The Federal Reserve escalated its fight against inflation this week by launching a big rate hike and saying more are likely to follow. The moves will result in a surge in the number of unemployed Americans by the end of next year, the central bank said.
The Fed has proposed a series of aggressive rate hikes in recent months as it seeks to rein in price hikes by slowing the economy and curbing demand. But the approach risks plunging the United States into recession and causing widespread unemployment.
Fed Chair Jerome Powell on Wednesday acknowledged that rate hikes would hurt the US economy as growth slows and unemployment rises. However, he added that “a failure to restore price stability would mean much greater pain later on”.
The job cuts projected by the Fed this week would push the unemployment rate up to 4.4% by the end of 2023 from the current 3.7%. That result would add an estimated 1.2 million unemployed, according to Omair Sharif, founder of research firm Inflation Insights.
According to economists and studies of past downturns, these job losses will disproportionately hit some of the most vulnerable workers, including minorities and less educated workers.
Here are the groups of workers most likely to lose their jobs if unemployment rises:
Black and Hispanic workers
Black workers would be among the first to lose their jobs as unemployment rises because they are disproportionately concentrated in industries prone to economic downturns. Racial discrimination often influences companies’ decisions about which workers to lay off, economists said.
“The Fed’s actions are having a really different impact on black workers in the American economy,” Michelle Holder, a labor economist at the John Jay College of Criminal Justice, told ABC News.
The vulnerability of black workers in a downturn was demonstrated during the most recent recession in spring 2020, when the pandemic caused higher unemployment for black workers at all educational levels compared to their white counterparts, according to a study by the RAND Corporation.
Overall, the unemployment rate for black workers peaked at 16.8% in the early stages of the pandemic, while the unemployment rate for white workers only peaked at 14.1%.
Between the late 1980s and mid-2000s, government employment data show “considerable evidence” that black workers were among the first to be laid off when the economy weakened, according to an economic study published in 2010 in Demography, a scholarly journal .
“To be honest, there is still discrimination in the American job market,” Holder said.
A similar dynamic of disproportionate job losses is affecting Hispanic workers, the economists said.
William Spriggs, chief economist for the AFL-CIO union and an economics professor at Howard University, said Hispanic workers would suffer severely in a downturn caused by rate hikes because they are disproportionately represented in the construction industry.
When the Fed raises interest rates, it often causes mortgage rates to rise, causing would-be homebuyers to delay their purchases and homebuilders to delay further construction. U.S. 30-year fixed-rate mortgages rose 6.29% on Thursday, the highest in 14 years, according to Freddie Mac’s mortgage market survey.
Last year, Hispanic workers made up nearly a third of all construction workers, according to an analysis of government data by the National Association of Home Builders released in June.
“We’ve already seen construction slowing down,” Spriggs told ABC News. “These construction workers will be hit first.”
Less educated workers
Another group that would be among the first to become unemployed in a downturn are less educated workers.
Two years ago, during the recession caused by the pandemic, less educated workers suffered far more acute job losses than their more educated counterparts, according to a 2021 study published by the Institute for New Economic Thinking.
According to a 2010 study released by the Minneapolis Federal Reserve, low-educated workers generally suffer more negative employment effects than their better-educated counterparts when the economy slows.
During the Great Recession, the employment rate of workers with only a college degree fell by 5.6%, while the employment rate of workers with a college degree fell by less than 1%, the study found.
“Workers who tend to do better when the economy shrinks are better educated workers,” Holder said.
Data from the two most recent recessions in 2020 and 2007 shows that young workers suffer disproportionately when the economy shrinks.
During the recession caused by the pandemic, young workers were far more likely to become unemployed than older workers, according to a 2020 study published by the left-leaning Economic Policy Institute.
From spring 2019 to spring 2020, the headline unemployment rate among workers aged 16-24 rose from 8.4% to 24.4%, while the unemployment rate for workers aged 25 and over rose from 2.8% to 11.3% the study.
A similar outcome followed the Great Recession. Between 2007 and 2010, workers aged 16 to 24 suffered a more dramatic employment decline than any other age group, according to a Brookings Institution analysis of government data focusing on the ratio of employed workers in a given demographic compared to their representation in the population as a whole.