The McKinsey Podcast

Location, location, location: The impact of place on racial equity

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At the current pace of awareness, investment, and development, it could take more than three centuries to achieve racial parity between Black and White residents in different parts of the United States, according to McKinsey’s recently published report on the state of Black residents.

On this episode of The McKinsey Podcast, JP Julien, a McKinsey partner and leader in the McKinsey Institute for Black Economic Mobility, joins editorial director Roberta Fusaro to outline the realities for Black residents in four geographic categories—the urban core, the suburbs and exurbs, the mixed middle, and low growth and rural areas—and what can be done now to ameliorate the racial disparity found in these locations.

This transcript has been edited for clarity and length.

The McKinsey Podcast is hosted by Roberta Fusaro and Lucia Rahilly.

The need to thrive, not just survive

Roberta Fusaro: How has the report defined acceptable levels of prosperity and well-being?

JP Julien: The report focuses on trying to answer a fundamental question: “To what extent do Black residents have what they need to thrive?” We anchored the research on a few core aspirations that we believe all families, regardless of race, need to reach their full potential.

That’s everything from a basic standard of living, and not having to live in poverty, to job opportunities—particularly ones with real opportunities for career advancement—to health, including physical and mental well-being, to stable and secure housing and the choice to affordably own or rent, and more.

Then we looked at the extent to which Black residents are able to achieve those aspirations, both in absolute and relative terms. We looked at these outcomes for Black residents to see to what extent Black residents in different community archetypes are able [or not able] to achieve those outcomes.

We also examined how Black residents are doing compared with their White neighbors. What’s interesting about this research is that, rather than looking at this at an aggregate national level, we answered this question for over 3,000 counties in the US. What we found helps us understand how different places correlate with different outcomes.

Suburbia offers more stability

Roberta Fusaro: I thought that one of the most interesting pieces of the research is that America’s suburbs have the best balance of overall positive outcomes and parity for Black residents. What factors allow for such a positive net gain for the Black population in these suburban communities?

JP Julien: I think the reasons for this are twofold. The first is proximity. More than half of these suburbs [and exurbs] are located outside of megacities and high-growth hubs. These are the places in the US that produce the nation’s highest GDP. Black residents living in these areas benefit from access to that growing economy. Those economies often have diverse and resilient sectors and greater job and career prospects, while also providing residents with access to social and relational capital, institutions, ideas, and more.

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Now, while they have that proximity, Black residents in these suburbs also avoid some of the challenges that are inherent in city living: high housing costs and a higher cost of living—and the challenges of stretched [city] fiscal budgets.

The second reason is history. It’s no secret that the American suburbs [and exurbs] are where and how we, as a nation, have historically made investments to build the middle class.

The reality is that, historically, many of these suburbs have been unavailable to Black residents. But the attributes that the suburbs contain—better quality schools, neighborhood amenities, access to affordable home ownership—have helped Black families, in recent years, do better than their counterparts in other areas. While Black residents are doing better in the suburbs, their outcomes are only 64 percent of the outcomes of White residents in the suburbs.

The suburbs are also home to only about 12 percent of Black residents, compared with about 19 percent of White residents, and 17 percent of all US residents. So in the suburbs, Black residents are doing better, but not nearly as well as they could, and with some meaningful levels of underrepresentation.

Roberta Fusaro: Let’s look at the other end of the spectrum. Where do we see some of the more challenging outcomes in the United States?

JP Julien: Some of the most challenging outcomes are in more rural counties. Much of this is attributed to many of these communities having difficult economic environments. Their fundamental economies make job prospects, career opportunities, and entrepreneurship and innovation tough. This creates a really hard headwind for Black residents [and all residents] to achieve economic success.

Some of the most challenging outcomes are in more rural counties. Much of this is attributed to many of these communities having difficult economic environments.

JP Julien

Closing the economic gap

Roberta Fusaro: The report found that it would take “Three centuries to get the places with the worst outcomes for Black residents on par with the best outcomes for White residents today.” Where do we start to help shrink this time frame?

JP Julien: It was a sobering finding. Before jumping into how to close that gap, I want to take a moment to share some good news. We have seen progress. In 73 percent of the US counties we examined, Black residents saw outcomes improve on an absolute basis over the past decade.

Now what’s challenging, and ultimately driving that kind of 300-year difference, is less than half saw reductions in racial disparities. Gaps are increasing. It’s not that we aren’t making progress on Black resident outcomes, it’s that we aren’t doing so fast enough.

