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The economic argument for racial equity

Published: Saturday, Nov. 16 2013 8:30 a.m. MST

Research is revealing how racial diversity and reducing racial inequities is good for business and American economic growth.

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Reducing racial inequities has long been viewed as a moral issue. But it’s also an issue of cold hard cash.

A growing body of research is revealing how diversity is good for business and American economic growth. A recent report called “The Business Case for Racial Equity” put out by the W.K. Kellogg Foundation, a large nonprofit organization, found that if barriers such as access to housing, health care and employment opportunities for minorities were broken down, America’s economy would benefit by trillions of dollars. And as America becomes more racially diverse, these issues have increased importance.

“It’s clear that in striving for racial equity a clear case can be made on the doing the right thing,” said Ani Turner, the author of the WKKF study. “But what we’re saying that many people may not realize is that there’s a very strong economic argument that moving toward greater racial equity will benefit not only minorities and the economically disadvantaged, but the economy as a whole.”

Economic potential

Minorities in America have worse economic outcomes than their white counterparts, and that is holding our economy back, according to the WKKF study. That's partly because of a huge earnings gap between minorities and whites — the average per person earnings for people of color is currently 30 percent below those of whites.

The study found that if the average incomes of minorities were raised to the average incomes of whites, total U.S. earnings would increase by 12 percent, representing nearly $1 trillion in today’s dollars. And if the earnings gap was closed by increased productivity, GDP would increase by $1.9 trillion. Other benefits would include $180 billion in additional corporate profits, $290 billion in additional federal tax revenues, and a potential reduction in the federal deficit of $350 billion.

Turner said the report pulled together data from a number of sources to show businesses that it’s in their best financial interest to be invested in eliminating racial disparities not only because it will create a healthier, more productive workforce, but also because it will increase the purchasing power of minority populations to buy more goods and services.

Other research has also shown that increasing racial equity is good for the bottom lines. In a 2009 study, Cedric Herring, a professor of sociology at the University of Illinois Chicago, found that greater racial diversity in an organization is associated with increased sales revenue, more customers, greater market share and greater relative profits.

These results “are consistent with arguments that a diverse workforce is good for business, offering a direct return on investment and promising greater corporate profits and earnings," Herring said.

One of the possible reasons organizations see these benefits is that diversity brings new perspectives and innovative thinking. “It’s almost cliche at this point to talk about ‘thinking outside the box,’ but when you bring a diverse workforce together, you’re bringing in already built-in ‘outside the box’ ways of thinking," Herring said.

Changing demographics

There is urgency to remedying the racial inequities as minorities become a growing part of the American population. A 2008 report from the Pew Research Center projected that by 2050, America’s racial makeup will “look quite different” than it does today.

In 2005, whites made up 67 percent of the population, but Pew projects that by 2050, they will no longer be a majority, making up only 47 percent of the population. While the percentage of African-Americans will remain about the same, Hispanics will rise from 14 percent in 2005 to 29 percent and Asians will increase from 5 percent to 9 percent of the population in 2050.

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