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How does the American economy benefit from preventing the costs of structural racism?

In 2011, the American Academy of Pediatrics released a report that, “examines extensive evidence of the disruptive impacts of toxic stress, offering intriguing insights into causal mechanisms that link early adversity to later impairments in learning, behavior, and both physical and mental well-being.” At the forefront, they propose a framework that explicitly acknowledges the impact of structural racism[1]:

The implications of this framework for the practice of medicine, in general, and pediatrics, specifically, are potentially transformational. They suggest that many adult diseases should be viewed as developmental disorders that begin early in life and that persistent health disparities associated with poverty, discrimination, or maltreatment could be reduced by the alleviation of toxic stress in childhood.

The increased incidence of chronic diseases in adulthood are just one consequence of structural racism. Other significant disadvantages resulting from structural racism that impact of all society include poverty, housing discrimination, and criminal victimization. Failure to enact and implement evidence-based prevention policies and programs that would reduce poverty, replenish wealth from housing discrimination, reduce crime and improve poor health is costly and a lost opportunity.

In addition to the moral costs of these disparities, each of these adverse outcomes represents a significant drag on the US economy. The argument is not that the harms from structural racism are primarily economic. Rather, an analysis of the economic gains from reducing disparities is one of many ways to demonstrate the fundamental benefits of removing barriers erected due to structural racism. Shedding light on the relationship between the GDP and structural racism, thus, provides critical input into directing strategic investments in prevention policies and programs that remove those barriers.

This brief describes the GDP gains in economic health that would occur if structural racism was effectively eradicated, as measured by less poverty, higher housing values, reduced crime costs, and health gains.

In this analysis, the GDP represents the likely size of those gains to highlight the macroeconomic effect of discrimination. There are numerous other consequences from structural racism that result in significant disparities across sectors—poverty and marginalization impair child development, reduce educational attainment, increase risk for mental and behavioral health problems, and environmental toxins are concentrated in poor areas, all of which have many direct detrimental consequences of their own. As the graphic from McKinsey and Company shows, the overall gains from removing these structural barriers to economic, physical and mental health would total 4-5% of GDOP each year. This narrow lens is conservative and does not address the myriad of human and economic benefits to reducing disparities (see the Urban Institute Report, 2019), but nevertheless demonstrates the substantial opportunity to improve the US economy that accrue from effectively eradicating structural racism and preventing associated disparities.

  • Poverty. In Congressional Testimony before the House Ways and Means Committee, Harry Holzer (Georgetown University) defines poverty as growing up in a poor environment, with poor parents, attending poor schools, and living in a poor neighborhood. If those factors were improved, the gains to the US economy would total at least 1.3% including:

    • Improved productivity and economic output. The primary outcome for reduced poverty would be increased wages.[2] Higher wages reduce the need for entitlement spending, which produces a dead weight loss to society from the necessary costs of administering those programs and the tax itself. Adding jobs to the economy has a multiplier effect, where each job creates secondary jobs to support it.

    • Intergenerational transfer of wages. Gains to the US economy from improved productivity due to reductions in structural racism have a compounding effect in two ways. Current higher productivity is the foundation for future gains, building from that higher base. And, studies show that higher parental incomes directly predicts higher incomes for children even if there are no other policy or practice changes.

  • Health Disparities. As Senator Kennedy succinctly noted, “Minorities live sicker and die sooner from too many acute and chronic illnesses.” Among the social determinants of health, structural racism is a potent cause of widespread health disparities in disease.

    • Early death and disability. Cutler and Richardson (1998) created the term ‘health capital’ to describe losses in health—defined as morbidity and mortality. Racial disparities in disease are linked to losses of 2.1% of GDP through lost health capital.

    • Lost wages. Analysis by the New York Times finds that if “Black people had died at the same age-adjusted rate as white people in 2018, they would have avoided 65,000 premature, excess deaths.” These deaths are concentrated, “among Black people in their prime earning years, depriving families of income and stability.”

  • Housing Disparities. As Princeton sociologist Devah Pager noted, “Residential segregation by race remains a salient feature of contemporary American cities. Racial segregation in housing was an explicit objective of federal government policy for decades, and the residue of that discrimination remains.” The loss of current and accumulated wealth represents a key loss in capital that could be invested for broad GDP gains.

    • Removing barriers to affordable housing resulting from structural racism benefits renters, new homebuyers and long-term homeowners. The benefits also extend to a variety of businesses, including small businesses (contractors) of all types, brokers and realtors and construction companies and their suppliers[3].

    • The cost to housing disparities is enormous. The National Low Income Housing Commission notes, “[r]esearchers estimate that the growth in GDP between 1964 and 2009 would have been 13.5% higher if families had better access to affordable housing.” The contribution of racial disparities to this loss has not yet been calculated.

  • Crime and Violence. In Congressional testimony before the Senate Committee on the Judiciary, Jens Ludwig (University of Chicago), testified that the annual crime burden on the United States is $2 trillion. Estimates of achievable reductions in crime and violence would add 1.3% to US GDP each year.

    • Reductions in harms from crime and violence. According to Ludwig, each year there are $700 million in costs to crime victims, $200 billion in government expenditures to prevent crime and $730 billion in white collar crime. Violent crime fell by 50% between 1991 and 2019. Racial disparities in victimization rates mean that burden falls disproportionately on people of color. If just 20% of costs decline from that reduction, US GDP would increase by 1.3%.

    • Reductions in harms from policing and incarceration. Racial disparities exist at every stage of criminal justice system processing from stops, to arrests, to the likelihood of going to jail or prison and the sentence length. Those racial disparities also impact communities, with GDP gains following less disparate criminal justice practices.

In sum, while these costs likely underestimate the true gains to the US economy with the elimination of structural racism and prevention of racially-based disparities, the opportunities for an improved economy are clear and compelling.

Dr. John Roman

Co-Director, National Prevention Science Coalition

Senior Fellow, NORC at the University of Chicago

[1] Shonkoff, Jack P., Andrew S. Garner, Benjamin S. Siegel, Mary I. Dobbins, Marian F. Earls, Laura McGuinn, John Pascoe, David L. Wood, Committee on Psychosocial Aspects of Child and Family Health, and Committee on Early Childhood, Adoption, and Dependent Care. "The lifelong effects of early childhood adversity and toxic stress." Pediatrics 129, no. 1 (2012): e232-e246. [2] Holzer, Harry J., Diane Whitmore Schanzenbach, Greg J. Duncan (Northwestern University), and Jens Ludwig. “The Economic Costs of Poverty in the United States: Subsequent Effects of Children Growing Up Poor.” Center for American Progress, January 2007. [3] National Association of Home Builders:

NPSC Economic Gains from Eradicating Str
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