And fundamentally that points to unequal starting points. Whether it’s in wealth, opportunity, social capital, exposure—where you start has real implications for what the future might hold. In our country, advantages and disadvantages really do compound. In order to close that gap, we should ask ourselves: What are the ways in which we can shrink gaps that put residents on a more equal footing?

Whether it’s in wealth, opportunity, social capital, exposure—where you start has real implications for what the future might hold.

JP Julien

Where you live influences how you live

Roberta Fusaro: How does targeting improvements in affordable housing help close this gap?

JP Julien: Housing is fundamental for two reasons. The first is purely economic. Housing is the single largest expense for families. Too often, families are simply paying too much just to have a home. Nearly half of Americans spend more than 30 percent of their income on rent, and a quarter are spending more than half on rent. When you look at Black residents, about 60 percent are spending more than 30 percent of their income, while 30 percent are spending more than half.

The second important reason is geographic. Where you live shapes what you have access to with regards to your job, your school system, exposure to violence, pollutants, etcetera. I have personally seen the kind of impact that an address can have in real terms. Perhaps listeners have experienced this, too. Maybe I’ll share just a bit of my own background.

I grew up the middle of five kids in Essex County, New Jersey. My parents immigrated here from Trinidad. They came here in hopes of having more for themselves and their family. For the first nine years of my life, we lived in some challenging economic environments, neighborhoods where the poverty rate was two to three times the state average.

Business investment was nonexistent. Food access wasn’t great. When I was nine, we moved maybe a ten-mile drive down the Garden State Parkway to a middle-class suburb. And overnight the quality of my school improved. My mom’s commute to work dropped by an hour. We had a grocery store and a bank just minutes away.

That was all made possible by my parents and my aunt and uncle pooling their funds and purchasing a two-family home in the suburbs. As a nine-year-old, I immediately saw the difference that an address could make. It had a huge impact. We often say, “Place matters in economic mobility.” But fundamentally, housing is the key ingredient. And so, if we think about solutions, housing must be on the table in terms of changing outcomes.

Prosperity starts with schools

Roberta Fusaro: It reminds me of the related research on the negative impact of climate in certain parts of the Southeast states where so many Black residents live.

Going back to the Black residents report, how do interventions in early childhood education help close the gap?

JP Julien: We know that high-quality early-childhood education improves the likelihood of high school and college attainment, results in lower rates of substance use and incarceration, and just generally results in higher rates of economic well-being.

Second, early-childhood education is a big economic factor for families. About half of families opt to pay for childcare. For Black families, that ends up accounting for about 23 percent of their income, and for White families, that accounts for about 15 percent of their income—a significant portion of what a household might be dealing with. The other important downstream implication of that is what it means for who can work outside of the home. And too often the hard choice between paying an exorbitant amount for childcare and going to work, or staying home and providing unpaid care, results in women exiting the labor market.

The impact of COVID-19

Roberta Fusaro: Post-COVID, a lot of daycare centers closed. Are the economic effects of COVID factored into this report? And are there any specific data points that you’ve seen around that?

JP Julien: One data point that stands out is the life expectancy gap between Black and White residents increased by more than two years, such that today, a Black resident lives, on average, 5.6 years less than a White resident. A big driver of that was the disproportionate impact of the pandemic on Black people.

As you mentioned, childcare centers are closing or can’t expand capacity, and this affects families’ decisions around who will participate in the labor market. The stressed childcare system has squeezed to what extent families are able to find paid options to manage both responsibilities at home and at work.

I think the other illuminating thing we all probably felt—and I have two young kids of my own—is just how hard it is to try to do both of those things. To care for children and work simultaneously, even if it’s remotely, is impossible. In some ways I think the one possible bright spot is that the pandemic has shed a light on just how fractured our childcare system is.

In some ways it’s been a bright spot for folks to really think about: What are the big investments we can make to support families as they navigate the important job of raising a family while also being a part of the labor market in a sustainable and long-term way?

Public and private sector solutions

Roberta Fusaro: Can you cite examples of places or organizations that may already be taking steps to eliminate gaps in the outcomes between Black and White residents?

JP Julien: On the public sector side is a place like Fresno, California. Five years ago or so, the Central Valley Community Foundation led an effort in partnership with large employers, government, and community activists to build what they call the Fresno DRIVE Initiative: Developing the Region’s Inclusive & Vibrant Economy. And they basically asked the community, “What is it that we need to experience economic mobility and to really support our economy?” The response was everything from cradle to career education, affordable housing, and investments to reinvent their traditional agricultural economy.

