Racial Unemployment Gaps and the Disparate Impact of the Inflation Tax

Mohammed Ait Lahcen, Garth Baughman and Hugo van Buggenum

No 73, Opportunity and Inclusive Growth Institute Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We study the nonlinearities present in a standard monetary labor search model modified to have two groups of workers facing exogenous differences in the job finding and separation rates. We use our setting to study the racial unemployment gap between Black and white workers in the United States. A calibrated version of the model is able to replicate the difference between the two groups both in the level and volatility of unemployment. We show that the racial unemployment gap rises during downturns, and that its reaction to shocks is state-dependent. In particular, following a negative productivity shock, when aggregate unemployment is above average the gap increases by 0.6pp more than when aggregate unemployment is below average. In terms of policy, we study the implications of different inflation regimes on the racial unemployment gap. Higher trend inflation increases both the level of the racial unemployment gap and the magnitude of its response to shocks.

Keywords: Racial inequality; Monetary policy; Unemployment; Inflation; Discrimination (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 J64 (search for similar items in EconPapers)
Date: 2023-05-25
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac, nep-mfd, nep-mon and nep-ure
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Citations: View citations in EconPapers (2)

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Working Paper: Racial Unemployment Gaps and the Disparate Impact of the Inflation Tax (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:96260

DOI: 10.21034/iwp.73

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