Summer 2001 Bulletin

The New Economy and Racial Inequality

William Julius Wilson

William Julius Wilson (Harvard University)
With an introduction by James O. Freedman (President, American Academy of Arts and Sciences)

James O. Freedman

William Julius Wilson

William Julius Wilson, one of this nation's leading sociologists and an authority on race and poverty in the inner city, is the Lewis P. and Linda L. Geyser University Professor at Harvard and director of the Joblessness and Urban Poverty Research Program at the Kennedy School. He is the author of The Declining Significance of Race: Blacks and Changing American Institutions; The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy; When Work Disappears: The World of the New Urban Poor; and, most recently, The Bridge Over the Racial Divide: Rising Inequality and Coalition Politics. He is past president of the American Sociological Association, a MacArthur Prize Fellow, and a recipient of the National Medal of Science, the nation's highest scientific award.

One of my clearest memories of Bill Wilson's career goes back to December 1992, when then President-Elect Clinton held an economic summit in Little Rock, attended by a number of experts on the challenges facing the American economy. When Bill rose to speak, Mr. Clinton stopped him for a moment and said: "I hope all of you in this room understand that Bill Wilson is the most distinguished and important student of racial issues and urban poverty in this country. I have just read The Truly Disadvantaged—it's only 187 pages long—and I recommend that all of you read it, too." With that high praise, I am pleased to welcome William Julius Wilson to the Academy.

William Julius Wilson

The topic I address tonight will receive increasing attention as we move through the early stages of the twenty-first century. Despite the strong focus on the effects of racial discrimination in employment, the economic fate of African Americans is inextricably connected with the structure and functioning of a much broader, globally influenced modern economy. Racial bias continues to aggravate black employment problems. Over two decades ago, the late black economist Vivian Henderson argued that racism put blacks in their economic place. Today nonracial forces in the new economy have disrupted that place and further restricted opportunities for African Americans, resulting in increased joblessness and declining real wages.

In recent years a twist in the demand for certain types of labor has occurred. Today the wedding of emerging technologies and international competition has eroded the basic institutions of the mass-production system. Almost all the improvements in productivity over the last several decades have been associated with technology and human capital, thereby drastically reducing the importance of physical capital and national resources. Just as changes in technology are producing new jobs, they are making many others obsolete. Through the increased use of information-based technology and microcomputers, educated workers are at least holding their own with the pace of technological change, but less-sophisticated workers face the growing threat of job displacement in certain industries.

Between 1979 and 1996 the employment-to-population ratio (the percentage of adults who are employed) increased by 1 percent for college graduates, yet it declined by 3 percent for high-school graduates and by 10 percent for high-school drop-outs. The demand for the highly trained may be seen most dramatically in the sharp differences in employment experiences among men. College-educated men are working more hours, while the less-skilled are working fewer. Low-skilled African American men are at the bottom of the employment ladder: last to be hired, first to be fired. The computer revolution is a major reason for the shift in demand for skilled workers. In 1983 only one quarter of workers used a computer in their jobs; by 1993 that figure had risen to almost half the workforce.

Even after a number of background factors such as experience and education are taken into account, those who use computers at work tend to be paid more than those who do not. Moreover, the industries with the greatest shift in employment toward highly skilled workers are those in which computer technology is more intensively used. The shift in demand for skilled versus low-skilled workers is also related to the growing internationalization of economic activity, including increased trade with countries that have large numbers of low-skilled, low-wage workers.

Two developments facilitated the growth of global economic activity and exerted a marked impact on unskilled workers in this country. First, advances in information and communication technologies significantly lowered transportation and communication costs, encouraging companies to shift work to low-wage areas around the world. Second, the expansion of free trade with countries that have a large proportion of unskilled labor reduced the price of imports and exerted a downward pressure on the wages of low-skilled American workers in such labor-intensive industries as apparel, foot-wear, textiles, and toys. As economist Alan Kruger of Princeton points out,

Whatever the role that trade has played in the past, I suspect that trade will place greater pressure on low-skilled workers in the future. The reason for this suspicion is simply that there are a great many unskilled workers in the world who are paid very little. One and a half billion potential workers have left school before they reach age 13. Half of the world's workers leave at age 16 or earlier. When these workers are brought into global economic competition, because of greater openness, more political stability, and greater investment in developing countries, the consequences are unlikely to be positive for low-skilled workers in developed countries.

Because of the concentration of low-skilled workers in vulnerable labor-intensive industries—40 percent of the workers in the American apparel industry are African Americans—developments in international trade are likely to further exacerbate their declining labor-market experiences. As urban economies have transformed themselves from goods production to information processing, black central-city residents with no education beyond high school have been increasingly displaced from mainstream employment. For example, the unemployment rates of central-city black males with only a high school diploma climbed from 11 percent in the late 1960s to 41 percent in the early 1990s in midwestern cities, from 10 to 31 percent in northeastern cities, and from 10 to 22 percent in southern cities.

Cognitive and interpersonal skills have become prerequisites even for many low-paying jobs. In normal economic times, most inner-city workers not only need to have the basic skills of reading, writing, and performing arithmetic calculations; they need to know how to operate a computer as well. Most employers also require a high-school diploma, specific kinds of previous work experience, and job references.

