The racial equity dividend

Racial justice organizations around the United States are struggling to find the resources from the corporate and foundation worlds needed to support their continuing work. One part of the problem seems to be that business leaders simply aren’t convinced that racial inequalities are a fundamental and debilitating problem in the United States that presents a concrete threat to their own business activities. The issue has fallen off the first page of the priority list. This suggest that we need to revisit some of the costs that the structures of racial inequity are imposing on regions and cities. 

The social costs of persistent racial inequity come in many dimensions. But particularly persuasive is the issue of the actual economic costs that these inequities impose on a region. We might put the point this way: racial inequities are an economic drag on a region, blocking the production of wealth and income and slowing down economic growth. Is it possible to estimate the magnitude of these hidden economic costs of continuing racial inequity?

Let’s think about this problem in the context of southeast Michigan and its major city, Detroit. What would southeast Michigan look like if the racial gaps of the region were erased? The gaps that exist between white and black citizens in the region are well documented. Residential segregation is extreme. Unemployment levels are dramatically higher for African-American youth and adults. Health disparities are large and debilitating. Educational outcomes are significantly worse for African-American young people, including high school graduation rates and college attendance. And, of course, family and individual incomes and wealth levels are substantially different.

So imagine a different scenario: a region in which residential segregation has ended. Schooling outcomes are equal for white and black students. Health disparities have disappeared. Employment rates have equalized. And average incomes, wealth holdings, and employment rates have converged across races. Plainly this would be socially desirable outcome; it would be a great improvement in social justice. But what would the economic effects be? How much new income and wealth would this scenario represent over the present situation?

We might approach this question directly, by estimating the aggregate income created by bringing 40% of the population up to the per capita income of the majority population. Likewise we could estimate the aggregate wealth that would be needed in order to equalize the wealth gap. Nationally black households in 2010 earned only 58% of the income of white households (link). I don’t have full data for Wayne County at hand, but if the ratio is roughly similar, this implies roughly a $20,000 gap in Wayne County household income between white and black households, which aggregates to almost $6 billion in lost income as a result of racial inequity. If the social factors leading to this inequity were eliminated, this would add $6 billion to the county’s income, consumption, and savings. (These are back-of-the envelope estimates, of course, and should be taken only as illustrative of the magnitude of the problem. Here are some basic demographic and income data for Wayne County based on census results; link.)

This scenario presupposes economic growth and jobs growth, but this assumption is supported by the large increase in the talent and education level of the population. We would also need to estimate the economic benefits associated with improved health status for the African-American population — likewise a large number that public health researchers have probably already estimated. It is well understood in the field of global public health that improving a population’s health status also improves its productivity. (Here is a study sponsored by the Kellogg Foundation that tries to estimate these costs and benefits. Nationally the costs associated with racial disparities in health are estimated in the trillions.)

Another approach to this issue would be to follow the lead of CEOs for Cities in attempting to estimate the “talent dividend” (link): do an econometric study of cities measuring degree of racial difference and per capita income. This would be the “racial equity dividend.” I don’t know if there is a recognized metric that already exists for measuring racial gaps in metropolitan regions, but it shouldn’t be hard to construct. It should include components reflecting segregation, income, schooling, and health — kind of a Human Development Index for Regional Racial Equity. We could then plot racial inequity against per capita income to see whether there is a relationship between these variables. I don’t know the answer, but I’d bet there is such a relationship. This would be a genuinely interesting piece of social research. And it might help communities realize the core importance of attacking their regional issues when it comes to racial equity. (I would love to know from Richard Florida whether there is any work available on this question in his research on cities.)

This whole line of thought depends on a hidden premise: that the racial gaps that exist in the metro regions of our country derive ultimately from racialized social and economic institutions that systematically produce and reproduce these racialized outcomes. This is what we once referred to as “institutionalized racism”, though the term now sounds dated. It represents the systemic ways in which African-American people are tracked into lower social outcomes in health, education, employment, and income and wealth. Justice requires that we at long last dissolve those institutional tracks. But the economic health of the country demands no less as well. And it is in the best interest of corporations and foundations to support these efforts in their home cities and regions.

(Here is a series in the Detroit News on the costs of segregation; link.)


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