Why The Fed's Rate Hike Will Hit Black People Harder Than Whites

The Federal Reserve’s decision to raise its benchmark interest rate on Wednesday is bad news for black workers.

The move is expected to put downward pressure on job creation by raising borrowing costs throughout the economy. While the rate hike is a modest measure on its own, it sets the stage for a series of additional developments that stand to have a much bigger contractionary effect on the economy.

That will squeeze all American workers, since there will be less demand for their work and they won't have as much leverage when it comes to setting wages. But it will be especially bad for African-Americans.

The unemployment rate among black people in the U.S. is generally about twice as high as the unemployment rate for white people. As of the end of November, the unemployment rate for African-Americans was 9.4 percent, compared with a rate of just 4.3 percent for whites.

This means that any time the overall unemployment rate declines, it disproportionately benefits black workers -- and any time national unemployment goes up, it disproportionately hurts them.

The progressive Center for Economic and Policy Research created a visualization tool in October to illustrate this phenomenon.

CEPR focused on how black unemployment would fall relative to white unemployment if the Federal Reserve allowed the economy to grow unfettered by not raising the interest rate.

Since black unemployment is twice as high as white unemployment, it means that every time white unemployment declines by 1 percentage point, black unemployment declines by 2 percentage points.

CEPR also looked at the relationship between white unemployment and black teen unemployment, which is typically six times the overall white rate. Thus, every decline of 1 percentage point in white joblessness is accompanied by a drop of 6 percentage points in black teen unemployment.

It's important to note that the disparity between black and white unemployment does not correspond to educational attainment.

William Spriggs, the chief economist of the AFL-CIO, who has done some of the pioneering research on the African-American labor market, notes that in previous growth periods, the unemployment rate for black college graduates was roughly equal to the rate for white Americans with associate degrees.

Right now, though, the disparity is even greater: Black college graduates are unemployed at roughly the same rate as white high school graduates. 

"Under their own abilities and own efforts, the best that blacks can do, the unemployment rate is the lowest that black people can get it," Spriggs told The Huffington Post.

Spriggs and other scholars have concluded that the higher rate of black unemployment is due to discrimination. 

"The only solution that African-Americans have is a very tight labor market that raises the cost of discrimination," he said.

The kind of "tight" labor market Spriggs describes would only be possible if the Fed allowed unemployment to drop before raising its key rate. In such a scenario, the theory goes, employers' demand for workers would become so great that they could no longer afford to discriminate against black job applicants.

Spriggs emphasized that caring about the plight of black and Latino workers is in all of Americans' interest. He called workers of color the "canary in the coal mine."

"This recovery has been fueled by auto sales, disproportionately to black and Latino consumers in subprime loans with unfavorable terms," he said. "The moment they lose their jobs, they will lose their car."

Spriggs compared it to the way the economy was flooded with new homes during the subprime mortgage bubble that prompted the 2008 financial crisis.

"The point is that when they start to lose their cars, we will flood the auto market with new model, used cars," he said. "The same thing will happen to the auto market as what happened with housing. It will collapse."

Activists who oppose a Fed rate hike have cited the heavy impact it would have on people of color as one reason why the interest rate should not go up.

Black and Latino workers affiliated with the Fed Up campaign, a coalition of groups advocating more progressive monetary policy, held a candlelight vigil Tuesday to “mourn” the impending Fed rate hike outside the Federal Reserve Bank of New York. 

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