$23 trillion and counting: Inequality has cost the U.S. economy a hefty sum

Inequality in employment, education and earnings has cost the U.S. economy nearly $22.9 trillion over the past 30 years, a sum that is likely to increase as minority populations expand, according to a new paper from economists including San Francisco Federal Reserve President Mary Daly.

“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,” the authors wrote. “Unfortunately, structural barriers have persistently disrupted this narrative for many Americans, leaving the talents of millions of people underutilized or on the sidelines. The result is lower prosperity, not just for those affected, but for everyone.”

The paper, which will be published in the Brookings Institution’s Brookings Papers on Economic Activity journal on Thursday, calculates how inequality in the economy has affected growth since 1990. The paper’s authors include Shelby Buckman from Stanford University, Laura Choi, vice president of community development at the San Francisco Fed, and Lily Seitelman from Boston University.

The new research adds to a growing body of literature that seeks to measure the impact of inequality in the U.S. Last year, economists Dana Peterson and Catherine Mann found that closing racial gaps would have garnered an additional $16 trillion in the U.S. economy since 2000. Economists including William Darity, Lisa Cook and others have done extensive research to show the cost of racial biases, and that these are inherent in the labor market.

‘Different Game’

“This is a simple exercise, in many ways, to demonstrate an important point, which is that the gains to GDP are for everyone and closing the gaps isn’t a zero-sum game,” Daly told reporters on a call. “It’s not just that we’re rearranging distributionally the proceeds from the same-sized pie, we’re actually improving the size of the pie and then distributing the proceeds from that improvement, so that’s a different game than what many people think about when they think about equity.”

The economists in the Brookings paper measure the cost of inequality in a series of labor and employment indicators. Disparities such as the average Black male earning $8 less per hour than his White counterpart, an unchanged gap in employment rates between Black and White men since 1990, and a widening wage gap between Black and White females all contribute to the loss in potential economic output.

The authors argue that educational attainment is not, by itself, a solution to the disparities because of a substantial utilization gap among race groups. White and Asian Americans are much more likely than their Black and Hispanic peers to be employed in a job that requires the level of education that they achieved, rather than a job that requires a lesser degree than was actually achieved.

“The persistent and large differentials in the employment opportunities of racial and ethnic minorities, even after controlling for educational attainment, point to considerable underutilized human resources that if more equitably allocated could boost aggregate output,” the authors wrote.

They note that future output is likely to be even more impacted as the size of large minority groups—like Hispanic Americans—is projected to continue growing.

“Given that the population share of racial and ethnic minorities continues to rise, the gains will only grow in the future,” the authors wrote. “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.”