Black Middle Class in Crisis

Washington Afro, News Report, Zenitha Prince , Posted: Jan 06, 2009

The current economic crisis has waged a particularly severe attack on the Black middle-class in the United States, experts say.

For African Americans, “2008 was not a good year,” said Algernon Austin, director of Program on Race, Ethnicity and the Economy at the Economic Policy Institute, “and unfortunately, it looks like things will get worse.”

The adage that when America sneezes, Black America catches a cold has held true, making it almost inevitable that African Americans would bear the brunt of the country’s financial woes, economists say.

“Whenever there is an economic downturn, African Americans are the most negatively affected,” said Jon Schmitt, senior economist at the Center for Economic Policy Research.

The disparity can be explained by a persistent gap in wealth between Blacks and Whites among other things, he added.

“The unique challenge for African-American middle class is they tend to have much less financial wealth (like stocks and bonds) and wealth in general so they have much less of a margin to get through tough times,” the economist said.

It was just a decade ago that journalist Ellis Cose declared that “it’s the best time ever to be black in America.” A tight labor market saw marked increases in employment, higher wages and homeownership and declines in joblessness and poverty that promised a robust growth of the community’s wealth base.

However, Austin said, unlike other Americans, Blacks generally have not recovered what they lost during the 2001 recession, making them even more susceptible to the downswing in the economic cycle, which started late last year.

What makes this recession particularly painful, Schmitt said, is its origin in the housing market collapse. Homes comprise 80-90 percent of net worth of the average American, he added.

“The problem with housing is you have two-thirds of Americans who are homeowners so when housing prices fall 15-25 percent it has a bigger impact on the wealth of a typical person,” the economist said. “So this is a particularly hard recession because [people’s] wealth was directly attacked.”

For years advocates like the National Urban League had warned that the conflagration of subprime mortgages—products meant for limited use by a limited number of people, which were unfairly peddled in large numbers to Black and Latino communities—would lead to increased foreclosures.

But no one listened as the markets rode high on the growing housing bubble that enriched many.

Hungry to capitalize on the housing boom, financial servicers piled on features on these loans such as exploding adjustable rates, balloon payments and penalties for early re-payment then packaged them into securities and sold them at high profits on the stock exchange.

Unsurprisingly, however, the bubble burst, people began to default on loans and foreclosures exploded, sending a cataclysmic shock into Wall Street that brought the industry—and the economy—to its knees.

On Black Main Street, however, the devastation was far worse.

“This represents the greatest loss of wealth for people of color in modern U.S. history,” declared the authors of a report, “Foreclosed: State of the Dream 2008,” a publication by the nonprofit, United for a Fair Economy.

From subprime loans, Black/African American borrowers will lose between $71 billion and $92 billion, the report concluded, and the ripple effect will exact an even higher toll.

“The spillover effect of the subprime crisis affects whole communities negatively, in terms of abandoned houses, increased crime, devaluation of neighboring houses, and erosion of the tax base, causing revenue shortfalls that mandate service cuts,” the report read.

At the base of the foreclosure crisis, both analysts agree, is a wage crisis, which forces African Americans to live paycheck to paycheck and deplete their savings and which led them to take additional mortgages on their homes in an attempt to bridge the gap between their earnings and cost of living.

“The reason why people don’t save for the most part is not because of some moral failing but the main reason is their income is not enough to deal with their expenses,” Schmitt said. “Income growth has been slow or stagnant for the last 30 years. To keep the standard of living up and to account for inflation people have had to work more or use more credit.”

The lack of income growth among African Americans is attributable to many factors, the chief of which is the industries in which they tend to work.

After World War II and more so after the civil rights era, the manufacturing industry fed the growth of the Black middle-class. And as that industry began to decline due to unfair trade practices by foreign countries, failed trade policies like NAFTA and the export of American jobs abroad, Blacks were the first to lose their jobs.

