LIST OF SPONSORS OF HUMAN INVESTMENT ACT AS OF JAN. 17, 1966

SENATE (S. 2509)-22 SPONSORS

HOUSE-82 SPONSORS

The retraining of workers displaced by automation, as well as the proper vocational training of other workers will advance the economy as a whole. It is our opinion that the granting of an extension of the 7-percent investment credit to the training of workers would be a definite incentive to industry to invest additional funds for this purpose.

STEPHEN ELIAS.
ARCS INDUSTRIES, INC.

ON IMPROVING THE ECONOMIC STATUS OF THE NEGRO

(By James Tobin, Yale University, Department of Economics, New Haven, Conn.) I start from the presumption that the integration of Negroes into the American society and economy can be accomplished within existing political and economic institutions. I can understand the impatience of those who think otherwise, but I see nothing incompatible between our peculiar mixture of private enterprise and government, on the one hand, and the liberation and integration of the Negro, on the other. Indeed the present position of the Negro is an aberration from the principles of our society, rather than a requirement of its functioning. Therefore, my suggestions are directed to the aim of mobiliz ing existing powers of government to bring Negroes into full participation in the mainstream of American economic life.

The economic plight of individuals, Negroes and whites alike, can always be attributed to specific handicaps and circumstances, discrimination, immobility, lack of education and experience, ill health, weak motivation, poor neighborhood, large family size, burdensome family responsibilities. Such diagnoses suggest a host of specific remedies, some in the domain of civil rights, others in the war on poverty. Important as these remedies are, there is a danger that

the diagnoses are myopic. They explain why certain individuals rather than others suffer from the economic maladies of the time. They do not explain why the overall incidence of the maladies varies dramatically from time to time-for example, why personal attributes which seemed to doom a man to unemployment in 1932 or even in 1954 or 1961 did not so handicap him in 1944 or 1951 or 1956.

Public health measures to improve the environment are often more productive in conquering disease than a succession of individual treatments. Malaria was conquered by oiling and draining swamps, not by quinine. The analogy holds for economic maladies. Unless the global incidence of these misfortunes can be diminished, every individual problem successfully solved will be replaced by a similar problem somewhere else. That is why an economist is led to emphasize the importance of the overall economic climate.

Over the long pull, general economic progress has been the major factor in the gradual conquest of poverty. Recently some observers, J. K. Galbraith and Michael Harrington most eloquently, have contended that this process no longer operates. The economy may prosper and labor may become steadily more productive as in the past but "the other America" will be stranded behind. Prosperity and progress have already cleaned up almost all the easy cases of poverty, leaving a hard core beyond the reach of national economic trends. There may be something to this "backwash" thesis so far as whites are concerned.1 But it definitely does not apply to Negroes. Too many of them are poor. It cannot be true that half of a race of 20 million human beings are victims of specific disabilities which insulate them from the national economic climate. It cannot be true, and it is not. Locke Anderson has shown that the pace of Negro economic progress is peculiarly sensitive to general economic growth. He estimates that if nationwide per capita personal income is stationary, nonwhite median family income falls by one-half percent per year, while if national per capita income grows 5 percent, nonwhite income grows by nearly 72 percent.* National prosperity and economic growth are still powerful engines for improving the economic status of Negroes. They are not doing enough and they are not doing it fast enough. There is plenty of room for a focussed attack on the specific sources of Negro poverty. But a favorable overall economic climate is a necessary condition for the global success-as distinguished from success in individual cases-of specific efforts to remedy the handicaps associated with Negro poverty.

1. THE IMPORTANCE OF A TIGHT LABOR MARKET

But isn't the present overall economic climate favorable? Isn't the economy enjoying an upswing of unprecedented length, setting new records almost every month in production, employment, profits, and income? True, but expansion and new records should be routine in an economy with growing population, capital equipment, and productivity. The fact is that the economy has not operated with reasonably full utilization of its manpower and plant capacity since 1957. Even now, after 4 years of uninterrupted expansion, the economy has not regained the ground lost in the recessions of 1958 and 1960. The current expansion has whittled away at unemployment, reducing it from 6 to 7 percent to 4% to 5 percent. It has diminished idle plant capacity correspondingly. The rest of the gains since 1960 in employment, production, and income have just offset the normal growth of population, capacity, and productivity.

