A Strong Labor Market Is Even More Crucial For People Of Color

The labor market recovered remarkably quickly from the recession in early 2020. This rapid recovery has had greater importance for Black, Latino and many Asian workers than for white workers as they rely more on income from work—wages, salaries and self-employment income—as opposed to income from capitol like dividends and interest.

Jobs returned at a rapid pace and many workers saw substantial wage gains, too. Workers of color and white workers benefited from the recovery at comparatively equal rates, unlike, for instance, after the Great Recession from 2007 to 2009, when many workers of color saw labor market gains much later than was the case for white workers. The fact that all workers equally shared in the labor market recovery this time around is particularly good news for many workers of color since they rely on earnings from work to a larger degree than is the case for white workers.

Median Wages by Race and Ethnicity

The latest data from the Bureau of Labor Statistics for 2021 provides a glimpse of the importance of earnings – wages and salaries — for a wide variety of population groups. Importantly, earnings are highly unequally distributed with most groups of workers of color receiving much lower pay than white workers.

The median wage income for white workers amounted to $46.500 in 2021, compared to, for example, $38,665 for Black workers, $35,000 for Native Americans and Alaska Natives, $30,000 for Salvadoran workers and $40,000 for Vietnamese workers among others at the lower end of the wage distribution (see figure 1 below).

In contrast, some racial and ethnic groups, particularly some Asian subpopulations, had substantially higher median earnings than white workers (see figure 1 below). Asian Indian workers received $90,000, Chinese workers got $61,000, Korean workers received $60,000 and Japanese workers were paid $63,000 in 2021 (see figure 1 below). Overall, however, most groups of workers of color earned less than white workers in 2021.

Share of Wage Income out of Personal Income By Race and Ethnicity

Regardless of the amount of earnings that people received, wages and salaries tend to make up the most important source of income for non-retirees. The average share of earnings out of total personal income amounts to between 80% and 90% (see figure 2 below).

The relative importance of wages tends to be higher for workers of color than for white workers at both the low and high end of the wage distribution, The average share of earnings out of total personal income amounted to 87.9% for Salvadoran workers and to 89.7% for Asian Indian workers, for example, while it averaged to 82.3% for white workers (see figure 2 below). Not shown here, the same conclusion holds when considering both earnings and business income, which includes self-employment income. These earned income sources tend to make up a greater average share for people of color than for white workers.

Workers With Only Wage Income By Race and Ethnicity

Another way of looking at the importance of wage income is to consider the share of workers, who only had wage income last year. The respective shares tend to be larger, often much larger for most workers of color than for white workers. For instance, the share of Black workers with only wage income was 37.4%, that of Mexican workers 47.0% and that of Salvadoran workers 60.6%, while the share for white workers with only wage income was 26.5% in 2021 (see figure 3 below).

Some groups of workers of color have higher average or median wages than is the case for white workers. This is especially the case for some groups of Asian workers. But, this differences in highly aggregated data needs to be seen in context. First, the data already show that wage income plays a larger role for some of those groups of workers such as Asian Indian as well.

Second, wage income is highly unequally distributed among some groups of workers of color. The median wage income for Chinese workers, for instance, was 31.2% higher than the median wage income for white workers, while the wage income at the 20^th percentile was only 21.8% higher.

Similarly, the poverty rate among Korean workers, who had a median wage that was 13.6% higher than was the case for white workers, was 4.4% compared to 4.0% for white workers. Earnings play a more crucial role in almost all communities of color than among white workers as many workers of color struggle in low paying jobs.

Capital Income Incidences by Race and Ethnicity

The importance of wage income in communities of color is further underscored by the fact that many workers of color do not have access to capital income in the form or interest payments, dividends, capital gains and rents, raising the importance of earnings from wages and self-employment.

The share of people with capital income among communities of color if often well below the 49.8% recorded for white non-retirees. This is especially true for Black and Latino non-retirees (see figure 4 below). Among Central American workers, for example, only 26.4% had capital income in 2021, almost half of the share for white non-retirees. This also means that, if the labor market takes a turn for the worse, workers of color will have fewer savings to fall back on and fill the hole left by job and wage losses.

Maintaining a strong labor market is especially important for most communities of color, that depend on earnings more than is the case for white people. This means that policymakers at the Federal Reserve and in Congress need to do everything they can to maintain a strong labor market. They also need to emphasize policies that raise wages at the bottom such as a higher minimum wage and policies that stabilize jobs and careers such as more ways for workers to join a union, and enforcing anti-discrimination legislation. And, policymakers need to vastly improve the social safety net, so that workers who rely mainly on their wages to pay their bills, especially workers of color, do not experience massive increases in financial insecurity when the labor market slumps.