Economic Development, Government, and Human Resources

Lack of diversity costs billions

June 12, 2015
Text Size:

Anyone who thinks the lack of racial diversity in Michigan’s workforce doesn’t negatively impact the state’s economy may be billions of dollars off the mark.

By now, practically everyone has heard about the Forbes article ranking Michigan as the second-worst state in the nation for African-Americans economically, but few may understand how that impacts Michigan’s growth.

So, Battle Creek-based W.K. Kellogg Foundation collaborated with Ann Arbor-based Altarum Institute to put together a report called “The Business Case for Racial Equity in Michigan.”

The purpose of the report was to understand “the cost of failing to address the legacy of racism in the state and the benefits to communities from advancing racial equity.”

The report, which drew from research and data from Johns Hopkins University, Altarum Institute, Michigan State University, Brandeis University and Harvard University, was released last month and serves as a complement to the 2013 national report “The Business Case for Racial Equity.”

It focuses mainly on racial economic disparities in issues such as health, education, incarceration and employment.

“With greater racial equity, disparities in health, educational achievement, incarceration rates and employment opportunities diminish, improving life outcomes and building a healthier, more productive workforce whose skills better align with future needs,” the report read.

“A more diverse workforce in itself will contribute to greater success in an increasingly global economy. Research has shown that businesses with more diverse workforces have more customers, higher revenues and profits, greater market share, less absenteeism and turnover, and a higher level of commitment to their organization.”

The report highlights data pointing to the fact that, in Michigan, the average child of color is “born into a path of poorer health, lower educational attainment, fewer employment opportunities, and greater involvement with the criminal justice system than the average white child” — all factors that contribute to lowering the state’s performance economically, overall.

“Age- and gender-adjusted earnings per person for people of color in Michigan are 33 percent lower than earnings for whites, slightly larger than the national gap of 30 percent,” the report reads.

“In the Detroit metropolitan area, 90 percent of blacks, 56 percent of Hispanics, 43 percent of American Indians and 29 percent of Asian Americans live in opportunity-poor neighborhoods, compared to 19 percent of whites.”

Here are some of the report’s main economic findings on how much money could be saved by tackling these obstacles:

  • Wilder Research estimates the lifetime economic value of an at-risk child in Michigan achieving school readiness is $39,000, including: savings in special education and grade repetition; lower criminal justice, public assistance and child welfare costs; higher state tax revenues; savings from reduced crime and substance abuse; and increases in parent productivity. If the more than 70 percent of children of color (114,000) ages 0 to 3 years in Michigan who are estimated to be “at risk” achieved school readiness, the present value lifetime savings would be $4.5 billion.
  • The Alliance for Excellent Education estimates that if Michigan’s 2012 high school graduation rate for children of color had been 90 percent, annual earnings would be $151 million higher, increasing spending by $116 million, federal tax revenues by $24 million, and state and local taxes by $11 million per year.
  • The Alliance estimates increasing the male high school graduation rate in Michigan by only 5 percent would produce crime-related savings of more than $175 million.
  • Thomas LaVeist and Darrel Gaskin, authors of “The Economic  Burden of Health Inequalities in the United States,” estimated health disparities cost Michigan citizens, employers and governments $2.03 billion in excess medical costs and $1.39 billion in lost productivity in 2009.
  • LaVeist and Gaskin also estimated that health disparities translate to premature deaths on the order of 130,000 lost life years in Michigan, including 122,000 lost life years for African-Americans alone. Monetizing a human life is controversial, but using a conservative estimate of $50,000 per life year, the economic impact due to premature deaths in Michigan was $6.48 billion in 2009.
  • Altarum estimates if the average adult of color achieved the average income of his or her white counterparts at each age, total Michigan earnings would increase by 7.5 percent, or $16.2 billion in 2012. If the earnings gaps were eliminated through greater productivity, the increased earnings would raise the state’s economic output by a comparable percentage, for an increase of $31.2 billion in state GDP.
  • Altarum estimates higher earnings would have generated an additional $1.9 billion in state tax revenues and $900 million in local tax revenues in 2012.
  • Closing the earnings gap and thereby lessening participation in Medicaid and public assistance programs would represent a 25 percent reduction in spending on these programs, or $3.1 billion, in 2012. The increase in revenues and decrease in outlays together would improve state and local finances by nearly $6 billion, more than 10 percent of the roughly $50 billion state budget. For comparison, the state currently spends about $3 billion a year on public safety and $15 billion on all education funding. Six billion dollars represents almost one-quarter of what is collected each year in state taxes (about $24 billion).
  • With state population growth coming exclusively from communities of color, these impacts will increase over time. By 2040, closing the earnings gap would increase earnings by 10.1 percent, or $65.3 billion, increasing Michigan’s gross domestic product by $126 billion, and the increase in Michigan tax revenues and decrease in outlays would improve state and local budgets by a net $11 billion.
  • The projections presented in the report assume flat population growth and the current investment outlook. A more productive workforce, higher earnings, higher tax revenues and other economic benefits will help Michigan attract more people and investment, further increasing the positive economic impacts.

“Racial inequities are caused by the unequal distribution of resources and opportunities, and affect health, education, earnings and other life outcomes. This costs Michigan billions of dollars in lost economic potential,” said Ani Turner, deputy director of the Center for Sustainable Health Spending at the Altarum Institute.

“One-third of Michigan's younger generation are people of color, so tackling the obstacles that put children of color at a disadvantage is not only the right thing to do, it could be a significant driver of our collective social and economic well-being.”

Recent Articles by Mike Nichols

Editor's Picks

Comments powered by Disqus