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The Poorest Are Again Losing Ground


Of all the gains made in the U.S. during the booming 1990s, none perhaps was as important to society as those made at the bottom rung of the income scale. Thanks largely to the "magic fours"--that is, four years of economic growth averaging more than 4% a year that drove unemployment down to 4%--the once-unemployable found jobs, welfare was successfully reformed, and the working poor saw a big rise in their real wages. The current slowdown threatens all that. Policymakers should note that even a second-quarter bounce-back to a 2.5% annual growth rate will not stop the erosion at the bottom end. Nothing less than the return to a sustainable rate of 3.5% to 4% is required.

Recent jobless rates for Hispanics and African Americans are already up sharply. In the '70s, '80s, and early '90s, for example, the unemployment rate for blacks averaged 10% to 12%. As recently as 1996, the first full year of the New Economy boom, black unemployment still averaged 10.5%. By September, 2000, however, it had fallen to 7.2%, the lowest in recorded history. Growth in the magic fours pulled in people who had been knocking on the economy's door for decades. Indeed, millions--whites and blacks alike--ended a multigenerational cycle of unemployment, poverty, and welfare.

These gains are beginning to erode. When the overall U.S. unemployment rate rose from a low of 3.9% to 4.3% in March, black unemployment jumped from 7.2% to 8.6%. Weekly pay is beginning to run flat for workers in the bottom half of the income brackets while it continues to rise for those in the upper quarter. The gap is widening again.

The miracle at the bottom, not just the bubble at the top, should guide the Federal Reserve and Congress in their policy actions. It is perhaps the strongest economic argument for enough monetary and tax-cut stimulation to get the U.S. back to a 4% unemployment rate as soon as possible.


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