By Jenny McCoy
A new report published by the W.K. Kellogg Foundation and Altarum positions racial equity as both an imperative for social justice and a strategy for economic growth.
In The Business Case for Racial Equity, published in April as an update to a 2013 report of the same name, researchers analyzed data from the U.S. Census, Johns Hopkins University, Georgetown University, Harvard University, Brandeis University and other sources, to estimate the economic benefits our country would gain if racial disparities in key sectors were eliminated.
“We can’t wave a magic wand and equalize opportunity overnight—but if we could, what’s the potential there?” said Ani Turner, report author and co-director of sustainable health-spending strategies at Altarum.
The answer: an $8 trillion boost to U.S. gross domestic product (GDP) by the year 2050.
“That’s larger than the GDP of every country other than the United States and China,” Turner said. “That’s the potential lurking right there.”
The report evaluated racial inequities within the domains of health care, education, incarceration, housing and employment.
“We are at a particular point in our country’s history where the economic arguments [for racial equity] become more powerful because our population is not growing, and our productivity and workforce participation are not growing as fast as they used to,” Turner said.
By the year 2050, people of color will represent half the total population and more than half of the working-age population, the researchers found.
“In addition to becoming racially and ethnically more diverse, the U.S. population is aging,” wrote the authors. “There are currently 3.9 people of working age for every 1 person of retirement age. By 2050, the ratio will be 2.7 to 1, making the productivity of future workers even more important to our economy and our fiscal outlook.”
For these reasons, some of the biggest economic advantages that we’d see from racial equity, Turner said, would come from greater investments in the future workforce. There’s already a skills gap in certain industries between the available workforce and workforce demand, she explained.
“As today’s children become part of the future, a greater percentage will be of color, and historically, they have had lower rates of health care and education,” Turner said. “Investments in improving that—in better health care, more education, reductions in incarceration rates [and so on]—will make a big difference in the skill of tomorrow’s workforce.”
The inequities that persist in so many different domains all influence one’s education and, ultimately, get reflected in earnings, Turner said. Annual earnings for people of color are 63 percent of those of non-Hispanic whites.
“If we are able to bring up that average, we would still have people who make more and some who make less,” Turner said, “but there really is no reason to see a persistent and significant difference strictly by race.”
Raising the average earnings of people to color to match the earnings of whites would generate an additional $1 trillion in earnings, according to the report. These additional earnings would come from the economic expansion that “a more productive workforce brings to meet growing global demand, and the growth that families of color themselves support with greater spending power and more financial security.”
And beyond the additional earnings: “Because this gain would be generated through greater productivity, it would translate to an additional $2.7 trillion in economic output.”
Racially based health disparities lead to excess health care costs that burden all of us, Turner said. These disparities, which start at birth and continue into adulthood, have an annual economic burden of approximately $93 billion from excess medical costs and $42 billion in untapped productivity, per the study.
“Whether it’s employer-based health care or Medicare/Medicaid, we are all sharing in those costs,” Turner said.
There have been dramatic increases in incarceration rates in the U.S. since the 1980s, and this increase disproportionately affects people in color. Latino men are incarcerated at twice the rate of white men, and Black men are incarcerated at nearly six times the rate of white men, the researchers found.
“With mandatory sentencing, we put people behind bars and create criminal records for large numbers of people, who then can’t work and support their families, and then have a much harder time when they get out finding employment,” explained Turner. Additionally, “all that law enforcement and incarceration is expensive and a big part of state budgets.”
As a nation, we would save $50 billion in annual state and federal prison costs by 2050 if people of color were incarcerated at the same rate as whites, the report found.
Where you are born has a significant impact on your future, Turner said. In particular, being born into a neighborhood of concentrated poverty strongly and negatively influences the opportunities you have later in life. The study found that 32 percent of Black children live in a neighborhood of concentrated poverty, compared to 5 percent of white children.
Living in such an area can result in fewer resources, fewer places to work, higher unemployment rates, fewer chances to make social connections, lower-quality schools and higher crime rates. All of these negative circumstances affect children’s ability to learn, and also their outlook—both in terms of later earning potential as well as health and well-being, Turner said.
People living just one zip code apart can have life expectancies differ by as much as 20 years, Turner added. (For example, in Denver, a distance of just a few miles can mean an 11-year difference in life expectancy, research has found.)
The sum of these inequities is a reinforcing cycle of residential segregation and concentrated poverty that is difficult to break, in part because housing is the way that most middle-class families develop wealth. “It’s your house that appreciates [in value], and that’s how you can get a loan to start a business, fund your children’s education, retire, and so on,” Turner said.
Yet when it comes to home ownership, whites own homes at 1.6 times the rate of people of color, which partly explains the $110,000 gap in median net worth between white households and households of color.
“Closing the educational achievement gap can be one of the most beneficial strategies for producing economic, human, and social gains,” the authors wrote.
Although educational achievement gaps between races have lessened in recent years, discrepancies remain. If the educational achievement of children of color was raised to that of white children, the U.S. economy would see an estimated increase in value of $2.3 trillion by 2050, according to the study.
How To Get There
The potential economic benefits of racial equity are significant, and there are many actions we can take to work towards it, Turner said. Making more early childhood investments is an especially promising area. Things like home visiting programs for new and expecting mothers, as well as better access to quality early childhood education, will set up kids of all backgrounds to have a better, more equitable start in life.
Entrepreneurship is yet another area where we can better promote racial equity. Data show that people of color start businesses at the same rate as non-Hispanic whites, but their businesses tend to be shorter-lived, Turner said. This happens for various reasons, including less access to capital and banks.
That’s where the support of local businesses can come in. If companies extend mentoring, business expertise and capital to help communities of color better enter the startup world, that could make a difference in promoting success and self-sufficiency, Turner said.
Finally, reforming the incarceration system is a must in improving racial equity. Sentencing guidelines are an obvious target; additionally, “programs to better reintegrate returning citizens in society and the job market, and reduce recidivism, will be better for community and state budgets,” Turner said.
These are just a few of many solution-oriented actions outlined in the report, and every American—regardless of race and ethnicity—can take part.
“Each of us has the power to advance racial equity,” the authors concluded. “We can increase our participation in our communities, make our voices heard by our governments, and join in the broader national discourse on race, inequity, and our economic future.”