagainatthenumbers,you’ll understatetheeffectsofthecurrentslowdownon beabletofindthisspeechontheSt.LouisFed womenandobscuretheevidencethatthisslow- websiteshortly.I’llsummarizethemainthemes. downhasbeenratherdifferentfrompreviousones. The2001recessionhasbeentypicalinthat Animportantdifferenceisthattheemploy- theburdenimposedondisadvantagedmembers mentratioforwomenwithcollegedegreesfell ofsocietyhasbeendisproportionate.Butthe substantiallymorethanitdidforwomenoverall. dataalsoshowclearlythateducationmakesa Forwhitewomen,theoverallemploymentratio criticaldifference.Eachofyouprobablyunder- fellbyone-halfofapercentagepoint,whereas standsthatfactwhenyouobservetheexperience forwomenwithcollegedegreesitfellbythree offriendswhoarenotpursuingcollegeoruniver- timesthismuch.Forblackwomen,theoverall sitystudies. ratefellby1.5percentagepoints,whileforthose Atthesametimeweacknowledgethedis- withcollegedegreesitfellby3.7percentage proportionateimpactofaslacklabormarket,we points. shouldalsocelebratethetremendousprogressthe Thispatternforwomenwasthereverseof nationhasmadeoverthelastquartercentury. whathasoccurredformen.Forwhiteandblack Incomeandeducationaldisparitiesbysexand men,theemploymentratiosforthosewithcollege racehavebeendeclining.Theeffortsthenation degreesroseslightlylessthanforthosewithout hasmadereallydoshowupinthedata.Thejob them. isfarfromover,butwehaveagoodstart. Thereasonsforthisdivergenceinresultsfor Sinceemploymentpeakedinearly2001,the menandwomenisthatthejoblossessincemid- labormarketsituationhasbeendifficultformany 2000haveoccurredprimarilyinthemanufactur- ofourfellowcitizens.Isuspectthatmanyofyou ingsector,wheremenwithoutcollegedegreesare havehadfirst-handexperiencewiththeproblem predominant,andinthebusinessservicessector, offindingsummerjobsandthedifficultygradu- wherecollege-educatedwomenareabundant.In atingseniorshavehadinfindingsuitableposi- fact,thesetworeasonsareactuallycloselyrelated tions.TheFederalReserveitselfisnotimmune becausethebusinessservicesindustryprovides fromtheseproblems,asevidencedbyitsrecent servicestothemanufacturingsector.Inparticular, announcementthatitwillbeclosing13check- itprovidestemporaryworkers,whoaremore processingoperationsacrossthecountry,affect- likelytobewomenbecauseofthetimeflexibility ing1,300jobs. thatitprovides,andalsoaremorelikelytobe Butintime,Ihopesoonbutdonotknowfor amongthefirsttobeletgoinaslowdown.Ina sure,theeconomywillbeexpandingagainand sense,then,thedisproportionateburdenthatthe employmentwillgrow.TheU.S.economyis currentslowdownhasplacedoncollege-educated highlyentrepreneurialandgrowthitsnormal womenisaresultofthegrowthofwomen’s state.TheFedwilldoitsbesttocontributeto opportunitiesduringthe1990sexpansion.Labor thisgrowth. marketsbecamemoreflexibletoaccommodate theneedsofeducatedfemaleemployeesduring 6

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APA

William Poole (2003, March 4). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20030305_poole

BibTeX

@misc{wtfs_speech_20030305_poole,
  author = {William Poole},
  title = {Speech},
  year = {2003},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20030305_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}