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Identities, Conflict and Cohesion Programme Paper 3: Poverty and Prosperity: Prospects for Reducing Racial/Ethnic Economic Disparities in the United States

22 Jun 2004

  • Authors: Sheldon Danziger, Deborah Reed and Tony N. Brown

Poverty and inequality in earnings and family income in the United States are now higher than they were three decades ago and the bottom 40 per cent of the population has not fully benefited from the sustained economic recoveries of 1980s and the 1990s. America has never been wealthier as a nation, yet millions of families still have difficulty making ends meet, and racial/ethnic disparities remain substantial.

This paper focuses on trends in racial/ethnic disparities in employment, earnings and family income over the 25 years. It also reviews several areas in which persisting racial inequalities affect life chances. These include racial disparities in wealth, how perceptions of racial inequalities affect emotional well-being, perceptions of racial discrimination, and views on racial integration. In addition, it offers a public policy agenda for reducing racial/ethnic economic disparities.

Primary attention is paid to the labour market, as most economists agree that the main cause of growing inequality over this period was the rising value of worker skills to employers. That is, earnings differentials between the most educated and least educated, and most experienced and least experienced workers increased dramatically.

Labour-saving technological changes increase the demand for skilled workers who can operate sophisticated equipment, and simultaneously reduce the demand for less-skilled workers, many of whom are now displaced by automation. Global competition increases worldwide demand for goods and services produced by skilled American workers in high-tech industries and financial services, and reduces demand for workers in heavy manufacturing industries.

Less-skilled workers now compete with low-wage production workers in developing countries. Immigration increases the size of the low-wage workforce and the competition for low-skilled jobs. The decline in the real value of the minimum wage and shrinking unionization rates also move the economy in the direction of higher earnings inequality.

The authors conclude that, despite much progress over the past 40 years, the United States remains divided along racial and class lines. Given current economic trends and public policies, these divisions are not likely to narrow significantly in the coming decade.

Sheldon Danziger is Henry J. Meyer Collegiate Professor of Public Policy and co-director of the National Poverty Center at the Gerald R. Ford School of Public Policy, University of Michigan. Deborah Reed is director of the Population Program and research fellow at the Public Policy Institute of California. Tony N. Brown is assistant professor of sociology at Vanderbilt University.

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