The Left often argues that the root cause of disparities in earnings is structural racism and discrimination. But a new study by economist James Heckman demonstrates that the disparities largely vanish once differences in skills are taken into account. This confirms similar findings in a study by the University of Chicago’s Derek Neal and another by Harvard University’s Roland Fryer. Overall, Hispanics and blacks who attain the same test scores as whites do not earn lower wages and are no less likely to enter college. We believe that disadvantages earlier in life account for the existence of skill disparities. Being assigned to worse schools and having a less stable family environment cause members of minority groups to enter the labor market with fewer skills than whites do, and therefore to earn less. But discrimination in the labor market itself does not appear to be the main explanation for the differences we have discussed.
The achievement gap is not new, but its impact on U.S. economic performance is growing. The reason for this is simply that the number of minority-group members, in particular Hispanics, as a share of the population is rising. To put it another way, the United States, in its demographic composition, is looking less and less like Wisconsin and more and more like Texas.
The gap between whites and Hispanics mattered very little to GDP growth when the Hispanic population represented a small share of the working-age population. In 1940, whites constituted 88 percent of the U.S. population, while Hispanics were only 1 percent. But because of higher birth rates and, to a lesser extent, continued immigration, the Hispanic population is growing rapidly. The Census Bureau estimates that in 2050, whites will be a minority of 46 percent of the population, while Hispanics will have grown to 30 percent.
There is debate among economists regarding whether immigration of less-skilled Hispanics has depressed the wages of less-skilled native-born American workers. But the more important economic impact of this demographic shift is its effect on the overall skill profile of the U.S. work force. Though poorer than native-born Americans, Hispanic immigrants are far richer than they would have been in Latin America. Thus the impact of their immigration on global income has been positive. But if the achievement gap did not exist, this increase in Hispanics’ living standards would be even larger, and American per capita GDP growth would be higher.
It is very difficult to predict the trajectory of future economic growth. We can, however, offer crude estimates by drawing on what we know about the relationship between the skill level of workers and overall economic growth. Per capita GDP growth has already been dampened by the combination of an increasing Hispanic population share and a persistent ethnic gap in average income. In the coming four decades, the effect of demographic change is expected to be even more dramatic.
Let us extrapolate the historical average of 2 percent annual per capita income growth until 2050, and take aging and demographic change into account. Aging will shrink the working-age population, bringing income growth down to about 1.75 percent. Also, whites and Asians will go from two-thirds to a little over half of the working-age population — and the effect of that shift will depend on changes in the achievement gap.