The Fed Alone Cannot Create Black Full Employment

April 06, 2023

Federal Reserve action may be a necessary component to reaching Black full employment, but it is not sufficient. Full employment for Black people will require additional policies including subsidized employment.

The Federal Reserve aids job growth by lowering its interest rate. From the end of 2008 through 2016, and again for most of 2020 and to early 2022, the Fed’s interest rates were close to zero. These rates were helpful in producing historically low Black unemployment rates, but none of these Black unemployment rates were truly low. To put it another way, no other racial group would have considered the same unemployment rates as anything to celebrate.

This figure illustrates the persistent high-unemployment conditions facing Black people in the United States. It places the annual White and Black unemployment rates into rate categories. The median rate for White people from 1963 to 2022 is 5 percent. Rates of 4.1 percent to 5 percent are considered to be “low unemployment” for this discussion. “Full employment” will be defined as an unemployment rate of 4 percent or lower. (This definition of “full employment” is an explicit rejection of the non-accelerating inflation rate of unemployment as a standard for full employment. One of the reasons to reject this standard can be found in this article.) Given that there are always people leaving jobs and new people entering the labor force who are looking for work, some level of unemployment will always exist.

In the past 60 years, the White population experienced full employment for 13 of those years, as well as 18 years of low unemployment. The Asian American population has also had several years of full employment. The Latino population has had low unemployment in recent years, but not full employment.

As the figure illustrates, the Black population has never had full employment over the past 60 years, nor has it even had low unemployment like other groups. The Black population is always living with varying degrees of high unemployment, while the White, Latino, and Asian American populations have all experienced annual unemployment rates below 5 percent.

This unemployment-rate history makes clear that Black full employment will not happen without a new policy approach. The Federal Reserve has an important role to play, but it is unable to create the conditions for Black full employment on its own. The 60-year period covered in the figure includes several years of Fed interest rates near zero, and yet the Black unemployment rate never reached the low-unemployment range.

The Federal Reserve is not able to target job creation to the specific cities, suburbs, and rural areas or the neighborhoods within these places where there is high Black unemployment. The Fed is not able to counteract the segregation and economic marginalization of Black communities. The Fed is not able to circumvent the discriminatory practices of employers. All of these factors must be addressed to achieve Black full employment.

Federal Reserve policy can determine whether the Black unemployment rate is in the 6 percent range or the 16 percent range. It is easier to achieve Black full employment when the Black unemployment rate is near 6 percent. For this reason, efforts to pressure the Fed to strenuously pursue maximum employment are very important.

Fiscal policies that spur job creation are also necessary. For example, investments in the nation’s inadequate physical and care infrastructure are good ways to create jobs and address dire needs.

A national subsidized employment program is also required. The Works Progress Administration (WPA) was able to subsidize the creation of over 400,000 jobs for Black workers over the Great Depression. The WPA was only the largest of dozens of subsidized employment programs in U.S. history. Subsidized employment can be designed to effectively target job creation to disadvantaged Black communities. A subsidized employment program can be done effectively and at scale. If Black people are to experience full employment, there needs to be policy action beyond the Federal Reserve.

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