Fed gov: Disparities in labor, wealth have implications for economic growth

The Federal Reserve is keenly interested in disparities in employment, labor force participation, income, and wealth because they may have implications for the growth capacity of the economy, a member of the central bank’s board told a Washington group Tuesday.

Speaking before a research conference sponsored by the Fed (titled, “Disparities in the Labor Market: What Are We Missing?”), Gov. Lael Brainerd said that there is an important connection between the economy’s potential growth rate and equality of opportunity. “Large disparities in opportunity based on race, ethnicity, gender, or geography mean that the enterprise, exertion, and investments of households and businesses from different groups are not rewarded commensurately,” she said.

She told the group that a deeper understanding of labor market disparities may help the Federal Reserve better assess full employment (a core mission of the central bank), where resources may be underutilized, and the likely evolution of the labor market and overall economic activity.

More specifically, Brainerd focused on disparities by race and ethnicity, and those by geography. “When we disaggregate the economy-wide labor market statistics, we find significant and persistent racial and ethnic disparities,” she said. “The benefits of a lengthy recovery can only go so far, as the research points to some barriers to labor market outcomes for particular groups that appear to be structural. After controlling for sectoral and educational differences, the research suggests that these factors include discrimination as well as differences in access to quality education and informal social networks that may be an important source of information and support regarding employment opportunities.”

Regarding geographic disparities, the Fed governor pointed to differences between cities and rural areas. “While traveling around the country with our community development staff, I have been struck by the widening gulf between the economic fortunes of our large metropolitan areas and those of our small cities, towns, and rural areas,” she said.

She noted that research over the past 30 years bears out her observations. “Much of the gains in employment, income, and wealth since the end of the recession, and more broadly over the past few decades, have accrued to workers and families in larger cities. Since some workers and families may find it difficult to move, this concentration of economic opportunities in larger cities may have adverse implications for the well-being of these households and, potentially, the growth capacity of the economy as a whole,” she said.

Speech by Governor Brainard on why persistent employment disparities matter for the economy’s health

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