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Big wage gap among factors hindering Latino economic mobility, report finds

“Given the size of Latinos and the prospects, this is no longer a Latino issue," said Bernardo Sichel, a co-author and partner at McKinsey. "This is an American imperative.”
Image: A nurse works in a makeshift tent triage center for Covid-19 patients in El Centro Regional Medical Center in hard-hit Imperial County on July 21, 2020 in El Centro, Calif.
A nurse works in a makeshift tent triage center for Covid-19 patients at El Centro Regional Medical Center in El Centro, Calif., on July 21, 2020.Mario Tama / Getty Images file

Latinos will make up more than 1 in 5 U.S. workers by 2030. Yet despite high rates of job participation and entrepreneurship, a massive wage gap is one of the factors hindering their economic mobility, a new study has found.

The wage gap for Latinos is as high as $288 billion per year, according to "The economic state of Latinos in America: The American dream deferred," a report by McKinsey & Co. in partnership with the Aspen Institute, which was released Wednesday.

"Latino workers, as a group, receive 2/3 of what they would in a parity scenario where all Latino workers are paid at the level of their white counterparts in each occupation, and U.S.-born Latino workers are represented in occupations at the same rate as in the overall population," the report found.

If these disparities were to be reduced, average wages for Latino workers could be 35 percent higher and over 1.1. million more Latinos would be in the middle class, the study concluded.

“This is a big deal,” said Bernardo Sichel, a partner at McKinsey and one of the report's co-authors. “Given the size of Latinos and the prospects, this is no longer a Latino issue. This is an American imperative.”

Hispanics are almost 19 percent of the U.S. population, and their participation in the labor force is "significantly higher" than that of non-Latino whites, the report found. Latinos are projected to be 1 of 3 U.S. workers by 2060.

Yet Latinos are greatly underrepresented in higher-paying jobs and are paid less in the same fields as non-Latino whites.

The study found that 50 percent of the aggregated Latino wage gap can be accounted for by Hispanics’ lower representation and pay in 4 percent of occupations, including management, teaching, STEM and professions like law, medicine, sales and accounting.

The majority of Latinos are U.S.-born. Foreign-born Latinos are hit particularly hard when it comes to wages, and they are paid less in the same job categories as U.S.-born workers. The median wage for foreign-born Hispanics is $31,700 compared to $38,848 for those born in the U.S. For non-Latino white workers, the number goes up to $52,942.

Hispanics spend 71 percent of their incomes on housing, health care, banking, broadband, food and consumer goods. They could spend an additional $660 billion or contribute another 3 percent to the gross domestic product if the gap were closed.

Latino-owned businesses are growing faster than white-owned businesses. But the businesses Latinos open tend to be in construction and food services, and they are underrepresented in higher-growth industries like information and real estate.

“More than 70 percent of Latinos used their own personal funds to start their businesses, despite having some of the same qualifications as whites,” Sichel said. “They get less approvals in terms of banking loans and other sources of funds.”

Despite progress, wealth building a challenge

Latinos have rates of intergenerational mobility that are similar to those of the white population.

“For the last two decades, Latino wealth has been growing at around 7 percent, which is twice the growth rate you have for other demographics,” Sichel said. “When you see it from one generation to the next, it’s actually double digits. So it’s very high.”

Sichel said it comes from a very low base, however. “We’re making progress, but it’s nowhere near where it needs to be,” he said.

While Latinos are becoming wealthier, their median household wealth is one-fifth that of non-Latino whites ­— $36,000, compared to $188,200.

"Lower incomes, a lack of financial inclusion, and demands such as supporting family in the U.S. and abroad, impede the ability of many Latino families to accumulate wealth that would provide financial security," the study found.

Latinos are much less likely to receive inheritances, and when they do, they are one-third less than what non-Latino whites receive.

“Only around 5 percent of Latinos receive an inheritance from their parents, and in the case of whites it’s over 20 percent,” Sichel said.

Latinos are also less likely to hold stocks, and almost a third — 32 percent — send money to relatives overseas.

“Latinos who do send remittances send as much as 30 percent of their income,” Sichel said.

In addition, around 72 percent of Latino millennials financially support their families, compared to 53 percent of non-Latinos.

The U.S. Latino population continues to grow rapidly, and by 2050 it is expected to represent a quarter of the U.S. population. The report was based on a survey of 4,000 people.

“In the report, we’re not just diagnosing but also trying to be very pragmatic on what might be some of the areas of intervention," Sichel said, "both from the public side and from the private side."

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