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The growing income gap for Black workers

The Black-White earnings gap widened at most percentiles of the earnings distribution between 2009 and 2019

July 24, 2024

Authors

Natalie Gubbay Research Associate, Institute
Lisa Camner McKay Senior Writer, Institute
Group of African American workers talking around a table
Jake MacDonald/Minneapolis Fed; Getty Images

Article Highlights

  • Black men and women earn considerably less than White men
  • Black men are only group of men whose earnings declined relative to earnings of White men
  • Earnings grew more slowly for Black workers than White workers who started in same income bin
The growing income gap for Black workers

Since the 1980s, income inequality in America has increased. This overarching trend has been well established, using different measures of income and inequality. Even the “inequality wars” that have erupted between groups of economists concur that inequality has increased, though they disagree over how much.

But until recently, we have lacked a solid understanding of whether the broad patterns of inequality that have played out in the country as a whole hold for subgroups of Americans. The problem was one of data: Most income inequality research uses data from surveys, which often do not have enough respondents to accurately describe some racial and ethnic groups. This problem is particularly notable at the top of the earnings distribution—a group whose fortunes are key to understanding income inequality.

Income Distributions and Dynamics in America (IDDA) offers detailed data that can be used to assess income distributions and income mobility for groups of Americans defined by state, age bracket, gender, race and ethnicity, and U.S.-born status, as well as for intersections of those demographic characteristics.

Until recently, we have lacked a solid understanding of whether the broad patterns of inequality that have played out in the country as a whole hold for subgroups of Americans.

Using the statistics in IDDA, an Institute working paper from Institute economists Abigail Wozniak, Illenin Kondo, and Natalie Gubbay, with co-authors Brandon Hawkins, Kevin Rinz, and John Voorheis, takes a new look at the income experiences of Black workers between 2005 and 2019, the period covered in IDDA. Black Americans have long faced obstacles to opportunity and inclusion in the labor force. When applying for jobs, they are less likely than White applicants with identical resumes to be called for a job interview. Their unemployment rate has exceeded the White unemployment rate every month since the U.S. first collected such data, in 1972. They are often the first fired when the economy starts to weaken.

Given these facts, how have earnings for Black Americans fared in the last decade and a half?

Earnings relative to White workers grew—except for Black workers

The statistics in IDDA confirm that the Black-White earnings gap remains large. At the median, annual W-2 earnings for Black men was 62 percent of annual W-2 earnings for White men in 2019. For Black women, the share was even lower, just 57 percent. These values decline the higher one moves in the earnings distribution.

Moreover, the Black-White earnings gap actually widened at most percentiles of the earnings distribution between 2009 and 2019. Figure 1 shows how the earnings of Black men and Black women compare with those of White men over time. Black male and female earners made small gains relative to White male earners between 2005 and 2009 (the lines in the charts rise). These gains then eroded across most of the earnings distribution (the lines fall), except for the very highest earners. The result is that for Black women, the gaps are wider in 2019 than they were in 2009. For many Black men, earnings eroded more—the gaps in 2019 are wider than they were in 2005.

1

The Black-White earnings gap, 2005–2019
 
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Note: Charts are based on W-2 earnings for individuals aged 25 to 54 years old who earned at least the federal minimum wage for 20 hours a week for 13 weeks a year (a value of $1,885 for the period from 2010 to 2019). Black earners’ gains relative to White earners show up as a shallow but visible rise between 2005 and 2009. Their earnings share then drifts lower from 2010 to 2019.
Source: Federal Reserve Bank of Minneapolis, Income Distributions and Dynamics in America.

 

Compared with the experiences of other racial and ethnic groups, the evolution of the Black-White earnings gap stands out following the Great Recession: Black men are the only group of men whose earnings declined relative to the earnings of White men in this time frame. In fact, the earnings for men of the other racial and ethnic groups in IDDA all increased relative to the earnings of White men. Among women, a few groups made modest gains or reversals relative to White men, but the largest loss in relative earnings was experienced by Black women (Figure 2).

