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Macroeconomic shocks and racial labor market differences

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  • Kuhelika De
  • Ryan A. Compton
  • Daniel C. Giedeman
  • Gary A. Hoover

Abstract

We investigate the effects of three structural macroeconomic shocks (monetary, demand, and supply) on the labor market outcomes of black and white Americans using a factor‐augmented vector autoregression (FAVAR) framework with 136 U.S. macroeconomic indicators from 1973 to 2017. Our results indicate that adverse macroeconomic shocks have differential effects on labor market outcomes for blacks and whites, hurting blacks disproportionately more than whites. Black Americans' labor market outcomes appear to be significantly more sensitive to macroeconomic shocks than are the outcomes for white Americans. Our findings indicate that business‐cycle costs are disproportionately borne by black Americans and that racial inequality in the labor market rises in recessions. The strongest effects occur in recessions caused by supply side disturbances. Our results suggest policymakers should take these heterogeneous effects into account when designing policy.

Suggested Citation

  • Kuhelika De & Ryan A. Compton & Daniel C. Giedeman & Gary A. Hoover, 2021. "Macroeconomic shocks and racial labor market differences," Southern Economic Journal, John Wiley & Sons, vol. 88(2), pages 680-704, October.
    • Handle: RePEc:wly:soecon:v:88:y:2021:i:2:p:680-704
    DOI: 10.1002/soej.12534
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    2. Charles L. Ballard & John H. Goddeeris, 2023. "Southern gains and northern losses: Regional variation in the evolution of black/white earnings differences in the United States, 1976–2017," Southern Economic Journal, John Wiley & Sons, vol. 90(1), pages 44-70, July.
    3. Elder, John & Payne, James E., 2023. "Racial and ethnic disparities in unemployment and oil price uncertainty," Energy Economics, Elsevier, vol. 119(C).

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