Racial Income Gap Persists Despite 2015 Income Growth

Median household income in Minnesota grew significantly from 2014 to 2015, based on Census Bureau American Community Survey (ACS) data summarized in part two of this series. Growth among minority groups was particularly strong, although this fact by itself does not tell the whole story.

Even after adjusting for inflation, the median household income of multiple racial groups grew by double digits from 2014 to 2015, based on ACS data. These groups include African Americans, American Indians, and households of two or more races. Meanwhile, the median income of Minnesota’s white population increased by 3.2 percent, 0.1 percent greater than total Minnesota median household income. The chart below shows 2014 and 2015 median household income in constant 2015 dollars* for each of Minnesota’s racial and ethnic groups. With exception of Hispanics/Latinos and “some other race,” incomes in each group grew more rapidly than the statewide median.†

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On the one hand, due to a smaller sample size, the margin of error for ACS median household income estimates for minority racial and ethnic groups is at least four times greater than the margin of error for Minnesota’s white population. There is a distinct possibility that some portion of the strong growth in median household income observed among these groups in 2015 ACS data is the result of statistical error.

On the other hand, there are indications that all or some of this growth is real. The August 2016 Employment Analysis from the Minnesota Department of Employment and Economic Development (DEED) notes that:

Based on unofficial data drawn from the monthly household survey, our black population continues to show marked improvement in their employment situation.  As of August, the unemployment rate for black Minnesotans is down to 8.0%, another record low, while their labor force participation rate is up to 68.1%.  A year ago, these rates were 15.9% and 65.4% respectively.

The DEED analysis goes on to note that the number of black workforce participants has climbed by over 10,000 and employment of blacks has increased by over 21,000 from August 2015 to August 2016. These trends would contribute to strong income growth among black Minnesotans. While these findings from DEED extend beyond the time frame covered by the 2015 ACS, they are a signal that recent employment growth among blacks has been strong and that the income growth indicated by the ACS numbers might be more than just a statistical anomaly.

The longer term picture in regard to minority incomes in Minnesota, however, is less encouraging. With the exception of Asians, the incomes of racial and ethnic minorities in Minnesota remain well below the statewide median. In addition, since the eve of the Great Recession (2007), the income gap between whites and several racial minority groups—including blacks and American Indians—has widened, despite strong income growth among these two groups in 2015. The income gap between non-Hispanic whites and Hispanics/Latinos has also increased over this period. In fact, only whites and Asians experienced real (i.e., inflation-adjusted) growth in median household income from 2007 to 2015; real median incomes of all other groups declined.

The income gap between Minnesota whites and blacks has grown especially rapidly. In 2007, the median household income of Minnesota blacks was 47 percent less than that of whites; by 2015, it was 54 percent less. In addition, by 2015, the median income of Minnesota whites surpassed the pre-recession level by nearly $800, while that of blacks was still over $4,000 less.

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The growth in the income gap between Minnesota whites and blacks since the beginning of the Great Recession is almost certainly real and not the result of statistical error.

Strong income growth from 2014 to 2015 is certainly good news, especially to the extent that is occurring among racial and ethnic groups that have had the lowest median household incomes. However, examination of longer term trends shows that the racial income gap in Minnesota has expanded since the beginning of the Great Recession. Based on ACS median household income data, Minnesota whites have recouped all of the income lost since 2007, while most racial and ethnic minority groups—especially blacks and Native Americans—have not. The short-term news regarding income growth from the 2015 ACS is welcome, but we must remain cognizant of distressing long-term trends.

A major contributor to the slow recovery to pre-recession income levels has been stagnant wages. The next article in this series will examine earning trends based on new Census Bureau data.

 

*The conversion to 2015 dollars in this analysis is based on the Consumer Price Index (CPI-U-RS), prepared by the U.S. Bureau of Labor Statistics.

It may seem unusual that the median household income of nearly every group is growing faster than the statewide median. This outcome is explained by the fact that the share of total Minnesota households comprised of black and Hispanic/Latino households—two groups with low median income—increased slightly from 2014 to 2015, while the share of households comprised on higher income non-Hispanic whites decreased. The more rapid growth in the number of households within lower income groups explains the lower growth rate in statewide median income relative to the growth rates for individual groups.