The magnitude of America's poverty problem already reflects the failure of the economy in the second postwar decade to match its performance in the first.* Had the 1947-56 rate of growth of median family income been maintained since 1957, and had unemployment been steadily limited to 4 percent, it is estimated

1 As Locke Anderson shows, one would expect advances in median income to run into diminishing returns in reducing the number of people below some fixed poverty-level income. W. H. Locke Anderson, "Trickling Down: The Relationship Between Economic Growth and the Extent of Poverty Among American Families," Quarterly Journal of Economics, LXXVIII, November 1964, pp. 511-524. However. for the economy as a whole, estimates by Lowell Galloway suggest that advances in median income still result in a substantial reduction in the fraction of the population below poverty-level incomes. "The Foundation of the War on Poverty," American Economic Review, LV, March 1965, pp. 122-131.

2 Op. cit., table IV, p. 522.

3 This point, and others made in this section have been eloquently argued by Harry G. Johnson. "Unemployment and Poverty." unpublished paper presented at West Virginia University Conference on Poverty Amidst Affluence, May 5, 1965.

that the fraction of the population with poverty incomes in 1963 would have been 1610 percent instead of 18% percent. The educational qualifications of the labor force have continued to improve. The principle of racial equality, in employment as in other activities, has gained ground both in law and in the national conscience. If nonetheless dropouts, inequalities in educational attainment, and discrimination in employment seem more serious rather than less, the reason is that the overall economic climate has not been favorable after all. The most important dimension of the overall economic climate is the tightness of the labor market. In a tight labor market unemployment is low and short in duration and job vacancies are plentiful. People who stand at the end of the hiring line and the top of the layoff list have the most to gain from a tight labor market. It is not surprising that the Negroes gain relative to whites in a tight labor market and lose in a slack market. Unemployment itself is only one way in which a slack labor market hurts Negroes and other disadvantaged groups, and the gains from reduction in unemployment are by no means confined to the employment of persons counted as unemployed. A tight labor market means not just jobs, but better jobs, longer hours, higher wages. Thanks to the heavy demands for labor during the Second World War and its economic aftermath, Negroes made dramatic relative gains between 1940 and 1950. Unfortunately this momentum has not been maintained; and the blame falls largely on the weakness of labor markets since 1957.6

Galloway, op. cit. Galloway used the definitions of poverty originally suggested by the Council of Economic Advisers in its 1964 Economic Report, that is, incomes below $3,000 a year for families and below $1,500 a year for single individuals. The Social Security Administration has refined these measures to take better account of family size and of income in kind available to farmers. Mollie Orshansky, "Counting the Poor: Another Look at the Poverty Profile," Social Security Bulletin, vol. 28. January 1965, pp. 3-29. These refinements change the composition of the "poor" but affect very little their total number; it is doubtful they would alter Galloway's results.

Galloway, op. cit., shows that postwar experience suggests that, other things equal, every point by which unemployment is diminished lowers the national incidence of poverty by one-half of 1 percent of itself. And this does not include the effects of the accompanying increase in median-family income, which would be of the order of 3 percent and reduces the poverty fraction another 1 percent.

For lack of comparable nationwide income data, the only way to gage the progress of Negroes relative to whites over long periods of time is to compare their distributions among occupations. A measure of the occupational position of a group can be constructed from decennial census data by weighting the proportions of the group in each occupation by the average income of the occupation. The ratio of this measure for Negroes to the same measure for whites is an index of the relative occupational position of Negroes. Such calculations were originally made by Gary Becker. "The Economics of Discrimination" (Chicago, University of Chicago Press, 1957). They have recently been refined and brought up to date by Dale Hiestand, "Economic Growth and Employment Opportunities for Minorities" (New York, Columbia University Press, 1964, p. 53). Hiestand's results are as follows:

The figures show that Negro men lost ground in the great depression, that they gained sharply in the 1940's, and that their progress almost ceased in the 1950's. Negro women show a rising secular trend since the 1920's, but their gains too were greater in the tight labor markets of the 1940's than in the 1930's or 1950's.

Several cautions should be borne in mind in interpreting these figures:

(1) Much of the relative occupational progress of Negroes is due to massive migration from agriculture to occupations of much higher average income. When the overall relative index nevertheless dees not move, as in 1950's, the position of Negroes in nonagricultural occupations has declined.

