The Federal Reserve, Race, and Opioid Use

By Lehr Middlebrooks Vreeland & Thompson, P.C.

September 21, 2017

No, this isn’t a clue for a Jeopardy! question. Created in 1913 with the passage of the Federal Reserve Act, the Fed’s monetary policies are focused on three areas: price stabilization, moderation of interest rates, and maximization of employment. The Fed has started to focus on employment issues and their effect on the economy. Recently, the Fed through its Chair, Janet Yellen, expressed concerns about an increasing gap in wages based upon race and a substantial decline of male participation in the workforce due to opioid use.

In a recent report from the San Francisco Fed, researchers found, “[e]specially troubling is the growing unexplained portion of the divergence in earnings for blacks relative to whites.” For example, the wage gap between white and black men in 1979 has actually widened, from 20% to 30%. There is also an increasing gap for black women compared to white women. According to the Fed, “The opportunity to succeed is at the foundation of our dynamic economy.” In this context, large, persistent, and growing shortfalls for African Americans, or any other group, are troubling. Historically, the Fed has not emphasized pay disparity issues, preferring to focus on its monetary policy functions. However, recently the Fed in Philadelphia and Minneapolis established institutes to study pay inequality. The Fed stated that the problem with wage disparity is that those who work at lower wage levels have limited opportunity to climb the economic ladder. Often they cannot afford to take time off for training or education, both of which enhance income-earning potential.

In recent Senate testimony, Fed Chair Janet Yellen stated about the opioid crisis and the decline in labor force participation among working-age men, “I don’t know if it’s causal or if it’s a symptom of long-running economic maladies that have affected these communities and particularly affected workers who have seen their job opportunities decline.” According to a study by Alan Krueger, an economist at Princeton University, “approximately 20% of all men in the prime ages for work who do not work use prescription pain killers on a daily basis.”

While the Fed’s primary emphasis is on monetary policy, its responsibility to maximize employment will lead to greater focus on opioid use and racial disparities in pay. The Fed’s testimony on both subjects before the Senate illustrates how significant those issues are nationally.