Latino’s Economic Battles and Opportunities
The United States’ history starts with a story of immigrants who came to the Americas in search of prosperity. Today, our nation of immigrants primarily consists of the Latino population, whose presence will play a critical role in determining the US’s economic success. Latinos have accounted for 51% of the United States’ population growth in the past decade and have become the fastest-growing demographic (Krogstad, Noe-Bustamante, 2021). They will be an integral element in the small-business ecosystem and large support for federal programs, including social security and medicare. US Latinos also contribute a gross domestic product of 2.7 trillion dollars. If the US Latino people were to be an independent nation, it would have the 7th largest GDP in the world (Contreras, 2021). Despite the Latino population notably being a value to the US economy, they continue to face various financial barriers that stem from the still-existing Latino-White wealth gap that prevents them from raising generational wealth and achieving economic equality. This wealth disparity, which identifies a perpetual issue, raises the question of the financial setbacks US Latinos face in achieving wealth equality. How will solving this issue allow the US to preserve its competitive edge on the world economic stage?
The United State’s xenophobic rhetoric toward the Latino population has produced the notion that prohibiting Latin Americans from entering the country will secure and protect Americans’ employment. Yet, most foreign and US-born Latinos are highly concentrated within lower-wage occupations known to be “jobs that no one else wants to do” in construction, agricultural, and hospitality fields. Research finds that 288 billion dollars annually underpay the US Latino population, and the annual median wage for foreign-born ($31,700) and US-born Latinos ($38,848) are significantly lower than the median yearly wage of $52,942 for non-Latino White workers (Perez, et al, 2021). As a result of fulfilling these underappreciated and underpaid employment roles, individuals are left vulnerable to economic disruption.
Covid-19 has disproportionately affected Latinos across the US. The industries that make up a Latino majority had large-scale dismissals, such as hotels and food services, that have yet to bounce back. Meanwhile, sectors that thrived under the pandemic, such as finance and information processing, have a low share of Latinos employees (Klien, Smith, 2021). Overall, Covid-19 widened the Latino-White unemployment rate gap and has caused financial distress for Latino families. As the number of Latino workers in these high-wage jobs remains low, the Latino population’s economic mobility is hindered. As a result, the United States loses out on Latinos’ financial contribution. For example, in a situation of full parity, Latinos’ spending power would consist of an annual extra 660 billion dollars, increasing Latinos’ presence as consumers (Pérez, et al, 2021).
Additionally, Latino entrepreneurship has been rising in recent years as Latinos start businesses faster than any other ethnic or racial group in the US. By 2050, Latino entrepreneurs will make up 29% of the US market, a 17% difference from today (JP Morgan). Nevertheless, Latino entrepreneurs still face obstacles in attaining financial support to start or scale their businesses. Latino-owned businesses (LOBs) tend to be self-financed in which many individuals utilize their personal assets, own credit cards, family loans, to start their business, rather than seek aid from financial institutions. Historically, large financial institutions have also failed to provide Latino entrepreneurs with loans compared to their white counterparts with similar credit scores, with a comparison of 51% vs 77% obtaining approval for loans (Orozco, Inara, 2020). The Latino’s hardship to secure outside capital from external sources puts their personal financial situation at risk and limits their growth as a business. Since venture capital companies have failed to invest in LOBs, they also have a lower chance of landing early-stage equity investments and are provided with lower rates of approval and funding from banks (Contreras, 2021). If LOBs had greater access to funding, it presents a positive economic opportunity for Latino entrepreneurs to scale their businesses. Only about three percent of Latino-owned firms have scaled; they reached $1 million or more in revenue annually (Aspen Institute, 2020). This failure in scaling presents a situation for growth, as a Stanford Graduate School of Business study revealed how Latino businesses that scale as fast as the U.S. average could add $1.4 trillion to the U.S. economy (Orozco, Inara, 2020). The economic output of Latino-owned businesses has a viable growth opportunity that can positively impact the US economy as well as create the possibility for Latino communities to build generational wealth.
