Sunday, July 21, 2024

The Fed says the unemployment rate will rise. Here’s who economists say will lose their jobs first.


Federal Reserve escalated Its battle against inflation this week forced a massive rate hike saying more were likely to follow. The central bank said that these moves will lead to a jump in the number of unemployed Americans by the end of next year.

Fed introduced a A series of sharp increases in interest rates In recent months it has been trying to cut price increases by slowing the economy and stifling demand. But this approach risks tipping the United States into recession and causing massive unemployment.

Federal Reserve Chairman Jerome Powell acknowledged on Wednesday that raising interest rates would cause pain for the US economy, as growth slows and unemployment rises. But he added, “Failure to restore price stability will mean much more pain later on.”

The job losses the Fed is projecting this week will raise the unemployment rate by the end of 2023 from its current level of 3.7% to 4.4%. This result will add an estimated 1.2 million unemployed people, according to Amir Sharif, founder of research firm Inflation Insights.

These job losses will fall disproportionately on some of the most vulnerable workers, including minorities and less educated employees, according to economists and studies of past recessions.

Here are the groups of workers who are most likely to lose their jobs if unemployment rises:

Black and Latino workers

Black workers will be among the first to lose their jobs if unemployment rises, because they are disproportionately concentrated in industries sensitive to the economic downturn. Economists said racial discrimination often influences the choices companies make about which workers will be fired.

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“The Fed’s actions really do mean some disparate impact of black workers in the American economy,” Michelle Holder, a labor economist at the John Jay College of Criminal Justice, told ABC News.

The vulnerability of black workers in the case of the economic downturn was demonstrated during the last recession, in the spring of 2020, when the pandemic caused a higher rate of unemployment among black workers at every level of education than their white counterparts, A RAND study found.

Overall, the unemployment rate for black workers in the early period of the pandemic peaked at 16.8%, while the unemployment rate for white workers was only 14.1%.

Between the late 1980s and the mid-2000s, government employment data showed “significant evidence” that black workers were among the first to be fired due to a weak economy, according to one Economic Study It was published in 2010 in Demography, an academic journal.

“To be frank, discrimination still exists in the American labor market,” Holder said.

Federal Reserve Chair Jerome Powell hosts an event titled “The Fed Is Listening: Transitioning to a Post-Pandemic Economy” at the Federal Reserve in Washington, DC, on September 23, 2022.

Kevin Lamarck/Reuters

Economists said a similar dynamic of unequal job losses is affecting Hispanic workers.

Hispanic workers will suffer severely in the deflation caused by rising interest rates, said William Sprigs, chief economist for the AFL-CIO labor union and professor of economics at Howard University, because they are disproportionately represented in the construction industry.

When the Fed raises interest rates, it often causes mortgage rates to rise, causing potential homebuyers to delay their purchases and causing builders to delay further construction. US 30-year mortgages jumped to 6.29% Thursday, a 14-year high, according to the Mortgage Market Survey of Freddie Mac.

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As of last year, Hispanic workers made up nearly a third of all construction workers, according to the National Association of Home Builders. Analytics From government data published in June.

“We’ve already seen construction slow down,” Spriggs told ABC News. “These construction workers get beaten up first.”

less educated workers

Another group that may be among the first to end up unemployed in the midst of an economic downturn are the less educated workers.

Two years ago, during the recession caused by the pandemic, less educated workers suffered more severe job losses than their better educated peers, according to the British newspaper The Guardian. study Published 2021 by the Institute for New Economic Thinking.

In general, when the economy weakens, poorly educated workers bear a more negative impact on employment than their better-educated counterparts, according to a study published by the Minneapolis Federal Reserve in 2010.

The study found that in the Great Recession, the employment rate of workers with only a high school diploma fell 5.6%, while the employment rate of workers with a college degree fell less than 1%.

“Workers who tend to do better when the economy contracts are better educated workers,” Holder said.

young workers

Data from the two most recent recessions, in 2020 and 2007, suggests that young workers suffer disproportionately when the economy contracts.

During the recession caused by the pandemic, young workers became unemployed at a much higher rate than older workers, according to study Published by the left-leaning Economic Policy Institute in 2020.

The study found that from spring 2019 to spring 2020, the overall unemployment rate among workers aged 16-24 rose from 8.4% to 24.4%, while unemployment among workers aged 25 and over increased from 2.8% to 11.3%. .

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A similar result came after the Great Recession. Between 2007 and 2010, 16- to 24-year-old workers suffered the most significant employment declines of any age group, according to the Brookings Institution. Analytics From government data that focused on the proportion of workers in a particular demographic compared to its representation in the population as a whole.