Did the Post-Recession Recovery Improve Racial Wage Equity?
By Alessia Leibert
Among Minnesota workers laid off during the initial months of the Pandemic Recession, how many were able to return to their pre-pandemic wages by the end of 2022? And did claimants of color benefit from the economic recovery?
This study answers these questions by analyzing the earnings of 241,736 people in the Twin Cities Metro who requested UI benefits1 in the initial months of the Pandemic Recession. Given the high rates of inflation post-recession, real earnings (inflation-adjusted) were eroded for workers whose salaries did not keep up with inflation, and these tended to be older workers. Overall, 38% of claimants were unable to return to pre-pandemic wages, suffering wage losses greater than 1% (Figure 1). The share of negatively affected individuals increases with age, penalizing older workers the most.
Claimants with lower educational attainment (who are also typically younger) benefited from the extremely tight labor market in those low-wage, low-skill sectors that had to remain closed for longer and could lure workers back to work with high wage offers. As shown in Figure 2, claimants with high school or less posted higher average wage growth than claimants with a bachelor's or higher credential. The most penalized were claimants with a master's degree or higher: 53% of them suffered wage losses greater than 1% of their pre-pandemic wages, not because they switched to lower-paying jobs but because their employer did not adjust their wages enough to offset inflation.
Figure 3 wraps up this introduction by showing strong wage growth among claimants of color. Black claimants and those who identified with more than one race benefited the most, posting an average wage growth of over 16% versus 11% among white claimants.
Low-wage workers also benefited. According to this recent report, income for workers in the bottom 25% grew much faster than others even after accounting for inflation.
The Recovery Benefited the Working Poor, but Not Enough to Catch Up
Did higher wage growth for the segments of the workforce who need it the most fix wage inequalities by race, ethnicity and education? This does not seem to be the case. One and a half years of strong wage growth were not enough to offset the large earnings inequalities that pre-dated the pandemic. The next section breaks down earnings by race/ethnicity, age, and education level to examine pre- to post-pandemic wage inequalities. Figure 4 plots median hourly wages from 1st quarter 2020 to 4th quarter 2022, for a total of 12 quarters - or three years - of data. To simplify the display, the graph shows only the four largest race/ethnic groups and ages 20 to 42.
The graph shows that:
- Racial/ethnic disparities in median wages are evident in each age group and follow the same pattern: Black claimants always trail other groups, white claimants always earn more than other groups, and Asians and Latinos fall in-between.
- The spikes in wages corresponding to 4th, 8th, and 12th quarter are due to seasonality effects (such as end-of-year bonuses in certain job categories) and follow similar patterns by race/ethnicity;
- Racial/ethnic disparities emerge very early in life. In the youngest age group (20 to 24) Black claimants with a high school education started from a pre-pandemic hourly wage of $16.28, while other race groups started from wages higher than $17 an hour;
- Wage gaps widen with age. Initial (or pre-pandemic) wages, corresponding to the first data point in each age range, are always higher than initial wages in the preceding age range. This is to be expected because increases in age correspond to increases in work experience. However, increases over time are much more pronounced among white claimants than among other races, even those without postsecondary credentials. Pre-pandemic wages for white claimants jumped from $17.73 in the 20 to 24 age range to $30.01 an hour in the 37 to 42 range, representing a $12.48 difference or 71%. In contrast, Black claimants in the 20 to 24 age range started with wages of $16.28 and those in the 37 to 42 age range started with $21.69, a difference of just $5.41 dollars, or 33%. Such slower earnings progression with age (or experience) indicates slower career advancement, and lower life-long earning potential, relative to white claimants. As a result, the gap in wages between white claimants and other racial groups widens with age.
- The good news is that wages for Black claimants have grown more than white claimants within each age range except the youngest, where white claimants' wages grew faster. This result is due primarily to the fact that Black claimants in each age range started from the lowest wages.
Figure 5 displays bachelor's degree holders.
The graph shows that:
- Compared to Figure 4, racial wage gaps at the end of the three years are smaller in every age range, suggesting that earning a bachelor's had an equalizing effect relative to lower levels of education;
- Wage growth is quite strong for bachelor's degree holders until age 37. From age 43, growth turns into a loss for white claimants due to inflation, while claimants of color still experience some growth. However, this faster wage growth during the recovery is not enough for claimants of color to make up for the initial gap. In the 37 to 42 age range Black workers started at $26.32 and ended at $30.03, a much larger boost than others but not enough to fill the huge initial wage differences;
- As seen in Figure 4, wage progression from one age range to the next is slower for Black claimants. Higher educational attainment helped Black claimants advance in their careers as they aged (as demonstrated by higher wages in each subsequent age range) but the increase was less rapid than other races.
The following dashboard shows results for all education levels.
Figure 5 earnings outcomes by education level dashboard
The results clearly show that higher education leads to higher wages, but racial disparities remain stubborn and grow larger with age. The earnings of white claimants surpass those of other racial groups at every education level except master's and above, where Asian claimants out-earn white claimants.
Multiple Factors Cause Wage Disparities
The evidence discussed so far boils down to two main trends:
- Wage growth over time within the same age range (same age cohort) tends to favor workers of color over white claimants, because the economic recovery was relatively more beneficial to the lowest wage earners;
- Wage growth across age ranges (cohorts of different ages) tends to favor white claimants, who have higher returns from work experience and, therefore, higher lifelong earnings than other racial groups regardless of education level. This is also the key reason as to why wage gaps are smaller at a younger age and larger at an older age. This structural inequality cannot be fixed with a few quarters of stronger wage growth for workers of color.
Racial and ethnic disparities are caused by multiple factors. One factor is quality of schooling, which can vary according to a person's socio-economic status, both at the K-12 level and at the post-secondary level2, shaping future earnings trajectories. Minnesotans of color are also less likely than white residents to pursue degrees in high-earning fields such as STEM3. Furthermore, large differences were found across race in job quality and other measures of labor market disadvantage and may prevent certain race groups from accumulating valuable work experience over the course of their working lives. Two sources of job-related disadvantage are employment in part-time or short-tenured jobs and having an employment history in high turnover industries where career ladders are rarely available.
Gaps Shrink Within Occupation
Differences in earnings are not only determined by differences in education. An even greater impact on earnings is from an individual's occupation, which reflects both career choices and investments in education and job training4. Figure 6 shows that claimants of color were over-represented in lower-skill, lower-pay occupations such as Food Preparation, Food Processing (mostly employed in Manufacturing), Home Health & Personal Care Aides, Nursing Assistants, as well as Janitors, Cleaners and Maids. While white claimants represented 68% of all claimants in our dataset, they made up much smaller shares of occupations in this list relative to claimants of color. For example, Black claimants made up 66.3% of all claimants in Home & Personal Care Aides despite the fact that they represented only 15.6% of the total dataset5. Black claimants were also over-represented in seasonal and high turnover occupations such as Childcare Workers.
A second dashboard allows users to drill down into the occupational category that claimants reported at the time of layoff in 2nd quarter 2020. Although it shows occupational groups rather than individual occupations, it sheds light on the role of occupational segregation in racial wage gaps.
Occupational segregation occurs in two main ways: first, when workers of color are less likely to pursue high-earning and growth potential careers and training paths than white workers; second, when workers of color pursue these paths but are prevented from entering the targeted career due to biases in hiring and/or promotional opportunities.
Figure 7 gives a snapshot of dashboard results, comparing two occupations in the Healthcare Support category where white workers were under-represented: Home Health & Personal Care Aides and Nursing Assistants. A question we can ask of this visual is: Do racial wage gaps persist within the same occupational category after holding age and education level constant?