Incorporating “Persistent racial inequality in the United States” into your principle class

By Eric Bottorff | 19 September 2023

Co-author Eric Bottorff explains how you can include this CORE Insight in your course

When my co-authors, Trevon Logan and Suresh Naidu, and I were writing our Insight on racial inequality in the United States, we strove to create a resource which would work well if taught as a whole, but which also was sufficiently modular for parts to be easily incorporated into a standard introductory or principles course. Beyond the pragmatic advantages of such an approach, this reflected our shared conviction that racism and racial inequality should no longer be treated as a mere afterthought, at best, in economic pedagogy, but put at its centre. Whether taught as a whole or just in part, we hope that the Insight is a small step in the right direction.

In this post, I’ll discuss two topics, the labor market and the credit market, where instructors can incorporate elements of the Insight into a principles level course. They can do so irrespective of whether they are teaching the whole Insight or not. These two topics are not exhaustive, of course, but are two that I’ve done successfully in the past. They can be incorporated into a course without requiring extensive changes to one’s syllabus.

Labor market

If you’re using The Economy, I’ve found the material below, which comes from the section on labor market discrimination and the section on access to jobs in our Insight, works best if integrated into a lesson on Unit 6 (The firm), typically taught in a Principles of Microeconomics course. However, I’ve also successfully done this material along with Unit 9 (The labor market). Of course, you can incorporate this material into a chapter on the labor market and/or the firm of any non-CORE text.

Regardless of what text you’re using, it’s highly likely that the model of the labor market you’ve taught was abstracting from race, gender, and other demographic characteristics. So, having gone through said model, I first show students Figure 5 from the Insight, shown below.

The top panel shows the real median income for each racial group counted by the U.S. Census Bureau. The data is presented in 2018 dollars. The bottom panel shows the ratio of Black to White unemployment.

I show the top graph first, in which students can see that the ratio of Black to White household income has been relatively steady over time. Then I show the second graph, in which they can see a less steady but still consistently large ratio of Black to White unemployment.

I then ask the class why they think these inequalities exist and have persisted for so long.

Almost inevitably, the first answer given is differences in education. I confirm that this is indeed one reason, but then ask a follow-up question: If differences in education are the only reason for these gaps, what should we see if we compare Black and White income and employment among those with similar educational status?

They will then correctly point out that if education is the only cause, there should be no income or employment gaps if we control for education. I then proceed to show them Figure 6, shown below.

Wages by education and race. The top panel shows the annual average unemployment by race and education in 2017. The bottom panel shows the Black–White wage ratio by different education levels, for the years 1979 and 2017.

Again, I break this up into two slides, first the top graph and then the bottom one. I ask students to describe what they observe in the top one, and what it means for the hypothesis that education is the only cause of racial gaps in income and employment. They’ll notice that, for example, the unemployment for White people with only a high school degree is not much higher than that for Black people with a college degree, and will conclude that educational differences can’t explain everything. The second graph is a bit tougher to read for many students, but typically more impactful, especially because they’ll quickly realize that, when comparing those of similar education levels, the racial gap in wages has got worse over time, not better. Importantly, this also means that just fixing the educational system will not be enough to eradicate these gaps, despite what many students have heard or been told.

It is at this point that I bring up the possibility that racial discrimination may be at work. However, since discrimination is hard to prove or directly observe in most cases, I ask the students how we could go about testing whether firms are discriminating. After some thought, they will, on their own, more or less come up with the idea of an audit study.

I’ll then walk them through the results from some of Devah Pager’s famous studies (sometimes I’ll go through the equally famous Bertrand & Mullainathan study as well), in which Pager and her team trained auditors from different racial groups to go out on the streets of Milwaukee and New York City to apply for jobs and hand out resumes which were identical except for their criminal record. The results of these studies are shown in Figure 7 of the Insight, seen below.

Audit study results from Milwaukee (left) and New York City (right) showing notable discrimination against Black applicants with a criminal record. (Note: “positive response” means that the applicant was either offered the job or called back for a second interview, depending on the hiring process for that job).

Knowing these details, the students can plainly see and understand that racial discrimination exists in the labor market, and is plausibly a cause of racial gaps in income and employment observed earlier. Like most people who look at these results, they are most struck by the fact that a Black man with no criminal record got an average lower callback rate than White men with a criminal record. It is also important to point out here that the extent of discrimination found in such audit studies has not changed at all since 1989.

Having established the existence of discrimination, I then connect this back to the relevant models. I will, for example, ask students how they think the presence of racial discrimination affects the reservation wages and effort levels of Black workers, assuming that Black workers know that discrimination is a problem. Students will correctly conclude that this reduces the reservation wages of Black workers and causes them to work harder at similar wages.

