The Federal Reserve stepped up its fight against inflation this week, introducing a major rate hike and saying more is to come. According to the Central Bank, these steps will lead to an increase in the number of unemployed Americans by the end of next year.
The Fed has pushed for a series of aggressive interest rate hikes in recent months as it tries to curb inflation by slowing the economy and stifling demand. But the approach risks plunging the US into recession and widespread unemployment.
Fed Chairman Jerome Powell acknowledged on Wednesday that a rate hike would cause pain for the US economy as growth slows and unemployment rises. However, he added, “failure to restore price stability means more pain later.”
The Fed’s projected job losses this week will raise the unemployment rate to 4.4% by the end of 2023 from the current 3.7%. According to Omair Sharif, founder of research firm Inflation Insights, the result will add about 1.2 million unemployed people.
According to economists and studies of past recessions, these job losses will disproportionately fall on some of the most vulnerable workers, including minorities and less educated workers.
If unemployment rises, the groups of workers who will lose their jobs are:
Black and Hispanic workers
Because black workers are disproportionately concentrated in industries that are vulnerable to economic downturns, they will be among the first to lose their jobs if unemployment rises. Racial discrimination often affects companies’ choices about which workers to lay off, economists say.
“The Fed’s actions really mean some disparate effects for black workers in the American economy,” Michelle Holder, a labor economist at John Jay College of Criminal Justice, told ABC News.
The vulnerability of black workers in the recession was most pronounced during the most recent recession, in the spring of 2020, when the pandemic led to higher unemployment for black workers at every level of education compared to their white counterparts, a RAND Corporation study found.
Overall, the unemployment rate for Black workers reached 16.8% early in the pandemic, while the unemployment rate for White workers only reached 14.1%.
Between the late 1980s and mid-2000s, government employment data show “substantial evidence” that blacks were among the first workers to be laid off as the economy weakened, according to a 2010 economic study published in the academic journal Demography.
“Frankly, discrimination still occurs in the American labor market,” Holder said.
A similar dynamic of disproportionate job losses affects Hispanic workers, economists say.
William Spriggs, chief economist for the AFL-CIO and an economics professor at Howard University, said Hispanic workers would be hit hard by a recession caused by rate hikes because they are disproportionately represented in the construction industry.
When the Fed raises interest rates, it often leads to a jump in mortgage rates, which causes potential homebuyers to delay their purchases and builders to delay future construction. U.S. 30-year fixed-rate mortgages rose to 6.29% on Thursday, the highest level in 14 years, according to Freddie Mac’s mortgage market survey.
Hispanic workers made up nearly a third of all construction workers last year, according to an analysis of government data released in June by the National Association of Home Builders.
“We’ve already seen a slowdown in construction,” Spriggs told ABC News. “First, those construction workers are shot.”
Less educated workers
Another group of people who will be among the first to lose their jobs during a recession are less educated workers.
Two years ago, during the pandemic-induced recession, less-educated workers suffered steeper job losses than their better-educated peers, according to a 2021 study published by the Institute for New Economic Thinking.
According to a 2010 study by the Minneapolis Federal Reserve, in general, when the economy weakens, poorly educated workers experience a more negative impact on employment than their better-educated counterparts.
In the Great Recession, the employment rate for workers with only a high school diploma fell by 5.6%, while the employment rate for workers with a college degree fell by less than 1%.
“The workers who tend to do better when the economy contracts are better-educated workers,” Holder said.
Data from the two most recent recessions, in 2020 and 2007, show that younger workers suffer disproportionately when the economy shrinks.
According to a 2020 study released by the left-leaning Economic Policy Institute, younger workers were out of work at higher rates than older workers during the pandemic-induced recession.
From spring 2019 to spring 2020, the overall unemployment rate among workers aged 16-24 increased from 8.4% to 24.4%, and unemployment for workers 25 and older increased from 2.8% to 11, increased to 3%.
A similar result occurred after the Great Recession. Between 2007 and 2010, workers aged 16 to 24 experienced a steeper decline in employment than other age groups. representation in the population as a whole.
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