Pandemic Threatens Black Middle-Class Gains

Minority-owned businesses have closed at a higher rate than their white counterparts, threatening recent growth of the Black middle class.

Minority-owned businesses have closed at a higher rate than their white counterparts, threatening recent growth of the Black middle class. Shutterstock

 

Connecting state and local government leaders

The number of Black-owned small businesses dropped 41% between February and April.

This story originally appeared on Stateline.

The Black middle class has made strides in recent years toward economic parity with whites in 34 states, a new Stateline analysis has found.

But the pandemic threatens that progress, as Black professionals and businessowners lose their livelihoods at greater rates than their white counterparts.

The middle-class analysis covers changes in household income from 2013 to 2018, the latest year available, based on microdata from the American Community Survey, provided by the University of Minnesota at ipums.org.

The parity varied widely by state.

Among states with at least 5% Black population, the share of Black households in the middle class was only 3 percentage points behind their white counterparts in California, Georgia and Texas. Florida and Maryland had 4-point gaps.

Middle-class income for a three-person family ranges from about $35,000 to $104,000 in Mississippi to about $65,000 to $192,000 in Maryland, the state with the highest median income.

The racial gulf was much wider in Minnesota, at 23 points: 56% of whites were in the middle class, compared with 33% of Black households. The spread was 21 points in Wisconsin, 17 points in the District of Columbia and 14 points in Ohio.

The smaller gaps may indicate states with growing job markets where Black professionals have moved in search of opportunity and affordable housing, and with policies that have helped Black businesses thrive, such as loan guarantees and procurement contracts friendlier to small businesses.

The link between Black-owned businesses and the middle class is clear, said Connie Evans, a former board member of the Federal Reserve Bank of Chicago and CEO of the Association for Enterprise Opportunity. Businessowners on average build 12 times the net worth of other people, Evans said.

“Entrepreneurship is a critical path to building wealth and building a Black middle class,” Evans said.

But storm clouds have gathered for the Black middle class. The number of Black-owned small businesses dropped 41% between February and April, more than twice the rate for white small businesses, according to research provided by Robert Fairlie, an economics professor at the University of California, Santa Cruz.

Even after rebounds in May and June, the number of Black-owned small businesses is down 19% compared with only 5% for white-owned small businesses, Fairlie found.

Fairlie found Black businesses lost more during the pandemic because they tend to concentrate in industries deemed nonessential, with hospitality and personal services like laundry being the most affected.

"What COVID has brought out is that they have less resources to keep their doors open and keep operating."

Danyelle Solomon, vice president of race and ethnicity policy CENTER FOR AMERICAN PROGRESS

Minority businesses need immediate financial support to stay in business and long-term policies to make the banking system fairer to them, said Danyelle Solomon, vice president of race and ethnicity policy at the left-leaning Center for American Progress.

"What COVID has brought out is that they have less resources to keep their doors open and keep operating," Solomon said.

Black college graduates lost jobs in May despite gains for their white counterparts, and even with a rebound in June, their jobs are down 12% from February, according to a Stateline analysis of Current Population Survey data. Losses were high in tech and health care; Black physician jobs are down 18% from February.

And 44% of Black workers said they expected to lose employment income in the next month, compared with 28% of whites, according to a Census Bureau survey in early July.

Atlanta embodies the rise and fall of recent years.

The city opened its contracts to Black-owned businesses in the 1980s, leading more entrepreneurs to move there, said Eugene Cornelius Jr., a former deputy administrator for the Small Business Administration, now a director at the Milken Institute.

In Atlanta, newcomers found housing more affordable than in the Northeast, and historically Black colleges there provided a pool of business-savvy employees, Cornelius said.

“So Atlanta had a boom, and all those Black resources pulled together to create a middle-class community,” Cornelius said. Policies banning affirmative action, such as Proposition 209 in California and the Michigan Civil Rights Initiative, have had the opposite effect and stymied the growth of Black businesses, he said.

The California and Michigan initiatives banned affirmative action in contracts that had been used to help boost minority-owned business. California voters could repeal the measure in November.

Black and other minority-owned businesses do need state and local policies that split up procurement contracts so smaller players have a chance at the business, said Evans of the Association for Enterprise Opportunity. And they need financing help like that provided by California’s Capital Access Program for Small Business, she said.

“Black and brown businesses are not generally multi-million-dollar companies,” Evans said. “They might be able to deliver the quality and the quantity, but they don’t have $2 million to put into some performance bond.”

But with the pandemic, Atlanta’s Black middle class is feeling the effects. Ponder’s Cleaners, a Black-family-owned business in southwest Atlanta since 1970, took to GoFundMe in June to plead for contributions to help it stay open.

Business already had slowed because many of the cleaner’s customers were from an earlier generation that dressed up more for work and church. They were aging and younger people weren’t as interested in cleaning fine fabrics, sequins and beaded clothing, the store’s specialty.

“When COVID came along and raised its ugly head, we just didn’t have enough traffic to sustain,” owner Roderick Ponder said. “We’d come in and we’d just be sitting around all day.”

The GoFundMe fundraising campaign and mentions on social media, started by a young relative who offered to publicize the store’s plight as one of the city’s oldest Black-owned businesses, had an immediate effect.

“That was on a Tuesday, and that Wednesday we went in and the phone was ringing and it hasn’t stopped. We got business from all over the city,” Ponder said. It was an impressive show of solidarity from the city’s Black community.

“Everybody needs support. When you see your brother or sister is in trouble, you need to step up,” said Ponder. “There are a lot of Black businesses in Atlanta. I say if you can’t make it here, you can’t make it anywhere. It’s the business mecca of the South.”

Atlanta’s Black physicians also are feeling the pandemic’s pinch.

Dr. Taryn Taylor, a pediatrician and assistant professor at Emory University in Atlanta, said many Black physicians lose money because they have a sense of mission about serving imperiled minority communities. That means accepting lower pay.

“It is extremely important that we give back to the community,” Taylor said. “A lot of Black physicians are serving populations that are already underserved, so in the midst of this pandemic they are getting lower reimbursement rates.”

Since coronavirus deaths are more prevalent in the Black community, patients have avoided visits to their doctor out of fear of infection, hitting Black physicians harder. At Emory, pediatricians were asked to take vacation time when clinics stood empty as patients postponed routine appointments, Taylor said.

Black psychiatrists also have struggled to adapt to the pandemic, said Dr. DeJuan White, a psychiatrist and director of emergency psychiatric services at Emory/Grady Memorial Hospital. Emory has a wealth of technology resources and was able to switch to remote telemedicine services quickly, but smaller Black practices were not.

“We’re a hospital system that had that capacity and had some donors to assist with that, but others don’t have that,” White said. “Even some of our patients were lost to follow-up [visits] because they don’t have access to internet. Some do not even have phones.”

Black middle-class progress has been fragile and subject to setbacks, as Black residents typically haven’t had time to build family wealth. And they may lack connections to get loans and other favors white people take for granted.

“During the last five years and during the Obama administration we did see the middle-class [Black] community has grown, mainly in the South and some in the West,” Cornelius said. “But the supports available for white America are absent from Black America. Blacks are not in the decision-making roles, the ones that decide who gets laid off and who doesn’t.”

Tim Henderson is a staff writer for Stateline.

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