The Power of Empowering Workers: Reducing Racial Employment and Unemployment Gaps

Payrolls rose by 150,000 last month and the unemployment rate ticked up to 3.9 percent, the highest rate since January 2022 though still a historically low jobless rate. In fact, the jobless rate has now been below 4 percent for 21 months in a row, a streak we haven’t seen for over 50 years. In this post, after briefly hitting some of the highlights of today’s labor market report, we highlight one of the important benefits of maintaining such a tight labor market: the reduction of the racial unemployment and employment gaps.

Some of the key points about the October jobs report include:

• The average monthly gain over the past three months is a solid 204,000, a pace of job gains that is consistent with maintaining the strong labor market.
• This monthly average reflects the fact that employment growth in August and September was revised down by a combined 101,000 jobs.
• The topline payroll number of 150,000 jobs reflects 33,000 fewer jobs in the motor vehicle and parts sector, a decline that was largely driven by the auto strike that was on-going at the time of the survey. That strike has since ended and we expect to see most of those workers back on the payroll next month.
• With such persistently low unemployment, we should expect job growth to slow as the economy nears its full potential. October’s 150,000 growth (or around 180,000 if we reverse the effect of the UAW strike) is roughly expected given the 3.9 percent unemployment rate and the experience of 2015-19 (see Figure 4 in the X thread).

There are many benefits of a low unemployment rate which is why maintaining a strong labor market and empowering workers is a pillar of Bidenomics. Full employment periods are clearly associated with both absolute and relative gains across a wide array of variables. One of these reliable correlations is the compression of racial employment and unemployment gaps.

The U.S job market has historically featured a persistent gap between White and Black or Hispanic/Latino labor-market variables. For example, again averaging over the past three months to boost the signal from the data, the gap between the Black and White unemployment rate was 2.2 percentage points (ppts). The average gap, however, over the full series is 6.1 ppts. However, when conditioning that average on periods when the overall jobless rate was below 4 percent, the average Black-white gap is 2.8 ppts.

The longer-term trends in these relationships are shown in the following figures. The first and second show the long-term trends in the Black-white unemployment and employment rate gaps, respectively. The cyclicality of their movement is clear (recessions are shown in shaded areas) as the unemployment gap becomes less positive in tight labor markets and the employment gap becomes less negative. In both cases, Blacks workers gain relative to white workers.

The next two figures show scatterplots with the overall unemployment rate on the x-axis and the Black-white gap on the y-axis in the first figure and the Hispanic-white gap (y-axis) in the second figure.[1] The dots show a clear pattern wherein low values of overall unemployment (to the left part of the x-axis) are associated with lower gaps in the Black- and Hispanic-white gaps (the lower part of the y-axis), and vice-versa.

A forthcoming chapter in the Economic Report of the President will feature many more examples of the benefits of full employment, along with a discussion of the policies that can help get and keep us there. To be clear, it will take more than full employment to close these gaps. But the power of empowering workers through persistently tight labor markets virtually jumps out of the data, as the above figures reveal.

[1] The rates are 3-month moving averages and the pandemic years of 2020-21 are omitted as large outliers.