COVID Economic Impact on Minorities

Economic Challenges for US Minorities

Low wages and unemployment are among the biggest challenges facing minority groups. More Hispanics and Blacks earned poverty wages when compared with their White counterparts.

1. Low Wages

  • Minority groups are faced with higher unemployment rates, lower wages, fewer opportunities, and reduced benefits.
  • People of color are over-represented in low earning agricultural, domestic, and service positions.
  • This segregation and devaluation of minority employees come as a result of US government policies that exclude these areas of work.
  • According to statistics from the US Bureau of Labor, occupations that are highly concentrated with minorities, often pay less.
  • A study published by EPI in 2018 showed that 8.6% of white workers were paid poverty wages, in comparison to 19.2% Hispanics, and 14.3% blacks.
  • Asian workers were also reported as being at a higher poverty wage level than whites, with 10.9%.
  • In the US, there is a huge disparity between the wages of minority females when compared to white males.
  • Although the gender wage gap exists in the US has improved over time, the wages paid to black women are significantly behind.

2. Unemployment

Research Strategy

In conducting this research, we reviewed sources from the news, the government, experts on the economy or minority groups. These sources repeatedly mentioned unemployment and low wages as two of the biggest challenges facing various minority groups. We ensured that our findings were supported by hard data from reputable sources. Only the US was included in our study.

Economic Challenges for US Minorities Compounded by COVID-19

COVID-19 has compounded many of the economic challenges faced by minority groups. Some of these challenges include unemployment, housing, and limited income.

1. Unemployment

  • With the stay-at-home orders placed on many states as a result of the pandemic, many businesses were forced to reduce working hours and make staff cuts. This loss of income was experienced mostly in the service, retail, hospitality, and restaurant industries.
  • Employing only 16% of Whites, the service industry is mainly dominated by persons of color. Approximately 25% of the Black community is employed in this industry and were therefore at a higher risk of losing their source of income.
  • Ethnic minorities were considered more likely to be unemployed prior to COVID-19. Before the stay at home orders, 4.4% Hispanics and 5.8% Blacks were unemployed. This compared to the 3.1% of Whites who were unemployed before COVID-19.
  • Polls showed that Hispanic workers were two times more likely to lose their jobs during the post-COVID recession than their White peers.
  • As a result of COVID-19, the US unemployment rate increased to 14.7%. This trend mostly affected the Latinx community, with this cohort having unemployment of 18.2%.
  • Many persons of color have a lower level of education and were unable to work remotely during the pandemic. This resulted in many people losing their jobs.

2. Housing

3. Limited Incomes

4. Reduced Income for Minority Businesses

  • Before the pandemic, minority-owned businesses were already vulnerable due to their structure.
  • Already at risk, these businesses are in the industries predominantly affected by the pandemic.
  • Companies that had Black or Hispanic owners were more likely to be ‘in distress’ as a result of COVID-19. This is because minority businesses are heavily concentrated in the industries affected by the pandemic.
  • Many of these minority businesses will be forced to close in the long term. This will result in fewer minority-owned businesses.

5. Funding for Minority Businesses

  • According to a Small Business Pulse Survey, businesses with earnings less than $250,000 per year, were less likely to apply to the US Small Business Administration Paycheck Protection Program.
  • Many minority businesses have not been privy to the federal stimulus funds issued through the CARES Act.
  • In times such as these, minority businesses would benefit from immediate relief in the form of loans and grants.
  • Approximately 90% of minority owned businesses will be excluded from the Paycheck Protection Program. This may be as a result of minorities relying on smaller banks and unions who had less access to the stimulus funding.
  • Overall minority businesses rarely begin with capital from investment funding or bank loans. Only 1% of Black business owners get a business loan in the first year of operating a business, compared to 7% White. COVID-19 has resulted in credit being more difficult to receive, compounding this issue.
  • The continued lack of funding for minority businesses will result in many not being able to recover from the pandemic. As a result, fewer minority-owned businesses will exist.

Research Strategy

To complete this research, we visited online news magazines, blogs, and businesses, and industry websites. From the completed research, five challenges faced by US minorities compounded by the COVID-19 pandemic were found.
The compounded challenges were found on KFF, The Guardian, PEW Research Center, Forbes, Equitable Growth, IZA, and American Progress. These challenges were specifically economic and focused on minorities, including Blacks and Hispanic/Latinx.
Specific data were highlighted about minority business owners and the economic impact of COVID-19. This information was found using McKinsey and Equitable Growth. These websites provided information about administered funding rounds and minority business owners.
We describe how COVID-19 compounded each issue and the lasting effects of each on the overall community.

Systemic Challenges for US Minorities

Access to wealth during emergencies (otherwise known as the wealth gap) and unequal access to educational attainment are two of the biggest systemic challenges currently facing U.S. minorities.

