An economic power restrained
In a report by McKinsey & Co, they analyze the economic power Latinos possess and what factors hold them back from utilizing all of it.
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While it has been known for years that Latinos have held over $2 trillion in GDP, that number is only a portion of their full economic potential.
In a new report by McKinsey & Co, they research the economic mobility and potential of Latinos nationwide, finding that the many barriers and gaps Latinos face today hold back both them and the economy.
Buying power, or how much money consumers have to spend on goods and services, plays a huge role in the health of the economy.
For Latinos, their buying power is currently stunted by lower wages, the aftermath of the COVID-19 pandemic, and inflation. But other reasons include companies not satisfying Latino standards or responding to buying habits properly, leaving a $106 billion loss in spending.
One of the root causes of this is how Latinos earn money and how much they are paid.
Latinos are overrepresented in frontline jobs, while being underrepresented in senior management positions, with wages following the trends of lower paid positions.
Currently, Latinos make up 18% of the workforce, but only receive 12% of wages, fill 16% of frontline hourly jobs, and only 4% of corporate executive positions.
Barriers that prevent the demographic from overcoming this gap include wage disparity, discrimination, lack of additional training opportunities, and implicit biases from those around them.
But should these barriers be removed, Latinos would gain much and help revitalize the economy with a $281 billion annual income increase for Latinos across the nation.
A WEAKENED PILLAR
One in every five workers in the U.S. is Latino, making them a key pillar in the economy. But as these are mostly jobs in frontline positions, the COVID-19 pandemic has impacted them disproportionately.
There are many reasons for a lack of Latino executives, broadly collated under the title “The Broken Rung,” used to describe difficulties in gaining promotions.
One reason, racial discrimination, is experienced frequently by Latinos, with 44% reporting workplace discrimination.
Despite 85% of frontline workers wanting to be promoted, only 55% report any kind of career advancement, with 54% still considering resigning from their position as they are walled out of promotions or growth opportunities.
Gender affects Latinos in the workplace as well, such as in promotions from entry-level positions to manager positions, where for every 100 men promoted, only 75 Latina women are promoted.
There are ways to close these gaps, though they must be deliberate and targeted towards Latinos’ specific issues.
Companies need to both implement DE&I policies to bolster the share of Latinos across all levels and to close the wage gap between Latinos and non-Latino Whites.
Latinos, who tend to have narrow professional networks, should seek to gain support through sponsors and mentors within their industries to learn from them.
These supporters don’t need to be the most successful in their industry, but should instead be able to provide information about opportunities for advancement, such as scholarships to afford advanced degrees, like medicine or law.
Additional avenues include employee resource groups (ERGs) and professional associations where members of your industry gather to share information, resources, and connections.
One such association is the Association of Latino Professionals for America (ALPFA), which partners with corporations to hold career conventions, educational support programs, workforce development, and leadership training.
When Latinos gain higher positions and higher wages, their buying power grows, and spending increases. But presently, companies are failing to meet the demand Latinos have now, leaving many dissatisfied, and an important market untapped.
THE COST OF LATINO DISSATISFACTION
Latino dissatisfaction isn’t limited to any one industry or product. But if addressed, it could increase Latino spending by $109 billion.
Despite Latinos comprising 19% of the population, they only receive 13% of the total national household income, leaving a $554 billion spending gap if Latino expenditure matched the Latino population.
According to the report, 28% of Latinos report dissatisfaction with current product offerings — in comparison to only 21% of non-Latino Whites — and a quarter of Latinos do not purchase in certain spending categories, such as makeup and full-service restaurants.
But Latinos are still decision makers for those categories and have a need for them, so early adopters of meeting Latino needs can capitalize on that unfulfilled demand.
Reasons for this dissatisfaction include pricing, a lack of features, not enough value for money, or being offered by companies that Latinos see as not properly addressing social inequalities.
A significant reason why Latinos are not satisfied is because of a lack of Latinos in senior management and in executive positions, leaving companies lacking in how to provide the best products and services to Latinos.
While Latino consumers are willing to increase spending by 25% should prices be reigned in, they are also willing to pay 28% more if their primary reasons for dissatisfaction were resolved, leading to $33 billion more in yearly spending.
Even currently satisfied Latinos are willing to increase spending, bringing in approximately $78 billion more in revenue to companies should they improve product offerings.
But in the wake of the COVID-19 pandemic and with rising inflation, Latinos are becoming more selective in what they buy and who they buy it from.
Those best equipped to know what Latinos would be willing to purchase would be Latino entrepreneurs set to meet their own demand.
LATINO ENTREPRENEURS HAVE POTENTIAL
Over the past two decades, Latinos have been one of the fastest growing entrepreneurial groups in the U.S. — growing at 1.6 times the rate of non-Latino White entrepreneurs — but have not done so easily.
Latinos only own 6% of the approximate 5.8 million firms in the U.S. and receive only 2% of venture capital, mostly relying on savings to get by as Latinos are almost twice as likely to be denied credit as their White counterparts.
The pandemic forced 60% of Latino-owned firms to reduce or change how they do business, with 42% of them returning to 2019 levels of sales by the second half of 2021; another 22% by the end of 2022.
Should they gain access to venture capital and proper credit however, Latino entrepreneurs are expected to be able to create 750,000 employer firms, adding $2.3 trillion in revenue and nearly six million jobs to the national economy.
Some industry titans, like PepsiCo, are taking the initiative with their Juntos Crecemos program, utilizing $50 million towards boosting Latino businesses.
Another is Google’s partnership with the United States Hispanic Chamber of Commerce to highlight Latino businesses across Google Search, Maps, and Shopping, in addition to providing skills training and financial support to them.
ACHIEVING FULL MOBILITY
For all Latinos to achieve full economic mobility, the McKinsey report has identified several necessary initiatives to close gaps and resolve issues universally.
For employees, being granted access to C-suite positions and working in an inclusive workplace that takes into account race and gender eliminates barriers for career advancement.
Providing resources for lower-level employees to reskill into higher paid positions, educational resources, or creating a talent development pipeline will prepare Latinos for advancing their careers.
Monetarily, fiscal education and financial benefits like retirement can help in both the short and long term. Additionally, savings strategies aimed at students can help prepare them for financial decisions as they enter the workforce.
Value, quality, and an investment into understanding what Latino customers desire — like culturally tailored goods and services — can address dissatisfaction among consumers.
Entrepreneurs need access to capital to fund their startups, but those funders need bias training and standardization methodologies to combat approval rate disparities.
Latino entrepreneurs also provide uncapitalized opportunities for sponsorship, mentorship, and business networking.
Bias training on a structural level is necessary to eliminate barriers created by discrimination and prejudice.
This can be supplemented with publicly disclosed demographic information, more transparency on financial levels, and doing business-to-business transactions with Latino companies.
The full McKinsey & Co report can be found here.