Black-White Income and Wealth Gaps

Black-White Income and Wealth Gaps

Timothy Taylor 03/07/2018 8
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Black-white gaps in income and in wealth have been fearsomely persistent over time. Here, I'll mention some main themes from two studies, one focused on income differentials and one on wealth differentials.

On the topic of income differentials, Raj Chetty, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter have written a research paper, "Race and Economic Opportunity in the United States:An Intergenerational Perspective"(March 2018, also available as NBER Working Paper #24441). The authors have written a nice readable summary of main findings for the VoxEU website (June 27, 2018).

But before listing those findings, it's perhaps interesting to note the data on which the study is based, because it represents a new kind of empirical work that has become possible in the social sciences, which draws on extremely large datasets that are linked together, but in a way where the names and identifying characteristics of individuals are blocked from the researchers. Thus this study uses "newly-available longitudinal data from the U.S. Census Bureau that covers virtually the entire American population from 1989-2015. ... [W]e use de-identified data from the 2000 and 2010 decennial Censuses linked to data from federal income tax returns and the 2005-2015 American Community Surveys to obtain information on income, race, parental characteristics, and other variables. We focus on children in the 1978-1983 birth cohorts who were born in the U.S. or authorized immigrants who came to the U.S. in childhood. Our primary analysis sample consists of 20 million children, approximately 94% of the total number of children in the birth cohorts we study. ... [W]e characterize intergenerational gaps by race. We measure children’s incomes as their mean household income in 2014-15, when they are in their mid-thirties. We measure their parents’ income as mean household income between 1994 and 2000, when their children are between the ages of 11 and 22."

In short, this is a very large and very detailed sample of what happened to this particular generation of children. For key findings, I'll just quote from the authors of the study in their VoxEU piece--but there is more detail and illustrative figures there.

Finding #1: Hispanic Americans are moving up in the income distribution across generations, while Black Americans and American Indians are not. ...

In contrast, black and American Indian children have substantially lower rates of upward mobility than the other racial groups. For example, black children born to parents in the bottom household income quintile have a 2.5% chance of rising to the top quintile of household income, compared with 10.6% for whites.

Growing up in a high-income family provides no insulation from these disparities. American Indian and black children have much higher rates of downward mobility than other groups. Black children born to parents in the top income quintile are almost as likely to fall to the bottom quintile as they are to remain in the top quintile. By contrast, white children born in the top quintile are nearly five times as likely to stay there as they are to fall to the bottom. ...

Finding #2: The black–white income gap is entirely driven by differences in men’s, not women’s, outcomes. ...

Finding #3: Differences in family characteristics – parental marriage rates, education, wealth – and differences in ability explain very little of the black–white gap. ...

Finding #4: In 99% of neighbourhoods in the United States, black boys earn less in adulthood than white boys who grow up in families with comparable income.

One of the most prominent theories for why black and white children have different outcomes is that black children grow up in different neighbourhoods than whites. But, we find large gaps even between black and white men who grow up in families with comparable income in the same Census tract (small geographic areas that contain about 4,250 people on average). Indeed, the disparities persist even among children who grow up on the same block. These results reveal that differences in neighbourhood-level resources, such as the quality of schools, cannot explain the intergenerational gaps between black and white boys by themselves. Black–white disparities exist in virtually all regions and neighbourhoods. Some of the best metro areas for economic mobility for low-income black boys are comparable to the worst metro areas for low-income white boys, ...

Finding #5: Both black and white boys have better outcomes in low-poverty areas, but black-white gaps are bigger in such neighbourhoods. ...

Finding #6: Within low-poverty areas, black–white gaps are smallest in places with low levels of racial bias among whites and high rates of father presence among blacks. ...

Finding #7: The black–white gap is not immutable: black boys who move to better neighbourhoods as children have significantly better outcomes.

On the issues of black-white inequality in wealth, William Darity Jr., Darrick Hamilton, Mark Paul, Alan Aja, Anne Price, Antonio Moore, and Caterina Chiopris offer an overview of some key findings in "What We Get Wrong About Closing the Racial Wealth Gap" (April 2018, Samuel DuBois Cook Center on Social Equity at Duke University). The report is in the form of myths and then counterpoint evidence drawn from a variety of sources. Again, there is much more evidence and argument in the report, but here are some main findings (citations and footnote omitted for readability).

Myth 1: Greater educational attainment or more work effort on the part of blacks will close the racial wealth gap. ...

At every level of educational attainment, black families’ median wealth is substantially lower than their white counterparts. White households with a bachelor’s degree or post-graduate education (such as with a Ph.D., MD, and JD) are more than three times as wealthy as black households with the same degree attainment. Moreover, on average, a black household with a college-educated head has less wealth than a white family whose head did not even obtain a high school diploma. It takes a post-graduate education for a black family to have comparable levels of wealth to a white household with some college education or an associate degree ...