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Note: These charts plot the percent change in relative earnings for the indicated group compared with White men. For instance, relative earnings for Hispanic men compared with White men at the median were 73% in 2009 and 80% in 2019, an increase of 9.6%. Positive numbers show the relative earnings of the indicated group increased over time compared with White men, while negative numbers show relative earnings declined. AIAN—American Indian or Alaska Native. NHOPI—Native Hawaiian or Other Pacific Islander.
*Earnings for Asian men started close to 100% of White male earnings in 2009, so their relative earnings growth indicates that they outearned White men by 2019. Relative earnings for Asian women were below 100% in 2009 and very close to parity in 2019.
Source: Federal Reserve Bank of Minneapolis, Income Distributions and Dynamics in America.

The statistics on Black earnings in IDDA, which come from tax records, differ in meaningful ways from survey sources. An influential article on Black-White earnings inequality from economists Patrick Bayer and Kerwin Kofi Charles documented that relative earnings for Black male workers made gains from the 1950s to 1980s but then stagnated from 1980 to 2014. The statistics from IDDA show both a larger earnings gap and a greater erosion of earnings in the 2010s than the data Bayer and Charles used, which come from the American Community Survey. Similarly, the racial earnings gaps reported in IDDA are larger than the gaps in the Current Population Survey, particularly at the top and bottom of the income distribution. This reinforces the value of data based on the universe of earners rather than a survey sample. The large number of data points makes earnings estimates more accurate and precise across the earnings distribution.

Earnings gaps grow when earnings growth falters

Researchers studying the Black-White earnings gap often group potential explanations in two categories. One category includes factors that directly shape the wages paid to Black and White workers, such as educational attainment or labor market discrimination, which shift Black earnings relative to White earnings.

Research has established the large effect that a college degree has on earnings, for instance. If the college attainment gap were growing, that could be a piece of the explanation for why the Black-White earnings gap is, too. But in fact, the opposite is true: According to analysis in the working paper of data from the American Community Survey, the Black-White gap in bachelor’s degree attainment closed slightly between 2005 and 2019.

The second category of explanations points to the overall trend in rising earnings inequality. When the distribution of earnings widens—when top earners see their incomes grow by more than lower earners—groups that are overrepresented at the bottom of the earnings distribution, including Black earners, will tend to fall further behind. Bayer and Charles identified that these distributional factors were especially important as earnings inequality swelled from 1980 to the early 2000s. Interestingly, though, IDDA statistics show that the earnings distribution narrowed slightly between 2009 and 2019, the period in which the Black-White earnings gap widens.

Median earnings growth of White workers at the top of the distribution was 34 percent higher than for Black workers at the top. The persistence of high earnings matters in improving representation at the top of the income distribution.

To take a closer look at what was going on, Wozniak, Kondo, and team looked at IDDA’s income growth statistics, which track the same individuals over time. This tracking matters because looking just at Black or White earnings in different years could be capturing how the workforce is changing—more young workers entering the workforce could be Black than White, for instance, which would affect the distribution of Black earnings. But calculating the income growth for the same individuals over time holds constant the characteristics of the workers. It also allows researchers to compare workers with similar initial earnings, helping to identify whether Black and White workers have different experiences moving up or down the career ladder even when they start on a similar “rung.”

The IDDA data show that earnings grew more slowly for Black workers than for White workers in each five-year window from 2005 to 2019. This was true for all initial income levels, but it was especially stark for high earners (Figure 3). For example, from 2014 to 2019, median earnings growth of White workers in the top 10 percent of the distribution was 34 percent higher than for Black workers ($24,900 versus $18,530 over the five years). Previous research has shown that the persistence of high earnings matters in improving representation at the top of the income distribution, sometimes even more than mobility into the highest-earning percentiles.

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Among the bottom 25 percent of earners, median earnings growth for White workers was 10 percent higher than for Black workers. For low earners especially, obstacles to job security could be part of the story: Black workers are overrepresented in sectors with unpredictable hours or schedules and tend to experience longer unemployment spells than White workers. These types of disruptions can influence workers’ longer-term prospects in the labor market.

The researchers conclude that slower earnings growth for Black workers may have contributed to the widening earnings gap seen in the data. The fact that earnings grew more slowly for Black workers than White workers with similar initial incomes also suggests there is more to Black workers’ unique experience than broadening wage inequality overall.


Lisa Camner McKay
Senior Writer, Institute

Lisa Camner McKay is a senior writer with the Opportunity & Inclusive Growth Institute at the Minneapolis Fed. In this role, she creates content for diverse audiences in support of the Institute’s policy and research work.