1. The Wealth Gap

  • According to The Center for American Progress, one of the biggest systemic challenges faced by minorities in the U.S. is the wealth gap. In other words, “wealth in this country is unequally distributed by race.
  • This challenge is specifically apparent between white and black households as “African American families have a fraction of the wealth of white families, leaving them more economically insecure and with far fewer opportunities for economic mobility.”
  • However, the gap does affect other minorities as well. For instance, in 2016, the median wealth for black families was $17,600 and for Hispanic families, the median wealth was $20,700. However, the median wealth for white families was $171,000.
  • This is a systemic challenge for minorities in the U.S. because of the numerous factors that contribute to the wealth gap, including historical discrimination that limits black individuals’ access to tax-advantaged forms of savings, home ownership, and stable jobs. According to The Center for American Progress, “disparities between white and black Americans can nearly always be traced back to policies that either implicitly or explicitly discriminate against black Americans.”
  • Black Americans are more likely than white Americans to “experience negative income shock,” but they are less likely to have emergency funds available to them. As a result, black Americans are more likely to go into debt or fall behind on payments during an emergency.
  • Additionally, debt is usually more expensive for African Americans than for white Americans because black individuals are more often forced to take out higher-interest forms of debt like installment and payday loans.
  • The wealth gap in the U.S. is often a vicious cycle for black Americans because they do not have the wealth to pay for the education that might help them acquire more wealth. They also don’t have the wealth to move to better economic areas where they could get higher paying jobs that would help them build their wealth.
  • Although there is an income gap between minorities and white Americans as well as a wealth gap, the wealth gap is more critical because wealth “allows individuals to change jobs, pursue an education, and start their own business.” It also means that an emergency will not financially ruin an individual because those with wealth have savings they can fall back on.
  • COVID-19 has likely compounded this problem because it has caused many people to lose their jobs, which would constitute a financial emergency. As the University of Charlotte Urban Institute noted, “If you have wealth — assets like income, a home, and savings that are greater than what you owe — you can reasonably protect yourself and your family from the most devastating physical and economic impacts of the virus (i.e. by staying home, covering your expenses if you lose income, etc.).”
  • Additionally, black and Latinx individuals are more likely than white individuals to work at jobs that do not have paid sick leave, which means if they contract COVID-19, they are forced to go without pay for the duration of their illness, which can exacerbate the wealth gap.
  • For the first time since the U.S. began tracking unemployment rates in 1973, in April 2020, at the height of the COVID-19 crisis, the Latinx unemployment rate was the highest of all racial and ethnic groups at 18.9%. During that same month, black Americans had an unemployment rate of 16.7% and Asian Americans were at 14.5%. White Americans had the lowest unemployment rate at 14.2%.
  • One reason for the high rates of unemployment for Latinx Americans is that they are the group that is least likely to have a job that can be done from home. According to the Urban Institute, “The relative inability for most Latinx workers to work from home means they are at greatest risk for losing their jobs or continuing to work outside their homes, putting them at a greater risk of contracting COVID-19.”

2. Educational Attainment

  • The Urban Institute found that black and Hispanic Americans are 14% to 20% less likely than white Americans to have attained a bachelor’s degree.
  • One reason for the graduation gap is that colleges, often unintentionally, provide different levels of support to students based on race.
  • Another reason is that colleges “do not enroll students of different races or ethnicities in equal proportions, even after controlling for SAT scores and high school GPA.”
  • The systemic inequalities in education at all levels show that SAT scores and grade point averages are higher for white high school students than they are for black high school students, which, if these scores were more equal, would close the graduation gap by 45%.
  • By enrolling more black students in colleges to level out enrollment rates, the graduation gap would close by an additional 29%.
  • Additional factors in the educational attainment gap for minorities include “gaps in college readiness, financial strain, and access to high-quality colleges (segregation).”
  • The wealth gap also plays an important role in educational attainment, but according to the Urban Institute, “a great deal of responsibility likely falls on the colleges themselves and the state policies that affect them.”
  • This is a systemic challenge for minorities in the U.S. because the Urban Institute’s report discovered that “racial gaps in graduation rates are correlated with long-standing structural inequities that took root well before students set foot on campus.”
  • It is likely that the COVID-19 crisis will compound the educational attainment gap, at least for a while, as lower-income families are less likely to have high-speed internet service at home, which has been a necessity for online learning.
  • In fact, the Washington Post found that “35 percent of low-income households with school-aged children don’t have high-speed Internet; for moderate-income families it is 17 percent, and only 6 percent for middle-class and affluent families. When measured by race and ethnicity, the gap is greater for African American and Hispanic families.”
  • McKinsey also projects that the COVID-19 school closures mean that “learning loss will probably be greatest among low-income, black, and Hispanic students.”
  • Experts speculate that because the “achievement gap between low-income and other children is already equivalent to at least two years of schooling,” COVID-19 could expand that gap by at least an additional six months.
  • Additionally, black and Hispanic students are more likely to have two parents who work outside the home, who will be unable to assist with homeschooling as much as those who have at least one parent who stays at home.
  • A persistent shutdown of in-person learning could also lead more black and Hispanic students to drop out, thereby increasing both the educational attainment gap and the wealth gap, since higher paying jobs require higher levels of education.
  • Drop-out rates are currently highest among Hispanic students at 6.5%, followed by black students at 5.5%, and white students at 3.9%; however, McKinsey reports that “the virus is disrupting many of the supports that can help vulnerable kids stay in school: academic engagement and achievement, strong relationships with caring adults, and supportive home environments.”
  • As such, McKinsey estimates that “an additional 2 to 9 percent of high-school students could drop out as a result of the coronavirus and associated school closures.”
Glenn is the Lead Operations Research Analyst at The Digital Momentum with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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