Making the Business Case for Racial Equity

By closing the earnings gap through higher productivity, GDP would climb by $1.9 trillion, the author’s research shows.

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National Journal
Ani Turner
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Ani Turner
Dec. 11, 2013, 4:20 a.m.

Mov­ing to­ward ra­cial equity is not only a mat­ter of so­cial justice; it could play a sig­ni­fic­ant role in the na­tion’s eco­nom­ic growth and fisc­al out­look. As sum­mar­ized in the new brief, “The Busi­ness Case for Ra­cial Equity,” ini­tial re­search on eco­nom­ic im­pacts of ra­cial in­equit­ies in the U.S. re­veals tril­lions of dol­lars in lost earn­ings, avoid­able pub­lic ex­pendit­ures, and lost eco­nom­ic out­put.

Ani Turn­er is deputy dir­ect­or for the Cen­ter for Sus­tain­able Health Spend­ing, which is part of Al­tar­um In­sti­tute. (Cour­tesy photo)Re­du­cing bar­ri­ers to op­por­tun­ity for minor­it­ies will be­come even more crit­ic­al giv­en demo­graph­ic shifts that are already un­der­way. Ac­cord­ing to the U.S. Census Bur­eau, chil­dren will be “ma­jor­ity minor­ity” by 2018, and, over­all, people of col­or will sur­pass 50 per­cent of the pop­u­la­tion by 2043.

Ra­cism in the U.S. has left a leg­acy of in­equit­ies in areas that im­pact achieve­ment and qual­ity of life. Op­por­tun­it­ies that were denied to ra­cial and eth­nic minor­it­ies at crit­ic­al points in the na­tion’s his­tory have led to the dis­ad­vant­aged cir­cum­stances that many chil­dren of col­or are born in­to today. While sig­ni­fic­ant pro­gress has been made in elim­in­at­ing leg­al dis­crim­in­a­tion, in­equit­ies by race and eth­ni­city re­main im­bed­ded in so­ci­et­al in­sti­tu­tions and mani­fes­ted in lend­ing prac­tices, hir­ing prac­tices, law en­force­ment and sen­ten­cing, and oth­er policies. In­tern­al bi­ases car­ried by both whites and minor­it­ies con­tin­ue to subtly but power­fully in­flu­ence how we view ourselves and each oth­er.

Re­du­cing ra­cial in­equit­ies and re­mov­ing bar­ri­ers to op­por­tun­ity will pro­mote a health­i­er, bet­ter edu­cated, more di­verse work­force, and more pur­chas­ing power for the grow­ing minor­ity share of the pop­u­la­tion. Today, earn­ings per per­son for people of col­or, ad­jus­ted for age and sex, are 30 per­cent be­low those of non-His­pan­ic whites. The full set of causes for this gap is un­known, but earn­ings po­ten­tial is clearly af­fected by doc­u­mented in­equit­ies in health, edu­ca­tion, in­car­cer­a­tion rates, and em­ploy­ment — all areas that can be in­flu­enced by tar­geted policies and pro­grams.

Al­tar­um In­sti­tute stud­ied the im­pact of clos­ing the minor­ity earn­ings gap and found that if the av­er­age in­comes of minor­ity men and wo­men at each age rose to the av­er­age in­comes of whites, total U.S. earn­ings would in­crease by 12 per­cent, rep­res­ent­ing nearly $1 tril­lion. By clos­ing the earn­ings gap through high­er pro­ductiv­ity, gross do­mest­ic product would in­crease by $1.9 tril­lion today. The earn­ings gain would trans­late in­to $180 bil­lion in ad­di­tion­al cor­por­ate profits, $290 bil­lion in ad­di­tion­al fed­er­al tax rev­en­ues, and a po­ten­tial re­duc­tion in the fed­er­al de­fi­cit of $350 bil­lion.

When pro­jec­ted to 2030 and 2050, the res­ults are even more start­ling. Minor­it­ies make up 37 per­cent of the work­ing-age pop­u­la­tion now, but they are pro­jec­ted to grow to 46 per­cent by 2030 and 55 per­cent by 2050. Clos­ing the earn­ings gap by 2030 would in­crease GDP by 16 per­cent, or more than $5 tril­lion a year. Fed­er­al tax rev­en­ues would in­crease by over $1 tril­lion and cor­por­ate profits would in­crease by $450 bil­lion.

By 2050, clos­ing the minor­ity earn­ings gap would in­crease GDP by 20 per­cent. This is roughly the size of the en­tire fed­er­al budget, and a high­er per­cent­age than all U.S. health care ex­pendit­ures.

These fig­ures are rough es­tim­ates and rep­res­ent up­per bounds on po­ten­tial eco­nom­ic be­ne­fits. They do not in­cor­por­ate the cost of in­vest­ments re­quired to close the earn­ings gap. But they il­lus­trate that even mod­est pro­gress to­ward elim­in­at­ing ra­cial in­equit­ies could pro­duce sig­ni­fic­ant eco­nom­ic be­ne­fits. Sim­il­ar re­search by McKin­sey & Com­pany, the Cen­ter for Amer­ic­an Pro­gress, the Na­tion­al Urb­an League Policy In­sti­tute, and the Urb­an In­sti­tute has es­tim­ated eco­nom­ic im­pacts in the bil­lions of dol­lars as­so­ci­ated with gaps between whites and minor­it­ies in edu­ca­tion, earn­ings, and health in the U.S.

His­tory has shown that re­du­cing bar­ri­ers to op­por­tun­ity can lead to great­er eco­nomy-wide growth. An ana­lys­is by eco­nom­ists at the Uni­versity of Chica­go and Stan­ford Uni­versity showed that re­duc­tions in oc­cu­pa­tion­al bar­ri­ers fa­cing blacks and wo­men between 1960 and 2008 in the U.S. could ex­plain 15 per­cent to 20 per­cent of the ag­greg­ate growth in out­put per work­er over this peri­od. Our suc­cess today in con­tinu­ing to re­duce bar­ri­ers to op­por­tun­ity will help drive the level of eco­nom­ic growth we are able to achieve over the next 50 years.

Pro­grams such as the W.K. Kel­logg Found­a­tion‘s Amer­ica Heal­ing ini­ti­at­ive are work­ing to pro­mote ra­cial heal­ing and ad­dress ra­cial in­equity in com­munit­ies across the coun­try, so that all chil­dren have the prom­ising fu­ture that they de­serve. In the com­ing dec­ades, it is today’s young­er gen­er­a­tion who will drive eco­nom­ic growth, whose tax con­tri­bu­tions will sup­port so­cial in­sur­ance pro­grams for the eld­erly and oth­er ser­vices, whose pur­chas­ing power will de­term­ine the de­mand for goods and ser­vices, who will serve in our armed forces, and who will act as care­givers to an aging pop­u­la­tion. The ma­jor­ity of this gen­er­a­tion will be chil­dren of col­or, many of whom will face the leg­acy ef­fects of past ra­cism and on­go­ing in­equit­ies of struc­tur­al ra­cism and im­pli­cit bi­ases. The abil­ity of these chil­dren to suc­ceed will shape our shared fu­ture.

The Next Amer­ica wel­comes op-ed pieces that ex­plore the polit­ic­al, eco­nom­ic and so­cial im­pacts of the pro­found ra­cial and cul­tur­al changes fa­cing our na­tion. Email us.

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