Economic inequality robbed the US of $23 trillion over the last 3 decades, study says

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Economic inequality robbed the US of $23 trillion over the last 3 decades, study says
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  • Inequality cut US economic growth by $22.9 trillion over 30 years, researchers said in a new paper.
  • Underserving racial and ethnic minorities worsened prosperity for all Americans, the team added.
  • Minorities make up a growing share of the population, meaning further inaction can push the price tag even higher.

By definition, economic inequality lifts some parties and leaves many more struggling to keep up.

But the have-nots aren't the only ones affected. New research shows the whole US economy would benefit if everyone had an equal shot.

Longstanding racial and ethnic inequities cost the US economy a total of $22.9 trillion over the last 30 years, a group of researchers said in a paper published Thursday in the Brookings Institution's Brookings Papers on Economic Activity. That's roughly the same as the country's annual economic output as of 2021.

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The team looked to quantify just how much larger the US economy would be if opportunities and outcomes were equal across racial and ethnic lines. The researchers studied differences in economic opportunities and outcomes between white, Black, and Hispanic men and women aged 25 to 64 from 1990 to 2019. Disparities in employment, hours worked, education levels, education utilization, and earnings gaps helped them arrive at the multitrillion-dollar price tag.

By underserving marginalized communities for decades, the US wasn't only harming those groups, but lowering prosperity for its entire population, the economists said.

"The opportunity to participate in the economy and to succeed based on ability and effort is at the foundation of our nation and our economy," they said. "Unfortunately, structural barriers have persistently disrupted this narrative for many Americans, leaving the talents of millions of people underutilized or on the sidelines."

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The paper was written by Mary Daly, president of the Federal Reserve Bank of San Francisco; Laura Choi, vice president of the San Francisco Fed; Lily Seitelman, a graduate student at Boston University; and Shelby Buckman, a graduate student at Stanford University.

How to build a more equitable economy

Addressing the economic gaps is no easy feat. For one, differences in both educational attainment and educational utilization complicate efforts to even the playing field. White and Asian Americans are more likely than their Black and Hispanic peers to have jobs that use the full extent of their educational levels. Improving equality doesn't just rely on improving access to education, but also helping people find work that fits their level of schooling, the team said.

The private sector will also need to pull its weight. Past research has found that racial discrimination in hiring cut down firms' profitability, and that diversity in the workplace often yields higher revenue, greater market share, and stronger profits, the team said. Investments to close businesses' gaps in hiring and pay across racial, ethnic, and gender lines can boost their bottom lines while contributing toward greater equality, they added.

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Making gains across educational attainment, educational utilization, and hiring practices can also kickstart success cycles across generations, according to the report. Closing the wage gap across racial lines helps close decades-old wealth gaps. That's key for future gains, as it creates the "wealth begets wealth" cycle that's benefitted more fortunate Americans for decades, the economists said.

And while solving the disparities stands to improve the entire US economy, doing nothing threatens even higher costs. Racial minorities are expected to make up more of the US population in the years ahead. Improvements from current conditions "are only the beginning," and failing to act only adds to the massive cost of inequality, the economists said.

"More equitable allocation of talent by education, employment, and jobs improves innovation, invention, and entrepreneurship, which set the foundation for growth today and growth in the future," they added."

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