The Economic Impact of the SCOTUS Affirmative Action Decision
A certain demographic should stop assuming this recent affirmative action ruling won't hurt them. A ruling that will effectively drain money from the larger economy hurts everyone.
Publisher’s Note
As discourse on the impact of the Supreme Court’s recent affirmative action decision unfolds, there’s a critical need for insights on how it will crack the foundation of the nation’s economy. Naturally, experts will comment on what the decision will do to college enrollment for Black and other underserved populations, as well as how it eventually hurts their professional and income prospects. That’s a necessary exercise. But, what’s also necessary is a grasp on what it does to the general economy.
Understanding the broader economic ramifications helps everyone understand that this ruling wasn’t simply confined to debates on race. It also forces Whites to understand that the consequences of this ruling affect them, too, as most (60 percent according to a post-decision ABC News/Ipsos poll) are under the flawed assumption there are no consequences and are more than likely perceiving it as having not much to do with their own economic fortunes. It will be a useful conversation to have …
Yet, this decision - in addition to the student loan ruling - has everything to do with them since we should all expect economic disruptions, on top of the uncertainty we’re already experiencing, ahead. While we won’t see any immediate impacts, many are set to happen soon, including expected and rather dramatic declining enrollment numbers of Black and Latino students into higher education institutions, particularly selective ones and “PWIs” or Predominantly White Institutions. Historically Black Colleges and Universities (HBCUs) and other Minority Serving Institutions can’t take them all. As the Urban Institute notes …
Drops in college student enrollment translate into missed economic opportunities for those affected the most. Missed economic opportunities translate into the disappearance of a middle class or a higher wage earner group as fewer people are able to enter into an advanced workforce where there are raised incomes and expanded professional success. A smaller middle class means there are fewer consumers contributing to this consumer-based economy we’re stuck with, or much less money spent on consumer goods, meaning much less money channeled into the economy. That’s not just problematic for Black, Latino and other underserved college prospects or Black, Latino and other underserved communities who have viewed college as the pathway to economic success. That becomes problematic for everyone as a decision like this - along with other wrongheaded decisions - creates the recipe for a recession, depression or further economic and societal instability.
As Princeton University economist Zachary Bleemer tells NPR …
"Black and Hispanic students saw substantially poorer long-run labor market prospects as a result of losing access to these very selective universities. But there was no commensurate gain in long-run outcomes for the white and Asian students who took their place."
Black and Latino students were also less likely to earn graduate degrees or enter lucrative STEM fields.
"If you follow them into the labor market, for the subsequent 15 or 20 years, they're earning about 5% lower wages than they would have earned if they'd had access to more selective universities under affirmative action," Bleemer said.
Lower wages, predictably, ends up in less income flowing from bank accounts and credit cards into the broader economy. As the University of Georgia’s Multicultural Economy report shows, Black people, for example, make up 14 percent of the population, yet boast $1.6 trillion in national consumer buying power, or a 9 percent share of the nation’s $17.5 trillion buying power. Latinos are the nation’s fastest growing population demographic with buying power at $1.9 trillion accounting for an 11 percent share.
Now, the destruction of affirmative action, which promises a cut (not a rise) in wages, threatens to shrink that buying power through pernicious public policy. That’s not just a loss for Black and Latino populations, as Whites who are opposed to affirmative action due to reasoning based on politics and racism, but it’s a loss for the entire economy. What’s missed here is that one reason why the U.S. economy is still, currently, the largest and most powerful economy is because it’s also the most culturally diverse. As the Center for International and Strategic Studies argues …
Indeed, it has been shown that greater inclusion in the entrepreneurship and innovation ecosystems significantly improves economic growth. A 2020 Citigroup report estimated that including more women and Black Americans in the initial stages of innovation could increase U.S. GDP by as much as $640 billion. The report further argued that the United States’ aggregate economic output would be $16 trillion higher today if identified racial gaps had been closed in 2000, which would be almost double that year’s GDP.
Correspondingly, a new study argues that disenfranchising and failing to support inclusion efforts harms the nation’s economy. According to a 2023 McKinsey report, Rekindling US productivity for a new era, U.S. productivity growth—essential for increasing incomes, mitigating inflation, and increasing employment—has faltered for the past 15 years, in part due to “the unevenness with which the benefits of innovation, globalization, and other shapers of productivity have spread” across the country.
Greater inclusion also assists the United States in renewing its innovation economy. U.S. patent experts and leading industry experts recognize the importance of increasing diversity in the innovation ecosystem not only for its economic benefits, but also because of how it improves the innovation ecosystem itself.
Lack of intentionality in diversity, inclusion and equity or kindling efforts to destroy that process are not a benefit to the economy at all. Research shows reversing that progress is actually counterproductive.
At the moment, economic disparities are a drain on the economy when the two largest non-White populations - Blacks and Latinos - barely enjoy $18,000 and $21,000 in media wealth … compared to $171,000 for White families. As that stunning, but not so surprising, Citigroup report found in 2020, the U.S. economy lost $16 trillion over two decades due to those disparities - which are, typically, as Citi acknowledged, the result of discrimination and racism. This affirmative action ruling rings as yet another one of those tripwires soon to cause further damage to the American economy. If a Black middle class is not allowed to grow, or blocked from greater access, how exactly does that work out for the larger economy if fewer participants have money to spend on it?