The Pandemic Wiped Out Crucial Economic Gains for Black and Latinx Americans

New research from a team of Stanford economists shows the extent to which overall living standards among Black Americans have improved over time and how the COVID-19 pandemic is dealing a major blow to that progress.

A recent working paper by Stanford PhD candidate Jean-Felix Brouillette and Stanford professors Peter Klenow and Charles “Chad” Jones finds that the economic well-being of Black Americans in 1940 was a paltry 28 percent of that for white Americans. By 2019, that yawning gap had narrowed to 60 percent — a remarkable advancement, they say, but still disturbingly inadequate.

“There’s still a lot of progress to be made,” says Klenow, a Stanford GSB economics professor who is also the Gordon and Betty Moore Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR).

The fact that Black Americans are better off today than they were 80 years ago might seem obvious, he says. But in order to close the still-gaping economic divide between Black and white Americans, economists and policymakers need a deeper understanding of why differences persist and the factors that are likely to drive future gains.

To that end, Brouillette, Klenow, and Jones — Stanford GSB professor of economics and a SIEPR senior fellow — apply a formula they previously developed that aims to better assess economic progress beyond traditional measures. Specifically, they look at life expectancy, the amount of leisure time outside of work, how much people consume, and the inequalities reflected in differences in those consumption levels.

The authors find that longer life spans and increases in spending drove the significant improvement in the welfare of Black Americans from 1940 to 2019. The role that longevity plays also explains why the pandemic threatens that progress: Black Americans have higher COVID-19 mortality rates than white Americans.

The study concludes that, from April 2020 through March 2021, Black Americans lost a decade’s worth of economic gains due to declines in life expectancy.

“Given that the pandemic shows no signs of abating, it’s likely that those losses are even greater now,” Klenow says. “From a policymaking perspective, this reaffirms that gains in life expectancy for Black Americans are critical for closing the welfare gap.”

An Alternative to GDP

Klenow and Jones developed their welfare metric in response to a well-known problem in economics: Gross domestic product and income per capita, which are the most common ways of measuring economic progress, are imperfect. While both tools are highly correlated with economic well-being, they miss or only imperfectly capture important contributors to the quality of life — including mortality, hours spent not working, and the amount of goods and services that people use (or, in economics parlance, consume). On that last factor, differences in consumption are one way to measure inequality between groups of people.

In constructing a more comprehensive index around these four aspects of the quality of life, Klenow and Jones first looked at welfare across countries. The measure, detailed in a 2016 article in the American Economic Review, showed, for example, that living standards in France are much closer to those in the United States than GDP alone suggests. That’s because the French work less and live longer than Americans, and experience less inequality in consumption.

Those earlier findings, which were featured in The Washington Post and other media, inspired Klenow and Jones to think about differences over time in welfare among Black, white, and Latinx Americans.

For the new study focused on race and economic well-being, the researchers analyzed data going back to 1940 and created a single number to represent what they call “consumption-equivalent” welfare based on their four living standard criteria. By that measure, Black living standards overall rose by a factor of 28 between 1940 and 2019 — far greater than the five-fold increase in consumption for all Americans.

Their analysis led to other key findings:

• Bigger increases in Black life expectancy drove reductions in the welfare gap. In 1940, Black Americans on average lived 11 fewer years than white Americans. By 2019, that difference was 3.7 years.
• Faster growth in consumption among Black Americans was the second major reason they gained ground. In 1940, Black Americans consumed 41% less than white Americans. In 2019, it was 29%.
• Between April 2020 and March 2021, deaths from COVID-19 pandemic lowered the overall welfare of Black Americans by 17% — far more than the 10% reduction in the welfare for white Americans. The virus, according to the study authors, has wiped out 10 years of economic gains for Black Americans due to their higher mortality rates. Black victims from COVID-19 have also been younger than white victims, on average.
• The welfare of Latinx Americans in 2019 was 94% that of white Americans. Although they have lower income and education on average, Latinx Americans live longer than white or Black Americans. But here, too, COVID-19 is having a negative impact, resulting in an astounding 26% reduction in welfare. Latinx Americans have suffered the biggest declines in life expectancy because they are dying at younger ages. (The researchers couldn’t study Latinx welfare over longer time periods because consistent life expectancy data for the group didn’t exist until 2006 onward.)

Stagnating Standards of Living

The authors also shed new light on a known phenomenon: Overall living standards in the United States are advancing at much slower rates than they did in the second half of the 20th century. By factoring in smaller life expectancy gains, the researchers show that the stagnation started much earlier than many people think.

“Overall growth in our broader measure of living standards was a robust 4% per year in the 1970s, in part because of large gains in life expectancy. This rate has slowed ever since, averaging less than 2% per year by the 2010s,” Jones says. In a 2020 working paper, Jones highlights that slowing global population growth is also threatening living standards.

What about the other welfare components of leisure time and inequality? Klenow says that those two factors had surprisingly little to do with advances in the welfare of Black Americans. Klenow cautions, however, that the leisure calculation is not ideal because it includes all non-working hours, including time spent unemployed. Black Americans have higher unemployment rates, so “leisure” time may not accurately reflect what’s happening to their quality of life.

Another limitation in their measure, Klenow says, is that it doesn’t account for crime or pollution, which also affect living standards.

Even so, their new welfare measure allows policymakers to understand, in a quantifiable way, the benefits of one proposal for reducing income inequality over another. “It’s important for policymakers to know the trade-offs of, say, improving access to health care — so Black Americans live longer — over increasing their consumption,” Klenow says. “Our measure gives them that information.”

This story was originally published on January 12, 2022, by the Stanford Institute for Economic Policy Research (SIEPR).