What I love about that example is it was a self-organized process in which the community said, “Things aren’t working well here. How do we do it better? How do we do it with the voice, and aspirations, and solutions of all residents, not just a few?” And they’ve been able to use that planning process to really catalyze large-scale investment from the state.

The second example I’ll give you is Discover Financial [Discover Card]. They recently demonstrated a real commitment to “place.” When considering where they should open a new customer-care center, rather than thinking about closing racial disparities as the nice thing to do, they really thought about it as: How do we make this a strategic advantage for our business? So they invested and opened a new location on the south side of Chicago, which opened in August 2022.

They aim to employ about 1,000 people, with over 80 percent of those people living within five miles of the center. That means reduced commute times, allowing families to spend time with their kids at home, and making actual physical investments in a place that often doesn’t get those kinds of investments. What’s been powerful is that not only does the call center do well on customer satisfaction, but they do even better on employee retention.

Different perspectives on wealth

Roberta Fusaro: The findings suggest that overall quality of life has improved for Black residents, and yet this racial gap remains. We’ve talked about the incredibly long time frame that we believe would be required to close the gap. What’s happening in White communities that’s causing a continued economic rise?

JP Julien: To the point I had mentioned earlier, I think it really is the case that advantages compound. An example of this is, the Federal Reserve recently released its latest wealth survey, which they do every three years. And what the survey found is that Black wealth actually increased—to about $45,000, from $27,000—which is a great thing.

But what also happened is that White wealth increased. And it did so much faster than Black wealth. So median wealth for White families went to about $285,000, from $218,000. And part of that distinction is just the exposure to which assets, White families versus Black families, have access to.

So nearly 30 percent of White wealth, but only 4 percent of Black wealth, was in corporate stocks and equity. This is a case where really advantage begets advantage. And we’re not saying, in any of this, do we want White residents to do worse? No. Their continued rising is a good thing. But it begs the question of: How do we make investments such that Black residents are able to overcome what we know is a more challenged starting point?

Slow progress

Roberta Fusaro: Overall, is the economic state of Black residents trending in the right direction?

JP Julien: I’d say yes and no. In one sense, yes. We’ve seen real progress. Seventy-three percent of US counties saw absolute improvements. Taking another data point, in 1990, almost a third of Black families lived below the poverty line. Today that number is less than 20 percent, which, again, is material for what it means for people’s quality of life, and something to be celebrated.

At the same time I’d say no, because less than half the counties that we looked at saw reductions in racial disparities. We’re seeing other concerning backsliding. Life expectancy is where a gap has widened. Also, in 1980, 58 percent of Black residents owned their home. Today, just about 44 percent do. If we think about that as a mechanism for wealth building, there are some areas where not only is there no progress, there’s actually some reverse movement that I do find challenging.

A stark reality about race and place

Roberta Fusaro: Was there anything else that surprised you about the findings in the report, some particular data point that stood out?

JP Julien: The one that really stood out was that, essentially, in no county in America do Black residents on average perform as well as their White neighbors. Only a tenth of 1 percent of Black residents live in a county where outcomes are 90 percent or better than those of their White counterparts.

In no county in America do Black residents on average perform as well as their White neighbors.

JP Julien

That was surprising, just given the absolute nature of that analysis. This is not with any gloom or pessimism for the future, but more so as an important reminder, and it underscores, for me, the point that race and place still matter. And if we really want to change this reality, we need to confront both head-on.

Roberta Fusaro: How should key stakeholders, the public sector, private sector, leaders in Black communities, use this report? What should they do with these findings?

JP Julien: I think at the very basic level, we want folks to appreciate the reality. I think there are times when we [as a country] collectively fool ourselves into thinking that we live in this post-racial America, where disparities aren’t a real thing, a figment of our imagination.

I think part of what has been illuminating for us in this work is that race and place still matter. And it’s not to hark back on the past, but it is to use that as insight into what we might do moving forward.

Second, when we look at the examples of where we’ve seen real economic progress, it often comes with at-scale, sustained public and private investment, whether that’s in our housing markets, in post-secondary education, in how we support innovation and entrepreneurship as a country.

I hope this research provides a bit of a sense-check on the reality, and that it is a catalyst for finding specific ways that public, private, and social sectors can work together to change this reality.

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