Economic Development Now

A new McKinsey report highlights the racial disparities that affect Black workers and business owners.

Wage and professional achievement gaps

Forty-three percent of Black workers earn less than $30,000 per year when the median wage for U.S. workers is $42,000 per year. Closing the wage gap could bring 2 million Black Americans into the middle class for the first time and 1 million more Black workers into employment.

Eighty-five percent of the wage gap can be found within five sectors: professional services, manufacturing, construction, trade/transportation/utilities, and financial services. More than half of Black workers are employed in healthcare, retail, accomodation, and food services.

The report discusses the many barriers to entry for Black workers into higher-paying professions. For example, falloffs are higher for Black students at every level of the law degree process than for white peers, as well as in professions where training or certifications are needed. Only 4 percent of recent graduates who go into teaching are Black, a profession that has positive, long-term impacts for Black students.

To address the gap in professional achievement, businesses should expand recruitment techniques to eliminate bias; reflect on workplace experience and attrition rates; create mentoring and sponsorship programs; include diversity goals in managerial performance reviews; and expand corporate operations into underserved communities. Economic developers can increase educational attainment by supporting HBCUs, which educate almost 20 percent of all Black college graduates, and encouraging nontraditional training programs such as coding bootcamps.

In the short term, businesses can improve the quality of jobs held disproportionately by Black workers by increasing wages for essential workers, offering predictable hours, enhancing workplace safety, and offering sick leave.

Black entrepreneurship

McKinsey found that the aggregate revenue gap for Black-owned compared to non-Black owned businesses is 70 percent within wholesale trade, retail trade, construction, manufacturing, and professional services. In addition, there is an absence of Black-owned businesses within mining, oil and gas, utilities, agriculture, and manufacturing industries. This can be attributed to large barriers to startup capital and loans.

On average, Black entrepreneurs receive $35,000 in capital compared to $107,000 for white entrepreneurs. Thus, Black entrepreneurs are crowded in low-cost-of-failure industries such as healthcare and social assistance.

Steps to scale up Black-owned businesses include diversifying supply chains; increasing transparency and fairness in capital allocation; and flexible lending and patient capital from social investors.