Economic outcomes for families in the United States vary dramatically by race, ethnicity, class and a range of other demographic characteristics. Some of these differences have recently become worse, and many have persisted through decades of both good times and bad. Here in Minnesota, for example, African-Americans lag behind whites in income, employment, test scores and high school graduation rates to such a degree that our state ranks below 40 others on each comparison.
Figuring out why some groups in society continue to be denied opportunities and are excluded from participating in the gains from economic progress is the job of the new Federal Reserve Opportunity and Inclusive Growth Institute, located at and led by the Minneapolis Fed. While the institute will operate nationally, it will have strong local connections, making it vitally important that we answer key questions about these widening disparities.
Why create the institute? Congress has charged the Federal Reserve with achieving "maximum employment." At a coarse level, the Federal Reserve understands this mandate as keeping the national unemployment rate as low as possible without allowing inflation to get too high. But underneath the unemployment rate statistic are the lives of families and individuals. And these lives depend importantly on their upbringing, education and work experiences, which cannot be easily summarized in a single number. As a result, in order to achieve its mandate of maximum employment, the Federal Reserve needs to better understand why outcomes across many family and individual characteristics vary so widely in the U.S. The Federal Reserve also has an explicit goal of "ensuring that consumer and community perspectives inform Federal Reserve policy, research and actions" to encourage, among other things, a fair financial marketplace. The institute's existence and findings will support this key Fed goal.
How? The Federal Reserve is an analytical organization working to achieve key goals for the public. The Minneapolis Fed, in particular, is known for the caliber of its economic analysis, connecting with local, national and international scholars. The institute will build on this foundation with a focus on world-class research aimed at understanding the fundamental factors behind growth and opportunity gaps. The institute will bring together scholars from across the country and around the world to conduct research in Minneapolis in conjunction with our staff of expert economists. We know that the outcome gaps mentioned have many sources and that progress can be achieved by bringing together people with different expertise and perspectives. The institute will therefore adopt a multidisciplinary approach, looking to fields like law and sociology to help our efforts. Equally important, the institute will work with local and national community groups and leaders to turn this research into policy analysis that we hope can make progress to address these gaps on the ground.
What's next? We don't expect the institute to uncover a solution to these opportunity gaps tomorrow; these problems are far too complex and have persisted for decades, despite the tremendous work of many dedicated individuals and organizations. Nevertheless, this is not a reason for moving slowly. At the institute's inaugural conference in May, we listened to some of the leading scholars and gleaned insight into where the Federal Reserve should focus its resources and efforts. First, as all research relies on data and analytical tools and techniques, conference participants made clear that making better use of existing data and tools by, for example, making them less costly to work with would yield valuable returns to society. Second, there are areas in which data remain absent, suggesting that the institute can help by collecting key data that will, in turn, tell stories of people who have been excluded from the attention of scholars in the past. Third, the conference emphasized the importance of linking basic research to practical experience on the ground. Ultimately, the institute will work to break down the walls of the ivory tower so that we can listen to the people we are trying to help and connect more closely with the communities we serve.
Ron J. Feldman is first vice president and Mark L.J. Wright is research director and senior vice president at the Federal Reserve Bank of Minneapolis.
