The economic gains from equity

Longstanding racial and ethnic disparities in the United States have hurt not only the people who experience the disparities but have hurt all Americans by depressing U.S. economic output by trillions of dollars over the past 30 years, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on September 9.

The authors— Shelby R. Buckman, Laura Y. Choi, Mary C. Daly¸ and Lily M. Seitelman, all of the Federal Reserve Bank of San Francisco—considered differences from 1990 to 2019 among white, Black, and Hispanic men and women, ages 25-64. They looked at disparities using five metrics: employment (the percentage of people with jobs); hours worked; educational attainment (the level of education completed); educational utilization (the extent to which people are in jobs that fully use their education); and earnings gaps not explained by those factors.

Then, in The economic gains from equity, they conducted a thought experiment, asking: “How much larger would the U.S. economic pie be if opportunities and outcomes were more equally distributed by race and ethnicity?” Their answer is $22.9 trillion over the 30-year period.

“The persistence of systemic disparities is costly, and eliminating them has the potential to produce large economic gains,” the authors write. Standard economic models often assume markets work efficiently and thus suggest explanations—such as unmeasured differences in productivity or cultural differences—that would support the existence and persistence of racial and ethnic gaps. The authors instead assume talent and job and educational preferences are distributed evenly across race and ethnicity. They then show the economic effects of disparities that hold people back from fully realizing their potential.

The persistence of systemic disparities is costly, and eliminating them has the potential to produce large economic gains

“The opportunity to participate in the economy and to succeed based on ability and effort is at the foundation of our nation and our economy,” they write. “Unfortunately, structural barriers have persistently disrupted this narrative for many Americans, leaving the talents of millions of people underutilized or on the sidelines. The result is lower prosperity, not just for those affected, but for everyone.”

“With considerable pressures weighing on U.S. economic potential in coming decades, the time seems right to take a new perspective and imagine what’s possible if equity is achieved,” the authors conclude.

The authors note in the paper that they built on the work of others and cite in particular the work, dating to 1985, of four African-American economists: William A. Darity, Patrick L. Mason, William E. Spriggs, and the late Rhonda M. Williams.

Acknowledgments

David Skidmore authored the summary language for this paper.

Citations

Buckman, Shelby R., Laura Y. Choi, Mary C. Daly¸ and Lily M. Seitelman. 2021. “The Economic Gains from Equity.” Brookings Papers on Economic Activity, Fall. 71-111.

Fortin, Nicole. 2021. “Comment on ‘The Economic Gains from Equity’.” Brookings Papers on Economic Activity, Fall. 112-130.

Hurst, Erik. 2021. “Comment on ‘The Economic Gains from Equity’.” Brookings Papers on Economic Activity, Fall. 130-135.

Conflict of Interest Disclosure

Shelby R. Buckman is a graduate student in economics at Stanford University and a past employee at FRBSF during which time she did the majority of her contribution to this paper; Laura Y. Choi is vice president of community development at the Federal Reserve Bank of San Francisco; Mary C. Daly is president and chief executive officer of the Federal Reserve Bank of San Francisco, CRIW member, and IZA research fellow; Lily M. Seitelman is a graduate student in economics at Boston University and a past employee at FRBSF during which time she did the majority of her contribution to this paper. Beyond these affiliations, the authors did not receive financial support from any firm or person for this paper or from any firm or person with a financial or political interest in this paper. They are currently not officers, directors, or board members of any organization with an interest in this paper. No outside party had the right to review this paper before circulation. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of San Francisco. Any opinion, findings, and conclusions or recommendations expressed in this material are those of the authors(s) and do not necessarily reflect the views of the National Science Foundation. This material is based upon work supported by the National Science Foundation Graduate Research Fellowship under Grant No. DGE-1840990 and Grant No. DGE-1840990.

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