Latinos Held Down Economically, Report Says

Dec 9, 2021
4:57 PM

Photo by AP Photo/Jae C. Hong

A report published on Thursday by management consulting firm McKinsey & Company reveals just how much Latinos are held back economically in the United States.

As 17 percent of the U.S. labor force —a figure which is expected to rise above 30 percent by 2060— Latinos are drastically underpaid and overrepresented in lower-wage jobs. “Our research finds Latinos are collectively underpaid by $288 billion a year,” write Lucy Pérez, Bernardo Sichel, Michael Chui, and Ana Paula Calvo, the authors of the report. “In a situation of full parity, they could spend an extra $660 billion annually. Latino businesses could generate an additional $2.3 trillion in total revenue each year, and 735,000 new businesses could be created supporting 6.6 million new jobs. And Latinos’ annual flow of net wealth from one generation to the next could be $380 billion higher.”

On average, Latino workers earn 73 cents for every dollar earned by a white worker. If Latinos were paid as much as white people, they would see their income rise by 37 percent, and an additional 1.1 million Latinos would join the middle class.

“The $288 billion annual gap in income compared with non-Latino White workers not only represents lost economic opportunity but has significant implications for Latinos’ ability to start businesses, build wealth, and fully participate as consumers,” the authors write.

Latinos are the most entrepreneurial racial or ethnic group in the United States, with one in 200 Latinos having started a business every month over the past five years—a rate higher than those of whites and Asians, the next highest groups. “The number of Latino-owned employer firms has grown by 12.5 percent annually, compared with 5.3 percent for White-owned employer firms,” the report states. “And while Latino-owned employer businesses are concentrated in cities and states with large, dense Latino populations —such as Los Angeles, Miami, and New York City— 45 of 50 states saw an increase in Latino-owned businesses from 2012 to 2017.”

But while making up a little more than 18 percent of the U.S. population, only six percent of employer firms are Latino-owned.

“If Latinos’ share of employer business ownership reached parity with their share of the population, some 735,000 new enterprises could be added to the US economy, supporting 6.6 million new jobs,” the authors write. “And if the per-firm sales of those businesses were in line with those of non-Latino White-owned businesses, an additional $2.3 trillion in total revenue could be generated.”

The report lists a number of factors holding back Latino business owners, including a reluctance to apply for loans and a disparity in the amounts granted compared with white loan applicants, despite having similar credit scores.

“Latinos rely more on family savings, credit cards, and personal assets to start businesses, and are less likely to apply for additional funding because they don’t think they will receive approval,” says the report. “Some 26 percent of Latino entrepreneurs believe their Latino heritage limits their ability to access capital.”

Latinos business owners also don’t seek professional support or advice as much as their white counterparts, relying on family and friends to help them run their businesses—probably due, again, to their feeling discriminated against as Latinos and therefore likely to receive unequal treatment.

The family dynamic is also to blame for Latinos’ lower savings and overall wealth. While Latinos earn much less than whites —and probably because they do— Latinos spend much more of their income supporting family members, both within the States and abroad. Forty-four percent of Latinos say they spend money helping a family member, and 72 percent of Latino millennials say they provide financial support to their families, compared to only 53 percent of non-Latino millennials who say the same.

Thirty-two percent of Latinos send money to family members abroad, and more than two-thirds send as much as 30 percent of their income to family outside the United States. “These remittances deplete savings, to the tune of an estimated $50 billion to $60 billion annually—and account for a third of all remittances sent from the United States to other countries,” the report says. “Latino household wealth could be about $18,000 higher if Latinos instead invested 40 percent of the average annual remittance value over ten years.”

In 2019 —before the pandemic, which hurt Latinos economically more than other groups— Latinos’ median household wealth stood at $36,000, a measly fifth of whites’ median household wealth. Twice as many Latino households are worth less than $10,000 compared with white households, “while only around 3 percent of Latino families are worth more than $1 million, compared with 16 percent of White households.”

“The problem is that while Latinos have higher rates of intergenerational mobility, they start from a much smaller base,” the authors write. “Our analysis finds the annual flow of net wealth for Latinos is about $380 billion lower than in a per capita parity scenario with their White peers.”

In the end, however, the denial of economic justice for Latinos hurts the overall U.S. economy.

“Latinos make up about 18 percent of the US population, but only account for 11.4 percent of aggregate consumer spending,” says the report. “While that amounts to around $870 billion in consumer expenditure annually, it could be around $500 billion higher if Latinos’ expenditures matched their share of the US population. In addition, our research shows there’s another $159 billion in unsatisfied demand, because many Latinos would be willing to spend more on offerings better suited to their needs.”

That last bit reminds me of the story, maybe apocryphal, of the time a labor organizer was given a tour of a car factory. In an attempt to unsettle the labor leader, the company’s president —Ford II, how I remember it— pointed to all the newly installed robots and boasted that the company wouldn’t have much of a need for workers once the production process was fully automated. “But Mr. Ford,” the labor leader said, “who’s going to have the money to buy your cars?”

As a large and growing slice of the U.S. population, Latinos make up a crucial portion of the U.S. economy, both in terms of labor and consumer spending. And just as a chain is only as strong as its weakest link, America is held back when Latinos are held down.


Hector Luis Alamo is the Senior Editor at Latino Rebels and hosts the Latin[ish] podcast. Twitter: @HectorLuisAlamo