CBx Daily

Racial Inequity Adds $51 Trillion Drag To U.S. Economy In Its GDP Race

Sep 27

By Namon Freeman

  • Racial inequity has cost the U.S. economy $51T since 1990
  • Gaps in earnings and unemployment contribute to the $23T loss from labor alone

Economists have taken on the task of quantifying the cost of racial inequity on the U.S. economy over the past 30 years, through a report published by the Brookings Institute along with Federal Reserve Bank of San Francisco President Mary Daly. Using white men as the basis of parity, they estimate the U.S. GDP could have gained $51 trillion ($23 trillion from labor alone) since 1990 if racial gaps were closed. In 2019, over the period of just one year, the potential gains from equity total $2.6 trillion. This is just another addition to a growing portfolio of literature that quantifies the tremendous cost of discrimination in this country.

Why This Matters: The largest potential economic gains come from closing the gaps in education, employment, and earnings. Black unemployment for instance climbed back to 8.8% in august 2021 while white unemployment continued to fall further below 5% for the third month in a row. Reducing those aforementioned racial disparities across all three categories translates to greater utilization of workers thus a higher aggregate output for the economy, meaning a bigger piece of the pie for everyone.

There have been tremendous gains for non-whites since civil rights advancements of the mid-twentieth century. Yet, in the 1990s the reduction in the Black-white earnings gap stagnated, and began increasing for women, just before U.S prime employment peaked in 2000. These trends unironically run parallel with state efforts to ban affirmative action.

Over the 30-year period the potential gains from equity increase annually due to growth in the non-white population, but decreases in union power, participation, and education utilization, which describes having a job that requires the level of education you’ve attained. All of these things have played a significant role in slowing the road to racial parity that could boost the country’s GDP.  

Situational Awareness: In the past those likely to be disadvantaged by policies promoting racial equity held the political majority, but as demographics evolve opportunities for progress are unveiled. With this change comes expanding political polarity and opposition to progress. If parties on opposite sides of the aisle are able to find common ground, they will stand on the need to grow the U.S. economy as the shadow of emerging economies like China and India expand. Increasing labor force participation rates, increases our global competitiveness and is good for everyone, unless of course you’re a mediocre white man.

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