Some Economics for Martin Luther King Jr. Day

On November 2, 1983, President Ronald Reagan signed a law establishing a federal holiday for the birthday of Martin Luther King Jr., to be celebrated each year on the third Monday in January. As the legislation that passed Congress said: “[S]uch holiday should serve as a time for Americans to reflect on the principles of racial equality and nonviolent social change espoused by Martin Luther King, Jr..” Of course, the case for racial equality stands fundamentally upon principles of justice, with economics playing only a supporting role. But here are a few economics-related thoughts for the day clipped from posts in the previous year at this blog, with more detail and commentary at the links.

1. “Changes in the Distribution of Black and White Wealth since the US Civil War,” by Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick, Journal of Economic Perspectives, Fall 2023. From the abstract:

The difference in the average wealth of Black and white Americans narrowed in the first century after the Civil War, but remained large and even widened again after 1980. Given high levels of wealth concentration both historically and today, dynamics at the average may not capture important heterogeneity in racial wealth gaps across the distribution. This paper looks into the historical evolution of the Black and white wealth distributions since Emancipation. The picture that emerges is an even starker one than racial wealth inequality at the mean. Tracing, for the first time, the evolution of wealth of the median Black household and the gap between the typical Black and white household over time, we estimate that the majority of Black households only began to dispose of measurable wealth around World War II. While the civil rights era brought substantial wealth gains for the median Black household, the gap between Black and white wealth at the median has not changed much since the 1970s. The top and the bottom of the wealth distribution show even greater persistence, with Black households consistently over-represented in the bottom half of the wealth distribution and under-represented in the top-10 percent over the past seven decades.

2) “HBCUs: The Evolving Challenge” (September 25, 2023)

This post draws on two essays: one by Gregory N. Price and Angelino C. G. Viceisza in the Summer 2023 issue of the Journal of Economic Perspectives“What Can Historically Black Colleges and Universities Teach about Improving Higher Education Outcomes for Black Students?”; and the other from Gizelle George-Joseph and Devesh Kodnani of Goldman Sachs in “Historically Black, Historically Underfunded: Investing in HBCUs” (Goldman Sachs Research, June 13, 2023).

Both essays emphasize the evolution of historically black colleges and universities (HBCUs), and the differences across these institutions. Both note that back in, say, 1967, about 80% of all black colleges students attended these institutions, while now it’s about 9%. Thus, the role of these institutions has evolved. However, they continue as a group to provide an outsized share of black college graduates, especially in the sciences. In addition, after adjusting for factors like household income and institutional resources, black students attending HBCUs have a greater likelihood of graduating. At a time when US higher education as a whole is trying to reach out to traditionally underrepresented group, it seems as if there are some lessons to be learned here.

3. “The Decarceration Trend for Black Americans” (July 27, 2023).

It’s quite possible that US incarceration rates are too high, but it’s also just a fact that they have been declining in recent years. Here’s an overall figure.

For black Americans, the change is especially noticeable.  Jason P. Robey, Michael Massoglia, and Michael T. Light describe the change in “A Generational Shift: Race and the Declining Lifetime Risk of Imprisonment” (Demography, published online July 12, 2023). From their abstract:

This study makes three primary contributions to a fuller understanding of the contemporary landscape of incarceration in the United States. First, we assess the scope of decarceration. Between 1999 and 2019, the Black male incarceration
rate dropped by 44%, and notable declines in Black male imprisonment were evident in all 50 states. Second, our life table analysis demonstrates marked declines in the lifetime risks of incarceration. For Black men, the lifetime risk of incarceration declined by nearly half from 1999 to 2019. We estimate that less than 1 in 5 Black men born in 2001 will be imprisoned, compared with 1 in 3 for the 1981 birth cohort. Third, decarceration has shifted the institutional experiences of young adulthood. In 2009, young Black men were much more likely to experience imprisonment than college graduation. Ten years later, this trend had reversed, with Black men more likely to graduate college than go to prison.

4. “The IRS Audit Algorithm and Racial Effects” (May 17, 2023)

Algorithms may in some settings be more fair than human decision-making (which is not necessarily a high bar!), but they can also lead to unexpected and undesired results. Hadi Elzayn, Evelyn Smith, Thomas Hertz, Arun Ramesh, Robin Fisher, Daniel E. Ho, and Jacob Goldin dig into the evidence in “Measuring and Mitigating Racial Disparities in Tax Audits” (Stanford Institute for Economic Policy Research, January 2023). They write: “Despite race-blind audit selection, we find that Black taxpayers are audited at 2.9 to 4.7 times the rate of non-Black taxpayers.” The research result has gotten considerable press coverage, like the recent “I.R.S. Acknowledges Black Americans Face More Audit Scrutiny” in the New York Times (May 15, 2023).

It turns out that when you dig into this data, pretty much all of the difference is because black working poor who are claiming the Earned Income Tax Credit are audited at much higher rate than non-black working poor who are claiming the EITC, and that this “disparity cannot be fully explained by racial differences in income, family size, or household structure.” Instead, the gap seems to trace back into details built into the IRS algorithm. For example, the algorithm tends to single out for audits the cases that are more likely to lead to higher taxes. This may sound reasonable at first, but imagine two tax returns: In one, there is a 95% chance that the audit will collect an extra $500, and in the other there is a 50% chance that the audit will collect an extra $10,000. If the algorithm prioritizes the chance of collecting more, rather than a mixture of the probability and the amount that could be collected, it will often focus on the working poor rather than on middle- and upper-income taxpayers who might owe more.

Leave a comment