- Treasury Secretary Janet Yellen discussed “destructive forces” in the economy in Senate Finance testimony.
- They include wage inequality, racial inequality, the climate crisis, and the labor force participation rate.
- All of those factors existed before the pandemic, but many have been exacerbated.
- See more stories on Insider’s business page.
The coronavirus pandemic has thrown into relief some of the hidden realities of the American economy, from low wages to income inequality.
But in testimony in front of the Senate Finance committee, Treasury Secretary Janet Yellen highlighted four structural problems that plagued the economy even prior to the pandemic – although they may have intensified or grown more visible throughout the past year.
She cited wage inequality as a prime example. “In healthy economies,” she said, we see wage growth across the distribution – for workers making the highest incomes and those making the lowest. But over the past several decades, that has not been the case in our economy.”
Here are the four “destructive forces” that Yellen highlighted in her prepared testimony.
(1) Wage inequality
Wages have been trending down for years prior to the pandemic. As Insider’s Andy Kiersz and Ben Winck reported, wages have been declining for the past five decades. While recent economic data shows wages growing at the fastest rate since the 1980s, the lowest-wage workers still see average hourly wages that are nearly half of the overall average hourly wage. That might be driving a high quit rate.
“While the highest earners have seen their income grow, families at the bottom end of the distribution have seen their pay stagnate,” Yellen said. she also noted that disparities have widened between traditionally richer and poorer areas.
(2) People dropping out of the labor force, especially women
Yellen also noted that labor-force participation has dropped, with women leaving at a higher rate than comparable nations even before the pandemic.
From February 2020 to May 2021, the number of women in the labor force declined by 2.4% – meaning there were 1.79 million fewer women.
Following the May jobs report, Jasmine Tucker, the director of research at the National Women’s Law Center, told Insider it will take 13 months for women’s employment to reach pre-pandemic levels. That number doesn’t include the never-realized gains women would have seen in a pandemic-free world.
(3) Climate change and its cost on the economy
“Climate change adds a fresh layer of crisis on top of this – the average cost of climate-related disasters is expected to double every five years,” Yellen said in her prepared testimony.
Investors have said that the climate crisis is a “systemic threat” for the economy. In 2019, a New York Fed official said that climate events had cost over $500 billion in the past five years alone. Some Democratic senators have said that they’d oppose any bipartisan infrastructure deal that foregoes addressing the climate crisis.
(4) Racial inequality
“When I started studying economics in 1963, the average Black family’s wealth was about 15% of the average white family,” Yellen said in her prepared remarks. “Maybe that isn’t surprising: Jim Crow laws were still in effect. But what is surprising is that it’s almost 60 years later, and that ratio has barely changed.”
Throughout the pandemic, Black Americans were disproportionately impacted on multiple levels. Black Americans saw higher unemployment rates than white peers, and lower labor force participation rates.
The racial wealth gap has also widened over the years – even before the pandemic. Using data from the 2019 Survey of Consumer Finances, the Federal Reserve found that white families had a median wealth of $188,200. For Black families, it’s $24,100.