Given their greater share in low-wage and medium-wage occupations and the disproportionate impact of recessions on these occupations, Blacks and Hispanics likely end up suffering worse economic impacts than whites and Asians on average during recessions. : Issues by the Numbers, Deloitte Insights, April 3, 2020. By continuing you agree to the use of cookies. View in article, United States Census Bureau, “Current Population Survey (Table A-1: Households by total money income,race, and Hispanic origin of householder).” View in article, Real median household income data is available until 2018. This figure is higher than that for households where the head of the household was Asian (-7.6%), Hispanic (-7.5%), or white (-5.7%).15 As figure 4 shows, households with a white head fared better than those with Asian, Black, or Hispanic heads in the 2001–2002 recession as well. The data is non-seasonally adjusted and is provided monthly. Explain reasons why the inequality gap between educated and less-educated workers has been widening. We provide evidence that this increased sensitivity arises for two reasons: (a) the top income groups receive a large portion of their income from wealth, which is more sensitive to growth than labor income and (b) the top income groups receive a large portion of their labor income in the form of pay-for-performance (equity compensation), which is also sensitive to growth. In 2019, for example, 51.1% of Hispanics who were employed were engaged in low-wage occupations, followed by 50.4% for Blacks.14 These figures are much higher than the shares of low-wage occupations in total employment for whites (37.3%) and Asians (33.2%). View in article, Federal Reserve Board, “Distributional financial accounts,” June 19, 2020. Decomposition of the Change in Market (Gross) Income Inequality _____ 27 21. There are also models that claim that inequality will increase growth. The purported consequences of the rich-poor divide are exceedingly diverse. Over the past 40 or so years, the American economy has been funneling wealth and income, reverse Robin Hood-style, from the pockets of the bottom 99 percent to the coffers of the top 1 percent. By way of example, the historical relationship (1980-2012) observed between inequality and growth in the 159 countries analysed shows that, if the income share of the richest 20% of the population increases by 1 pp (a rise in inequality), GDP growth slows down by 0.08 pps during the next five years. Introduction. The occupation data also shows how recessions likely end up exacerbating income inequality—economywide, among races, and within races—due to their disproportionate impact on relatively lower-paid occupations. See something interesting? Labor income of top groups is more sensitive to growth than that of low groups. Drawing on harmonised data covering the OECD countries over the past 30 years, the econometric analysis suggests that income inequality has a negative and statistically significant impact on subsequent growth. Between February and May 2020, for example, employment for Asians in low- and medium-wage occupations fell by 36% and 31.5%, respectively. View in article, Buckley and Barua, Slow growth in wages: Is the reason occupational shifts?. Copyright © 2015 Published by Elsevier Inc. https://doi.org/10.1016/j.jmacro.2015.05.007. There are also significant income disparities between races and ethnic groups. It's impacted by many other forms of inequality, including wealth, political power, and social status. Another side … econometric analysis suggests that income inequality has a negative and statistically significant impact on subsequent growth. Income and wealth inequality in the United States has been on the rise since the early 1970s,7 and even prior to the pandemic it showed no sign of abating. View in article, United States Bureau of Labor Statistics, “Monthly Household Data,” Haver Analytics, June 2020. Social login not available on Microsoft Edge browser at this time. The case for greater equality is not just the reverse of the case against income and wealth inequality. To compare income inequality across countries, the OECD uses the Gini coefficient , a commonly used measure ranging from 0, or perfect equality, to 1, or complete inequality. This will play into how employment recovers in these occupations as employers and workers struggle to balance precautionary measures with business needs. For example, a recent Congressional Budget Office report found that for incomes in the range of $5,000 … Pure income redistribution policies generate less future growth than those policies that expand the economic opportunities of poor people—but they reduce poverty immediately. The people likely to suffer most, both economically and health-wise, during the ongoing recession are those who are engaged in occupations where the ability to socially distance from customers and from each other is extremely low. The occupation data also shows how