The Federal Reserve escalated its fight against inflation this week, instituting a major rate increase and saying more will likely follow. The moves will cause a jump in the number of unemployed Americans by the end of next year, the central bank said.
The Fed has put forward a series of aggressive interest rate hikes in recent months as it tries to slash price increases by slowing the economy and choking off demand. But the approach risks tipping the United States into a recession and causing widespread joblessness.
Fed Chair Jerome Powell on Wednesday acknowledged that rate hikes would cause pain for the U.S. economy, as growth slows and unemployment rises. He added, however, that “a failure to restore price stability would mean far greater pain later on.”
The job losses forecasted by the Fed this week would by the end of 2023 raise the unemployment rate from its current level of 3.7% to 4.4%. That outcome would add an estimated 1.2 million unemployed people, according to Omair Sharif, the founder of research firm Inflation Insights.
Those job losses will disproportionately fall on some of the most vulnerable workers, including minorities and less-educated employees, according to economists and studies of past downturns.
Here are the groups of workers who would most likely lose their jobs if unemployment rises:
Black and Hispanic workers
Black workers would be among the first to lose their jobs if unemployment spikes, since they’re disproportionately concentrated in industries sensitive to economic downturns. Racial discrimination often influences choices made by companies about which workers to fire, economists said.
“The Fed’s actions really do mean some disparate impact for Black workers in the American economy,” Michelle Holder, a labor economist at John Jay College of Criminal Justice, told ABC News.
The vulnerability of Black workers in a downturn manifested during the most recent recession, in spring 2020, when the pandemic caused higher unemployment for Black workers at every education level when compared with their white counterparts, a RAND Corporation study found.
Overall, the unemployment rate for Black workers in the early period of the pandemic peaked at 16.8%, while the unemployment rate for white workers reached only 14.1%.
Between the late 1980s and mid-2000s, government employment data shows “considerable evidence” that Black workers are among the first ones fired as the economy weakens, according to an economic study published in 2010 in Demography, an academic journal.
“To be blunt, discrimination still occurs in the American labor market,” Holder said.
A similar dynamic of disproportionate job losses impacts Hispanic workers, the economists said.
William Spriggs, the chief economist at the AFL-CIO labor union and a professor of economics at Howard University, said Hispanic workers would suffer acutely in a downturn brought about by interest rate hikes, since they’re disproportionately represented in the construction industry.
When the Fed raises rates, it often leads to a spike in mortgage rates, causing prospective homebuyers to put off their purchases and builders to delay further construction. U.S. 30-year fixed-rate mortgages jumped to 6.29% on Thursday, the highest level in 14 years, according to Freddie Mac’s mortgage market survey.
As of last year, Hispanic workers made up nearly a third of all construction workers, according to a National Association of Home Builders analysis of government data published in June.
“We’ve already seen construction work is slowing,” Spriggs told ABC News. “Those construction workers get hit first.”
Less-educated workers
Another group that would stand among the first to end up jobless amid a downturn is less-educated workers.
Two years ago, during the pandemic-induced recession, less-educated workers suffered far more acute job losses than their better-educated peers, according to a study published in 2021 by the Institute for New Economic Thinking.
In general, when the economy weakens, poorly educated workers endure a more negative effect on employment than their better-educated counterparts, according to a study published by the Minneapolis Federal Reserve in 2010.In the Great Recession, the employment rate for workers with just a high school diploma fell 5.6%, while the employment rate for workers with a college degree fell less than 1%, the study found.
“Workers who tend to fare better when the economy contracts are better-educated workers,” said Holder.
Young workers
Data from the two most recent recessions, in 2020 and 2007, indicates that young workers suffer disproportionately when the economy contracts.
During the pandemic-induced recession, young workers became jobless at a much higher rate than older workers, according to a study released by the left-leaning Economic Policy Institute in 2020.
From spring 2019 to spring 2020, the overall unemployment rate among workers ages 16 to 24 rose from 8.4% to 24.4%, while unemployment for workers ages 25 and older rose from 2.8% to 11.3%, the study found.
A similar outcome followed the Great Recession. Between 2007 and 2010, workers between the ages of 16 and 24 suffered a more dramatic drop in employment than any other age group, according to a Brookings Institution analysis of government data that focused on the ratio of employed workers in a given demographic compared to its representation in the population as a whole.