McKinsey and Company Report Evaluates Economic State of Latinx Americans

McKinsey and Company Report Evaluates Economic State of Latinx Americans
Photo credit: McKinsey and Company

In a recently released podcast, the global management and consulting firm McKinsey and Company discussed its comprehensive report on the economic state of Latinx* people in America. The report, released at the end of last year, examines economic data to determine that significant gaps persist in every element of Latinx lives, including as workers, business owners, consumers, and savers and investors. 

Their primary findings: Economic gaps for Latinx Americans cause a $288 billion annual wage gap and a $380 billion annual wealth flow gap compared with non-Latinx white Americans. Closing these gaps could result in an annual spending increase of $660 billion, or the opportunity for 735,000 new businesses and the creation of six million new jobs. With the Latinx population expected to increase and comprise over 30 percent of the U.S. labor force by 2060, “addressing the barriers preventing. … full economic participation could have a multi-trillion dollar impact, further unleashing their entrepreneurial spirit, creating millions of jobs, driving consumer spending, and building intergenerational wealth.”

The report’s main highlights are outlined below.

  • Latinx workers: Latinx workers are vastly underpaid (making 66 to 73 cents on the dollar as compared to non-Latinx white workers), “less likely to have non-wage employer benefits,” and “disproportionately vulnerable to [economic] disruption,” as evidenced by the Covid-19 pandemic. These gaps are caused by Latinx Americans being concentrated in lower wage occupations (construction, agriculture, food preparation, etc.), underrepresented in high-wage occupations (academic, management, and STEM professions), and paid less than their non-Latinx white counterparts within the same occupation. To improve outcomes and expand opportunities, the report suggests “improving essential jobs in which Latinxs are overrepresented” by addressing “predictability of hours, living wage, workplace safety, and sick leave.” It also proposes  “creating pathways from lower-wage occupations” and “unblocking barriers to higher-wage occupations” by providing training and “recruit[ing] for skills rather than degrees as credentials.”
  • Latinx business owners: Although Latinx Americans start more businesses per capita than any other racial or ethnic group in the U.S., the share and performance of Latinx-owned businesses fall well short of their potential. Latinx Americans own a smaller share of businesses as compared to their share of the population. Their businesses also generate less than non-Latinx white owned businesses, where Latinx businesses make “an average of 52 percent of the annual revenue [compared to]. … White employer firms.” These gaps are caused by challenges in securing financing; reliance on family savings, credit cards, and personal assets to start businesses; and less mentorship and support from professional colleagues and advisers. To improve outcomes, the report suggests “increasing access to capital,” “building Latinx entrepreneurial capacity,” “closing representation gaps in the most attractive sectors by creating formal mentorship programs,” and “investing in broadband access. … and establishing an online presence” for involvement in high-growth sectors.
  • Latinx consumers: Latinx spending (11.4 percent) fails to match the amount they could be spending compared to their share (18.4 percent) of the population—a gap largely attributed to depressed income and wealth. Further, they often live in consumer deserts, lacking access to essential goods and services. Because Latinx consumers have a higher dissatisfaction rate with goods and services they “​​struggle to access, such as banking and financial services, food, housing, and healthcare,” they are also willing to pay more for better products and services suited to their needs. To prioritize Latinx spenders, the report suggests “increasing Latinx spending power by closing the wage and wealth gap” and “increasing access to goods and services.”
  • Latinx savers and investors: Latinx people have a high rate of intergenerational mobility attributed to their ability to succeed once immigrating to the U.S. However, the median wealth of Latinx people is about $36,000, one-fifth of the median $188,200 held by their white peers. This wealth gap is fueled by a lack of intergenerational wealth transfers; lower rates of saving and participation in retirement plans, stocks and mutual plans, and life insurance policies; and a dependency to financially support family members located both inside and outside of the U.S. To close the gap, the report suggests “accelerating financial inclusion,” both by reducing the wage and representation gaps, and supporting Latinx people “in their wealth journey.”

Beyond the report

The McKinsey Report highlights the untapped economic power Latinx Americans currently have and will have in the future. It also highlights the economic disparities as a result of the Latinx “struggle to be fully embraced by the United States.” Addressing these disparities would not only generate greater wealth for the country, but doing so would be more equitable. Despite the optimism in the report, and considering the historical financial exploitation of Latinx workers, business owners, consumers, and savers and investors in America, McKinsey’s findings also raise the question of whether additional government intervention—including at the local, state, and federal levels—is needed to protect these categories of Latinx lives.

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* On p. 18, the McKinsey Report acknowledges that the term Latino/x refers to a broad population of people living in the U.S. whose origin can be traced to many Latin American countries and are anything but a homogeneous group. Despite this heterogeneity, the Report also finds that consistent features exist throughout the U.S. Latinx population.