recessions likely end up exacerbating income inequality—economywide, among races, and within races—due to their disproportionate impact on relatively lower-paid occupations.18 During November 2007–June 2009, employment in the United States fell by 4.5% in low-wage occupations and by 5.4% in medium-wage occupations; the corresponding decline in employment in high-wage occupations was just 0.6%. Figure 7 shows that employment in these two lowest-paid occupations has fallen sharply for all races, most significantly among Asians, followed by Hispanics and African Americans. COVID-19 is laying bare socio-economic inequalities and could exacerbate them in the near future. A recent study, How risky is your industry?,19 ranked the risk of contracting COVID-19 for the 22 specific occupations in our high-, middle- and low-wage groups based on these four criteria; figure 8 shows the results. There's a continuing debate as to the broader impact of income inequality. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. The relation between economic growth and income inequality has long been a subject of debate. View in article, Daniel Bachman, Income inequality in the United States: What do we know and what does it mean? In another recent piece,11 we categorized 22 broad occupations into three wage groups—low-wage, medium-wage, and high-wage—based on mean nominal wages in 2018.12 In the low-wage group, mean nominal wages range from US$12.30 per hour for food preparation and service-related occupations to US$18.84 per hour for production occupations. Dan Vergano and Kadia Goba, “Why the Coronavirus is killing black Americans at outsize rates across the US,” BuzzFeed News, April 10, 2020. The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting and thought-provoking content for external and internal audiences. So let’s begin with this study, the results of which show a causal relationship between income and physiological health: This isn’t the only study that found such a link. Or is it in itself an obstacle to growth? With these programs included, the rate for covered white, non-Hispanic, Black, and Hispanic rise to 94.6%, 90.3%, and 82.2%, respectively. Issues by the Numbers, Deloitte University Press, July 12, 2017. Figure 6 also offers clues on why some races and ethnic groups fare worse than others during a downturn. Please see www.deloitte.com/about to learn more about our global network of member firms. Hispanics (30.6%) and whites (29.2%) have a higher proportion of employment in the “11 or below” risk category in middle-wage occupations; Blacks (25.5%) and Asians (17.6%) are less prevalent in these occupations. Evaluate the effect of income inequality on the U.S. economy, such as unemployment, economic growth, and other economic factors. While the high-wage group includes the occupation with the highest COVID-19 risk—health care practitioner and technical occupations—the other occupations in this group are at fairly low risk. Is it, as some contend, a necessary evil that must be tolerated in the interests of economic growth? The unique nature of the current recession4 has increased the odds that these existing disparities in income and wealth will be exacerbated because of differentials in occupational employment among US racial groups. This column argues that greater income inequality raises the economic growth of poor countries and decreases the growth of high- and middle-income countries. Blacks and Hispanics are disproportionately employed in low-paying occupations,5 and we have found in earlier research that low-paying jobs are often shed more quickly in a recession.6 In addition, Blacks and Hispanics are more likely than non-Hispanic whites to work in occupations that have been disrupted by shutdowns imposed to slow the spread of the disease. Financial development, trade openness as a proxy of globalization, inflation, human capital formation, and fiscal policy are utilized as major control variables. Economic Development and Cultural Change 35:35–76. She regularly briefs members of Deloitte’s executive leadership team on changes to the US economic outlook and is responsible for the US chapter of Deloitte’s quarterly Global Economic Outlook and produces “Issues by the Numbers,” a data-driven examination of important economic policy issues. UK and USA are reported to be most adversely affected by COVID 19 in terms of economic recession and unemployment. They include: Political polarization: There has been an enormous rise in political polarization. The economic effects of income inequality are far reaching, most noticeably for those outside of a country’s wealthiest class. The relation between economic growth and income inequality has long been a subject of debate. The case for greater equality is not just the reverse of the case against income and wealth inequality. Inequality could be an increase in income share of the entire population the. 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