(2) Since the figures include unemployed as well as employed persons, and Negroes are more sensitive to unemployment, the occupational index understates their progress when unemployment declined (1940-50) and overstates it when unemployment rose (1930-40 and 1950-60).

(3) Within any census occupational category, Negroes earn less than whites. So the absolute level of the index overstates the Negro's relative position. Moreover, this overstatement is probably greater in census years of relatively slack labor markets, like 1940 and 1960, than in other years.

The findings that labor market conditions arrested the progress of Negro men is confirmed by income and unemployment data analyzed by Alan B. Batchelder. "Decline in the Realtive Income of Negro Men." Quarterly Journal of Economics, LXXVII, November 1964, pp. 525-548.

The shortage of jobs has hit Negro men particularly hard and thus has contributed mightily to the ordeal of the Negro family, which is in turn the cumulative source of so many other social disorders. The unemployment rate of Negro men is more sensitive than that of Negro women to the national rate. Since 1949 Negro women have gained in median income relative to white women, but Negro men have lost ground to white males. In a society which stresses breadwinning as the expected role of the mature male and occupational achievement as his proper goal, failure to find and to keep work is devastating to the man's self-respect and family status. Matriarchy is in any case a strong tradition in Negro society, and the man's role is further downgraded when the family must and can depend on the woman for its livelihood. It is very important to increase the proportion of Negro children who grow up in stable families with two parents. Without a strong labor market it will be extremely difficult to do so. Unemployment

It is well known that Negro unemployment rates are multiples of the general unemployment rate. This fact reflects both the lesser skills, seniority, and experience of Negroes and employers' discrimination against them. These conditions are a deplorable reflection on American society, but so long as they exist Negroes suffer much more than others from a general increase in unemployment and gain much more from a general reduction. A rule of thumb is that changes in the nonwhite unemployment rate are twice those in the white rate. The rule works both ways. Nonwhite unemployment went from 40 percent in 1953, a tight labor market year, to 12% percent in 1961, while the white rate rose from 2310 to 6 percent. Since then, the Negro rate has declined by 210 precent, the white rate by 110 Even the Negro teenage unemployment rate shows some sensitivity to general economic conditions. Recession increased it from 15 percent in 1955-56 to 25 percent in 1958. It recovered to 22 percent in 1960 but rose to 28 percent in 1963; since then it has declined somewhat. Teenage unemployment is abnormally high now, relative to that of other age groups, because the wave of postwar babies is coming into the labor market. Most of them, especially the Negroes, are crowding the end of the hiring line. But their prospects for getting jobs is no less dependent on general labor market conditions.

Part-time work

Persons who are involuntarily forced to work part time instead of full time are not counted as unemployed, but their number goes up and down with the unemployment rate. Just as Negroes bear a disproportionate share of unemployment, they bear more than their share of involuntary part-time unemployment. A tight labor market will not only employ more Negroes; it will give more of those who are employed full-time jobs. In both respects, it will reduce disparities between whites and Negroes.

Labor force participation

In a tight market, of which a low unemployment rate is a barometer, the labor force itself is larger. Job opportunities draw into the labor force individuals who, just because the prospects were dim, did not previously regard themselves as seeking work and were, therefore, not enumerated as unemployed. For the economy as a whole, it appears that an expansion of job opportunities enough to reduce unemployment by one worker will bring another worker into the labor force.

This phenomenon is important for many Negro families. Statistically, their poverty now appears to be more often due to the lack of a breadwinner in the labor force than to unemployment. But in a tight labor market many members of these families, including families now on public assistance, would be drawn into employment. Labor force participation rates are roughly 2 percentage points lower for nonwhite men than for white men, and the disparity increases in years of slack labor markets." The story is different for women. Negro

7 As emphasized by Daniel Patrick Moynihan in his contribution to this volume.

8 Differences between Negro men and women with respect to unemployment and income progress are reported and analyzed by Alan Batchelder, op. cit.

Figures are given in other papers in the symposium: Rashi Fein, pp. 17-18, and Daniel Patrick Moynihan, p. 11.

10 In 34 percent of poor Negro families, the head is not in the labor forces; in 6 percent, the head is unemployed. These figures relate to the Social Security Administration's "economy-level" poverty index (Mollie Orshansky, op. cit.).

See "Manpower Report of the President," March 1964, table A-3, p. 197.