Even when the labor market is strong, the large oversupply of low-skilled workers relative to the number of low-skilled jobs means that many poorly educated individuals have difficulty finding jobs. Until recently, tight labor markets have been of relatively short duration and have frequently been followed by a recession, which has wiped out such gains as low-skilled workers have made or has not allowed them to fully recover from a previous period of economic stagnation. However, in the 1990s the nation experienced one of the longest economic recoveries of the last half-century, and until now the signs for disadvantaged groups in this economy were encouraging. From 1996 to 1999 real wage growth for low-skilled workers was quite impressive. Male workers at the 30th percentile of the wage distribution and below experienced the highest wage increase during this period. Recent increases in the minimum wage and unexpectedly low inflation helped to account for some of this growth, but the prolonged strong economy undoubtedly contributed to it. Long-term joblessness declined from almost two million in January 1993 to about 700,000 in December 2000. Moreover, the unemployment rate of high school dropouts declined from 12 percent in 1992 to just 6 percent at the end of the year 2000, with most of the decline occurring since 1997. In November 2000 the black unemployment rate dipped to 7 percent—the lowest since the Bureau of Labor Statistics began collecting unemployment data by race.

The positive effects of these changes in the economy are evident in even the most depressed neighborhoods of the city. A recent study of low-wage workers in 322 metropolitan areas, by economists Richard Freeman and William Rogers, revealed that black men—aged 16 to 24, with a high-school education or less, and many with prison records—are employed in greater numbers and earning larger paychecks than in the early 1990s. The benefits of a strong economy for low-skilled workers, particularly a sustained tight labor market, must be emphasized in economic policy discussions. Last year I participated in another summit meeting with President Clinton, in Washington, DC, at which Alan Greenspan spoke. I was the only one who raised the concern about the impact of a slowing economy on low-income workers; it was not an agenda item.

For disadvantaged minorities, the positive effects of a tight labor market such as the one we have been experiencing are extremely important. Job vacancies are numerous, and employers become less discriminating about who they hire; some abandon drug testing, and others provide training for low-wage workers. Unemployment is of short duration, and wages are higher. The labor force expands as workers who dropped out of the labor force when the market was slack are drawn back in by greater job opportunities. As a consequence, the status of all workers, including disadvantaged minorities, improves.

However, there are some unfortunate signs that the economy is slowing down. If it were possible to extend this economic boom for several more decades, it would significantly lower the overall jobless rate in areas such as the inner-city ghetto, not only for low-skilled workers still in the labor force but also for those who have been outside the labor market for many years. In addition, it would enhance the job opportunities of many welfare recipients who have reached the time limit on their benefits. But given a move toward economic stagnation and a decrease in the relative demand for low-skilled labor, what will happen to these groups? There is little reason to assume that their long-term job prospects or earnings will be anything but bleak, because the economic trend that is twisted against low-skilled workers—a trend whose effects have been muted somewhat by the prolonged recovery—is unlikely to reverse itself.

It is important to note that the decline in the relative demand for low-skilled labor has had a more adverse effect on blacks than on whites in the United States—because, despite increases in the number of black managers, professionals, and technicians, a substantially larger proportion of African Americans remain unskilled. There has been a tendency to view the problems of blacks as different from those of the rest of the unskilled community, but in fact they parallel those of all unskilled workers; it is just that they are more severe among African Americans.

The impact of broader economic patterns on the African American population is perhaps best revealed in these figures: between 1947 and 1973, families in the lowest quartile of income actually experienced the highest growth in annual real income—some 2.97 percent, as opposed to 2.42 percent for the highest quartile. The poor became less poor, not only in relative terms but in absolute terms as well. However, between 1974 and 1997 the income of families in the lowest quartile decreased by 0.28 percent, second-quartile income stagnated, and the highest quartile of income increased by 1.68 percent. Given the fact that African Americans are disproportionately concentrated among the more economically disadvantaged groups, they benefited disproportionately from the broadly equal pattern of family economic progress in the earlier period—and suffered disproportionately during the latter period.

History shows that trends of rising inequality are associated not only with economic changes, including the changing rate of economic growth, but also with the eroding strength of what economist Frank Levy of MIT calls the "equalizing institutions"—public education, unions, welfare state, tax policy, and trade regulations. These equalizing institutions were much stronger in the period from 1947 to 1973 than they are today. They will have to be strengthened to help check the rising inequality that may have been in remission in the last three years because of the robust economy but is likely to manifest itself again as the economy slows down.

Let me conclude by saying that two decades ago, Vivian Henderson recognized the impact of broad economic trends like these on the black community. In 1975, as we were beginning this period of rising inequality, he warned the nation against a short-sighted vision that focused exclusively on race: "The economic future of blacks in the United States is bound up with that of the rest of the nation. Politics designed in the future to cope with the problems of the poor and victimized will also yield benefits to blacks. In contrast, any efforts to treat blacks separately from the rest of the nation are likely to lead to frustration, heightened racial animosities, and a waste of the country's resources and the precious resources of black people." I strongly agree.

Introduction © 2001 by James O. Freedman. Communication © 2001 by William Julius Wilson. Photo © 2001 by Martha Stewart.

This presentation was given at the 1842nd Stated Meeting, held at the House of the Academy in Cambridge on February 14, 2001.