Uncertainty Looms for Minority Groups as the US Job Market Faces Softening

Faced with the most significant surge in inflation in four decades, the Fed took bold steps to raise interest rates from March 2022 until this past July, and it appears they’ve now reached the peak of this tightening cycle.

Throughout this process, policymakers aimed to steer a course from the rapid rise in prices back to the Fed’s target of 2% inflation while preserving the job gains of recent years. Fed Chair Jerome Powell often refers to 2019, just before the pandemic, as a golden era for the U.S. economy. In that period, the unemployment rate stayed comfortably below 4%, inflation remained in check, wages increased for lower-paid workers, and there was a narrowing of the historical unemployment gap between whites and racial/ethnic minorities.

The strong economic performance during that time led many Fed officials to rethink how low the unemployment rate could go without risking wages rising too rapidly and triggering broader inflation. Recent research suggests that there might be additional labor resources that become available only when the job market is tight, making a case for maintaining looser monetary policy.

Amid a noticeable slowdown in inflation, the Federal Reserve will be observing in the upcoming months to determine if it has successfully achieved a sought-after “soft landing.” They’re particularly interested in understanding if the pandemic’s impact, marked by significant fiscal support and a major reshuffling of the job market, has brought about any fundamental changes in the distribution of jobs, income, and opportunities across the economy.

A recent study by the JPMorgan Chase Institute, released this month, revealed that median income gains for Black and Hispanic individuals had exceeded inflation even during the inflationary period of the pandemic. Adjusted for inflation, their incomes were higher through August compared to the end of 2019. On the other hand, inflation-adjusted incomes for whites and Asians were slightly lower.

Furthermore, workers in the bottom pay quartile experienced a median increase of 6% in “real” income since 2019, surpassing gains in the rest of the income distribution.

Chris Wheat, the president of the institute, highlighted that despite inflation, there’s still evidence of real wage growth, especially for Black and Hispanic families. He suggested that this difference might be influenced by factors such as changes in job types and wages during the pandemic, where in-person services required higher wages to attract people back to work, along with a general increase in workers’ bargaining power.

Exceptionally fair

Discoveries like these bring some optimism that the progress can endure this time, rather than being eroded by the typical pattern of letting go of the most recently hired when economic conditions worsen. Cecilia Rouse, the former head of the Council of Economic Advisers under President Joe Biden and the incoming president of the Brookings Institution think tank, shared this perspective at a recent Boston Fed conference.

She noted that the recovery in the job market has been “surprisingly fair” up to this point. However, the upcoming months will be crucial. For instance, after a rapid surge at the beginning of the pandemic, the gap between the unemployment rates for whites and Blacks decreased significantly as the economy reopened, reaching a record low of 1.6 percentage points in April.

Since then, it has increased to 2.3 points, with the percentage increase in the number of unemployed Blacks nearly double that of whites. Rouse highlighted that pandemic-era programs provided a safety net for many families, and the current tight job market has helped many gain a foothold.

However, she raised concerns about the future, questioning, “Will this last, and what’s to come?” She noted a visible trend of losing some ground, emphasizing the need to monitor the evolving situation.