The Federal Reserve stepped up its fight against inflation this week, implementing a significant rate hike and saying more are likely to follow. The measures will cause a jump in the number of unemployed Americans by the end of next year, the central bank said.
The Fed has proposed a series of aggressive rate hikes in recent months in an effort to mitigate price increases by slowing the economy and dampening demand. But the approach threatens to plunge the United States into recession and create widespread unemployment.
Fed Chair Jerome Powell acknowledged Wednesday that rate hikes would hurt the US economy as growth slows and unemployment rises. However, he added that “failing to restore price stability would mean much more pain later on.”
The job cuts the Fed forecast this week should raise the unemployment rate from its current level of 3.7% to 4.4% by the end of 2023. That result would add an estimated 1.2 million unemployed, according to Omair Sharif, the founder of research firm Inflation Insights.
That job loss will disproportionately hit some of the most vulnerable workers, including minorities and lower-skilled workers, according to economists and studies of past recessions.
Here are the groups of workers most likely to lose their jobs if unemployment rises:
Black and Hispanic workers
Black workers would be among the first to lose their jobs when unemployment peaks, as they are disproportionately concentrated in sectors prone to economic downturns. Racial discrimination often affects the choices companies make about which employees to fire, economists say.
“The Fed’s actions are really having a disparate impact for black workers in the U.S. economy,” Michelle Holder, a labor economist at the John Jay College of Criminal Justice, told ABC News.
The vulnerability of black workers in a downturn manifested itself during the most recent recession, in the spring of 2020, when the pandemic caused higher unemployment for black workers at every level of education compared to their white counterparts, a survey by RAND Corporation found.
Overall, the unemployment rate for black workers peaked at 16.8% in the early days of the pandemic, while the unemployment rate for white workers only hit 14.1%.
According to an economic study published in 2010 in Demography, an academic journal, government employment data between the late 1980s and the mid-2000s shows “considerable evidence” that black workers are among the first to be laid off. when the economy weakens.
“To be blunt, discrimination still exists in the U.S. job market,” Holder said.
A similar dynamic of disproportionate job losses is affecting Latin American workers, the economists say.
William Spriggs, the chief economist at the AFL-CIO union and professor of economics at Howard University, said Hispanic workers would suffer acutely from a downturn brought on by interest rate hikes as they are disproportionately represented in the construction industry.
When the Fed raises interest rates, it often leads to a spike in mortgage rates, causing potential homebuyers to delay purchases and builders to delay further construction. US 30-year mortgages rose to 6.29% on Thursday, the highest level in 14 years, according to Freddie Mac’s mortgage market research.
Last year, Hispanic workers made up nearly a third of all construction workers, according to an analysis of government data from the National Association of Home Builders published in June.
“We’ve already seen construction slow down,” Spriggs told ABC News. “Those construction workers are hit first.”
Low-skilled workers
Another group that would be among the first to become unemployed during a recession are lower-skilled workers.
Two years ago, during the pandemic-induced recession, low-skilled workers suffered far more acute job losses than their better-educated peers, according to a study published in 2021 by the Institute for New Economic Thinking.
In general, when the economy weakens, low-skilled workers have a more negative effect on employment than their better-educated counterparts, according to a study published by the Federal Reserve of Minneapolis in 2010.
During the Great Recession, the employment rate of workers with just a high school diploma fell by 5.6%, while the employment rate of workers with college degrees fell by less than 1%, the study found.
“Employees who typically do better when the economy has contracts are better-educated workers,” Holder says.
young workers
Data from the two most recent recessions, in 2020 and 2007, indicate that young workers suffer disproportionately as the economy shrinks.
During the pandemic-induced recession, young workers were much more likely to become unemployed than older workers, according to a 2020 study published by the left-wing Economic Policy Institute.
From the spring of 2019 to the spring of 2020, the overall unemployment rate for workers aged 16 to 24 increased from 8.4% to 24.4%, while the unemployment rate for workers aged 25 and over rose from 2.8% to 11.3%, the study shows.
A similar result followed the Great Recession. Between 2007 and 2010, workers between the ages of 16 and 24 suffered a greater decline in employment than any other age group, according to a Brookings Institution analysis of government data that focused on the proportion of employed workers in a given demographic compared to representation in a given demographic. the population as a whole.
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