As we have seen, in our growing US economy, Latinos have high labor-force participation, large population growth, and an increase in consumer spending that places them in a good position within a business regime. To bring LOBs to economic fruition, the United States must foster inclusive capitalism and equitable economic growth, which means becoming the front door in providing access to procurement opportunities, training, and mentorship. For example, SCORE, a national philanthropic organization, is a good “inclusive capitalism” model. Its goal is to provide minority-owned businesses with executive mentorship and free interactive educational courses about entrepreneurship. The U.S. Department of Commerce (USDOC) attempts to tackle these objectives with their 2022-2026 Strategic Plan, where their future goals include: driving equitable place-based economic development and job growth by providing greater access to loan procurement opportunities for minority-based enterprises and investing in regional workforce development (USDOC Strategic Plan, 2021). One of their particular initiatives, the Build to Scale Program, hopes to further engage specifically with minority-owned businesses on technological pursuits with the aid of the Minority Business Development Agency (MBDA). Currently, USDOC has advocated for the CARE Act (Coronavirus Aid, Relief, and Economic Security Act), which has helped 931,659 small and minority businesses, resulting in 3,268 client success stories and 14,617 positive economic impacts (US Department of Commerce Annual report, 2021). The USDOC is an essential department that will determine whether minority-owned businesses can remain competitive and achieve global success, which will ultimately only benefit the American economy. Therefore, we must continually pay particular attention to minority-business-related policy implementations to ensure that the US faces no lost opportunity cost and that all groups of people, like Latinos, have a true chance to thrive economically.
By 2060, more than ¼ of the population will identify as Latino (Colby, Ortman, 2015). The United States must begin to view the Latino population as an asset to improve the economy. Broadening the flow of capital to Latinos will help expand the US competitive advantage and attract new investors. To do this, Latinos must have the opportunity to build generational wealth and the access to participate in the US economy rigorously.
Works Cited
Aspen Institute. “A Playbook for Scaling Latino-owned Businesses.” The Aspen Institute, 12 February 2020, https://www.aspeninstitute.org/publications/a-playbook-for-scaling-latino-owned-businesses/. Accessed 15 March 2022.
Colby, Sandra L., and Jennifer M. Ortman. “Projections of the Size and Composition of the U.S. Population: 2014 to 2060.” U.S. Census Bureau, 2015, https://www.census.gov/content/dam/Census/library/publications/2015/demo/p25-1143.pdf. Accessed 15 March 2022.
Contreras, Russell. “Venture capital and private equity firms pass up Latino-owned businesses despite growth.” Axios, 7 October 2021, https://www.axios.com/latino-businesses-get-scant-venture-capital-funds-6a3a00f1-5c27-47b3-b929-ae8da9f16016.html. Accessed 15 March 2022.
“How Hispanics Contribute to the US Economy.” Research, http://research.newamericaneconomy.org/wp-content/uploads/sites/2/2017/12/Hispanic_V5.pdf. Accessed 15 March 2022.
JP Morgan Chase. “Latino-Owned Businesses May Be the US Economy's Best Bet.” JPMorgan Chase, https://www.jpmorganchase.com/news-stories/latino-owned-businesses. Accessed 15 March 2022.
Klein, Aaron, and Ariel Gelrud. “Explaining the economic impact of COVID-19: Core industries and the Hispanic workforce.” Brookings, 5 February 2021, https://www.brookings.edu/research/explaining-the-economic-impact-of-covid-19-core-industries-and-the-hispanic-workforce/. Accessed 16 March 2022.
Krogstad, Jens M., et al. “Most Americans say immigrants mainly fill jobs US citizens don't want.” Pew Research Center, 10 June 2020, https://www.pewresearch.org/fact-tank/2020/06/10/a-majority-of-americans-say-immigrants-mostly-fill-jobs-u-s-citizens-do-not-want/. Accessed 15 March 2022.
Krogstad, Jens M., and Marc H. Lopez. “Coronavirus Economic Downturn Has Hit Latinos Especially Hard.” Pew Research Center, 4 August 2020, https://www.pewresearch.org/hispanic/2020/08/04/coronavirus-economic-downturn-has-hit-latinos-especially-hard/. Accessed 15 March 2022.
Krogstad, Jens M., and Luis Noe-Bustamante. “Facts about US Latinos for Hispanic Heritage Month.” Pew Research Center, 9 September 2021, https://www.pewresearch.org/fact-tank/2021/09/09/key-facts-about-u-s-latinos-for-national-hispanic-heritage-month/. Accessed 15 March 2022.
Orozco, Marlene, and Inara S. Tareque. “State of Latino Entrepreneurship 2020 Report.” Stanford Graduate School of Business, https://www.gsb.stanford.edu/sites/default/files/publication-pdf/report-2020-state-of-latino-entrepreneurship.pdf. Accessed 15 March 2022.
Pérez, Lucy, et al. “The economic state of Latinos in America: The American dream deferred.” McKinsey, 9 December 2021, https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/the-economic-state-of-latinos-in-america-the-american-dream-deferred. Accessed 15 March 2022.
U.S. Department of Commerce. “FY 2021 Annual Performance Report.” https://www.commerce.gov/sites/default/files/2022-03/DOC-FY21-23-APPR-Final.pdf.
US Department of Commerce. “2022-A2026 Strategic Plan.” US Department of Commerce, https://www.commerce.gov/sites/default/files/2022-03/DOC-Strategic-Plan-2022%E2%80%932026.pdf. Accessed 15 April 2022.