The Center for Economic and Policy Research estimates that the share of African-Americans working in manufacturing declined from 23.9 percent in 1979 to 9.8 percent in 2007, the highest drop of any group.

The nonprofit said dropping unionization rates have also played a part in Black economic decline. African-American workers who belong to unions earn wages that are 12 percent higher – about $2 per hour – than their non-union counterparts. But, the percentage of African-Americans who are either members of or represented by unions fell by half, from 31.7 percent of all Black workers in 1983 to 16 percent in 2006.

Additionally, Schmitt said, there’s been a downturn in state and local employment which has been especially important for the African-American middle class.

These have all led to staggering job losses for Blacks.

Nationwide, since December 2007, the number of unemployed persons rose by 2.7 million to 10.3 million and the unemployment rate by 1.7 percentage points to rest at 6.7 percent, according to the Bureau of Labor Statistics.

As expected, however, Blacks have an unemployment rate that nearly doubles the national figure at 11.2 percent and it will only get worse.

Schmitt said, “Next year I don’t think there’s a single analyst who does not think we’ll go 8 or 9 percent unemployment and the pessimists even predict 10 percent. So given the fact that African-American unemployment is usually twice that of Whites, it could easily go to 16 percent or even up to 20 percent.”

When you add employment figures to the mix, the picture becomes even more stark.

According to Austin’s “Reversal of Fortune” report, employment rates for African Americans declined 2.4 percentage points, a figure driven by a combination of racial discrimination, high unemployment rates among Black youth, lower educational attainment, geographic concentration, high rates of incarceration among Black males and the resultant unwillingness of businesses to employ ex-offenders and a general malaise among discouraged workers.

“A lot of discouraged Black workers who have looked month after month for jobs have just given up,” Austin said.

Joblessness is but the “tip of a very large iceberg,” Schmitt added.

“Even people who keep their jobs will find wages and benefits under pressure and they’ll be reluctant to ask their bosses for a raise or an increase in benefits because they’ll be afraid to lose their jobs,” he said, and all of this is “taking place alongside some longstanding problems like health care cost and coverage, which add additional pressure on families.”

Black-owned firms—a source of employment and revenue for Black communities—are also suffering, adding to the bleak picture.

“The No.1 issue is that financing has all but dried up,” said Wayne Frazier, president of the Md./Washington Minority Contractors. “For businesses that do contracting works—not necessarily construction—most of the owners require performance bonds of more than $100,000 and the bonding has dried up [too].”

In addition, as local, state and federal government agencies freeze spending, fewer contracts are being generated and competition has grown even stiffer.

“With less work you’ll have larger, healthier firms who wouldn’t have touched small contracts before competing with smaller minority firms,” Frazier lamented. “And by virtue of those larger firms being stronger…they can cut prices, bid lower than the minority companies and win the contracts….They’re just gobbling up all the work.”

The Maryland businessman along with Schmitt and Austin was cheered by President-elect Barack Obama’s plan to jumpstart the economy and create millions of jobs with a sizable investment in infrastructure projects such as fixing roads, bridges, school construction and modernization and investing in greener more efficient energy.

House Speaker Nancy Pelosi, D-Calif., has already pledged the quick passage of an economic stimulus package worth about $600 billion that will include those elements.

Austin said such a plan is a good step but only if it is properly implemented.

“Out of this crisis comes an opportunity,” he said. “If we use the economic stimulus wisely there is a potential to decrease economic disparity if job creation and investments go to communities that suffer the most economically.”

“It’s very important for public to ask when we get these jobs,” he added, “will Blacks get their fair share?”

Schmitt warned however, that even if government leaders do everything right, the forecast for African Americans and all Americans will not turn rosy overnight, especially in the labor market, which usually lags behind the rest of the economy.

“It’s going to be a long and tough one. It’s definitely going to get worse before it gets better,” he said. “The economy is a battleship—if you want to turn it, it takes a lot of time and a lot of energy.”

Related Articles:

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