I then ask them to think about this from the perspective of a firm owner hiring a new employee. If they own a firm, and are aiming to maximize profit, would it make sense for them to pay a newly hired Black worker less than a similar White worker? Although students will resist this somewhat, they will reluctantly see the logic of doing so, which helps to reinforce the structural nature of the problem—the students can begin to see how this becomes a positive feedback loop wherein the lower reservation wages of Black workers affect the wages firms offer them, which perpetuates the racial wage gap, which in turn helps to keep Black reservation wages relatively low.

If you’re teaching a macroeconomics course, this material can be used to help students understand why Black workers disproportionately benefit from tight labor markets and policies that promote low unemployment, but also why they get disproportionately harmed by recessions and high unemployment.

In addition to the material on labor market discrimination, instructors can draw from the section on segregation and access to jobs to highlight other structural features of our society and economy which produce disparate labor market outcomes. A good way to start this discussion is by asking students who had a job at some point in their lives how they got it, or how they think most people get one. There are numerous responses, but a common one will emerge: social connections.

I then follow this by showing students a racial dot map of a major US city (in my case, Chicago), which will easily demonstrate the ongoing reality of residential segregation. It doesn’t take long for students to put together that racial segregation leads to racially segregated social networks, which affects the ease with which people can find good employment in light of other racial inequalities. Again, students can begin to see how this becomes self-perpetuating.

I then ask if there are other reasons why racial segregation might harm the employment prospects of segregated Black workers. Students will typically provide much of the core of the spatial mismatch hypothesis on their own, with the instructor left to fill in any relevant gaps.

In essence, if you give them the data, and walk them through how to read it, students will come up with a lot of the explanations on their own about racial inequality.

This helps empower them as learners, connect what they’ve learned to an important real-world problem, and create a more complex, dynamic understanding of hiring, wages, and the racialized labor market.

The credit market

The credit market — covered in Unit 10 of The Economy and in section 4 of the Insight — is another good topic in which you can integrate a discussion of racial inequality and discrimination. Having already been introduced to ideas like collateral, equity, and credit constraint or exclusion, it is an easy step to get students to see how the credit market becomes another example of a vicious circle which perpetuates inequality along class and racial lines.

As with the labor market, there are numerous audit studies demonstrating the existence of racial discrimination in different segments of the credit market, some of which are described in the Insight. After going through these, I ask the students how this discrimination is likely to affect Black wealth levels relative to White wealth levels. Students respond that this is likely to contribute to lower levels of Black wealth. I then follow that with a question about how lower levels of wealth and/or income affect a person’s ability to access credit, a fact they should already be familiar with from Unit 10. But by putting these two pieces together, the students start to see that Black borrowers end up getting doubly punished in the credit market. This dynamic is illustrated in Figure 8, shown below.

Vicious circled of credit constraint and exclusion

This figure is helpful in visualizing the dynamic the students have worked out, and further adds in the way that poor economic outcomes (re)creates the racist stereotypes which feed the discriminatory process.

When teaching this with a lesson on the credit market, I try to emphasize a few key things:

  1. Regardless of a person’s other characteristics, someone with little wealth or income will have difficulty accessing credit. This can sometimes be a surprise to more liberal or progressive students, who may overly focus on race as compared to differences in wealth (class).
  2. Since Black people have less wealth and income on average to begin with, they are, as a group, doubly punished in the credit market. This is one of the reasons why white ethnic immigrant groups who came to the US with little wealth and faced, relative to the Black population, substantially weaker initial discrimination were slowly able to converge with the rest of the white population, while Black people remain (or rather are kept) behind.
  3. The problem is structural, not about lack of financial education or bad behavior.

An instructor can also use Figure 9.17 from Economy, Society, and Public Policy to directly connect these issues in the credit market with those discussed above in the labor market.

Eric is Adjunct Faculty of Economics, Philosophy, and Global Studies at Oakton Community College. You can contact him at [email protected].

  • enCOREage is CORE Econ’s project to attract and empower a more diverse demographic of undergraduate students and instructors to the study of economics
  • Are you teaching a class where you’ve included Persistent racial inequality in the United States? We’d love to hear from you. Please email Giacomo at [email protected].

This is the second blog on teaching the economics of race and ethnicity with CORE Econ. In the first blog, we talked with Martha Omolo. She’s a lecturer in Economics at the University of Exeter Business School, and runs a class project to create an inclusive environment to teach the economics of race and ethnicity