Dec 14, 2021 - Economy & Business

Report: Latinos make $288B less than non-Hispanics annually

Illustration of a woman on a small stack of money next to a woman on a much larger stack of money
Illustration: Sarah Grillo/Axios

U.S. Latinos are underpaid more than a quarter of $1 trillion yearly than non-Hispanic whites, and that wage gap stifles key business growth and job creation as the number of Latinos in the U.S. skyrockets, according to a study on mobility.

Why it matters: The report by the consulting firm McKinsey & Company is yet another warning about the economic inequality facing Latinos and the potential long-term effects for the nation if left unaddressed.

By the numbers: Wage and income disparities across the U.S. labor market result in a $288 billion annual income gap between Latino and their non-Hispanic white colleagues, the report found.

  • The combination of lower income, less wealth, and reduced access to goods and services thanks to lower income and less wealth create $660 billion in unmet demand each year, the study said.
  • Intergenerational disparities and barriers to wealth generation also result in a $380 billion gap between Latinos and non-Hispanic whites in the annual flow of net wealth to the next generation.
  • Latino-owned businesses are losing around $2.3 trillion in annual revenue because of limited access to capital, which stymies business growth.
  • Latinos make up about 18% of the U.S. population but only account for 11.4% of aggregate consumer spending.

The intrigue: The report highlights that many Latinos work in low-paying jobs that contribute to the wage disparities.

Yes, but: The report also said those wage disparities remain, although narrow somewhat, in later, college-educated generations.

What they're saying: "This report is about a call to action. How do we invest in this community and really see this community as the economic engine for the U.S.?" Lucy Perez, one of the authors of the report, told Axios.

  • Perez said Latinos are starting businesses at a faster pace than other groups. However, they disproportionately rely on personal funds and personal credit cards to start those businesses, making debt a looming problem.
  • The report, "The Economic State of Latinos in America: The American Dream Deferred," was conducted in partnership with the Aspen Institute.

How it worked: The report used data from the Survey of Consumer Finances, a survey of U.S. families conducted by the Board of Governors of the Federal Reserve System.

  • It also used research from Bank of America, the Hispanic Wealth Project, and the Pew Research Center.

Don't forget: The top 25 venture capital and private equity firms invest less than 1% of funds in Latino-owned businesses, despite how quickly Hispanics open new enterprises, according to a study by Bain & Company.

  • Latino entrepreneurs are responsible for about 50% net of new small business growth in the U.S., according to data from 2007 to 2017.

One fun thing: The total economic output of U.S. Latinos reached $2.7 trillion in 2019 and would be tied for the seventh-largest GDP in the world if U.S. Latinos were an independent country, a study by the Latino Donor Collaborative, a non-profit organization researching Latino issue, found.

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