Some Data on Reagan and Black Unemployment

by Don Boudreaux on December 6, 2013

in History, Work

In his review, appearing in today’s Wall Street Journal, of Timothy Thurber’s new book, Republicans and Race, Lee Edwards notes that

under President Ronald Reagan, black unemployment was cut in half, falling to 11% from 20%.

This statement is a bit misleading.  Black unemployment (like white unemployment) rose after Reagan took office because of Reagan’s courageous (for a politician) commitment to ridding the U.S. economy of the high rates of inflation that had become expected by 1980.  Still, black unemployment did fall significantly (although not nearly as dramatically as Edwards suggests) over the full course of Reagan’s presidency.

Specifically, the rate of black unemployment was 14.6 percent when Reagan took office in January 1981.  An inflation-squashing recession then ensued.  Black unemployment during Reagan’s time in office peaked, in January 1983, at 21.2 percent.  This rate of unemployment then fell steadily, reaching a Reagan-presidency low of 11.0 percent in the Fall of 1988 (in both September and November).  When Reagan turned the keys to the White House over to George H.W. Bush in January 1989, the rate of black unemployment was 11.8 percent – 2.8 percentage points lower than it was when Reagan was sworn into office.

This fortunate downward trend of black unemployment during the 1980s had, undoubtedly, many causes.  It is plausible to suggest that among those causes was the fact that the legislated national minimum wage did not rise at any time during Reagan’s presidency.  Indeed, adjusted for inflation using the Consumer Price Index, the real minimum wage was 36 percent lower in 1989 than it was in 1981.  (The national minimum wage rose from $3.10 per hour to $3.35 per hour on January 1, 1981; it next rose [to $3.80 per hour] on April Fool’s Day of 1990.)

The inflation-induced decline in the real burden of the minimum wage, along with the widespread expectation that the national minimum wage was not going to rise long as Reagan was in the Oval Office, quite likely were significant spurs to the decline, during the 1980s, of the black unemployment rate.

Today (November 2013) the black unemployment rate (seasonally adjusted) in the U.S. is 12.5 percent – more than double the white unemployment rate (seasonally adjusted) of 6.2 percent.  Today’s national minimum wage of $7.25 per hour is, in 1989 dollars, $3.85 per hour – a wage 15 percent higher, in real terms, than was the minimum wage in 1989.

I note, for more completeness, that the ratio of black unemployment to white unemployment rose during Reagan’s presidency, at least if we look only at January 1981 and January 1989.  That ratio was 2.18 in January 1981; it was 2.57 in January 1989.

….

I do not offer the above as a rigorous empirical assessment of the employment consequences of the decline in the real value of the minimum wage from 1981 until 1989.  Such an assessment would control for many more variables than were controlled above; such an assessment would focus on teenage (rather than all-age) unemployment rates; such an assessment would look also at state and local minimum-wage legislation; such an assessment would examine changes in work conditions and changes in non-wage compensation; such an assessment would compare 1981-1989 to other time periods.  Nevertheless, it is perhaps relevant – as a starting point of analysis – that a decline in the real value of the national minimum wage, combined with the plausible nationwide expectation that no increase in the national minimum wage was likely during Reagan’s time in the White House, corresponded with a steady decline in the rate of black unemployment.

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