As one would expect, the median household wealth is higher for employed families than for unemployed families in both races. However, white households with an employed head have more than ten times higher wealth than similar black households. Furthermore, white households with an unemployed head have a higher net worth than black households with a head who is working full time.

Myth 2: The racial homeownership gap is the “driver” of the racial wealth gap. ...

For those households who do not own a home, wealth levels are low for both white and black households; however black non-homeowner households have a mere $120 in net worth – insufficient to feed a family for a week. The data indicates that white households who are not home-owners hold 31-times more wealth than black households that do not. Among households that own a home, white households have nearly $140,000 more in net worth than comparable black households. ...

Myth 3: Buying and banking black will close the racial wealth gap. ...

Black-owned banks also are miniscule in the context of the general scale of American banking. The largest five black owned banks recently were estimated to have assets totaling $2.3 billion, while J.P. Morgan alone had an estimated $2 trillion in assets. Thus, the top five black banks’ assets were a tiny 0.1 percent of Morgan’s assets (Fontinelle 2017). This indicates that the existing infrastructure of black-owned banks lacks the capacity to produce wide and substantial increases in black wealth. ...

Myth 4: Black people saving more will close the racial wealth gap. ...

[T]here is no evidence that black Americans have a lower savings rate than white Americans once household income is taken into account ...

Myth 5: Greater financial literacy will close the racial wealth gap...

The problem with assigning differences in cost of finance and asset portfolios to difference in financial acumen is its directional emphasis. Meager economic circumstances—not poor decision making or deficient knowledge—constrain choices and leave asset-poor borrowers with little to no other option but to use predatory and abusive alternative financial services. A negligible level of economic resources readily explains why blacks, specifically, use more predatory financial institutions. ...

Myth 6: Entrepreneurship will close the racial wealth gap. ....

When we compile the data even those members of marginalized communities who manage to enter into entrepreneurship largely fail. This is due to a number of factors ranging from under-capitalization, limited market access, or outright theft or destruction. Blacks are far less likely to own a business, and for blacks that do own a business they have far less equity. ... In reality the data paints a daunting picture for diversity in entrepreneurship. According to the U.S. Census Bureau’s Survey of Business Owners (SBO), which is conducted every five years, over 90 percent of Latino and black firms do not have even one employee other than the owner. The proportion of owner only firms reaches a high of close to 98 percent for the sub-group of black female led businesses. When blacks do own a business the return to that business is lower than that of whites and falls well short of closing the racial wealth gap. ... No amount of tutorials or online courses from wealth experts can change the reality of the racialized advantages and disadvantages that undergird entrepreneurship in America. ...

Myth 7: Emulating successful minorities will close the racial wealth gap. ...

In short, so-called “successful” immigrant groups actually retrieve a comparable class position as the one they held in their country of origin. Their pre-migration capital, whether embodied in their education and training or their financial resources, is critical in determining their outcomes in the United States. ... In short, the argument that intergroup disparities in wealth are borne out of group based cultural/behavioral deficiencies is misleading and misdirected. Instead, we should focus on the long exposure of low wealth racial/ethnic groups to theft of wealth and blockades on wealth accumulation. To suggest that blacks and racialized Latino, and Native Americans should emulate other supposedly successful “minority” groups perpetuates the false narrative that their asset poverty is due to a lack of hard work, effort, or ambition. ...

Myth 8: Improved “soft skills” and “personal responsibility” will close the racial wealth gap.

Black men already are largely located in service sector jobs that require, or depend, on “soft-skills.” It is not “soft skills” requirements that distinguish black and white male sites of employment. It is relatively lower pay in the jobs held by the former and relatively higher pay in jobs held by the latter ... While some individuals can indeed “get ahead” or “beat the odds,” the larger structural conditions, well-document wage and unemployment gaps, demonstrate that even when black people “do the right thing”, it does not close the racial wealth gap.

Myth 9: The growing numbers of black celebrities prove the racial wealth gap is closing. ...

Unfortunately, from “The Cosby Show” to Michael Jackson’s multi-platinum albums to Will Smith’s meteoric rise to the present day mega couple Jay-Z and Beyoncé, black celebrity has masked black poverty, rather than contributed to closing the racial wealth gap. No ethnic or racial group-- not Asians, not Latinos, and not whites -- has been framed so dramatically through celebrity status as black Americans. Despite recently released 2016 Federal Reserve data showing that the median black family has a net worth of about $17,600, while the median white family has a net worth closer to $170,000 (Jan 2017), black life has come to be seen through the lens of radically exceptional cases, rather than typical ones.

Myth 10: Black family disorganization is a cause of the racial wealth gap. ...

However, marriage does little to help equalize wealth among white and black women with a college degree. For example, married white women without a bachelor’s degree are in households where they have more than two and a half times the wealth of married black women with a degree. Racial wealth disparities widen among married women with a bachelor’s degree; married white women are in households that have more than five times the amount of wealth as their black counterparts. White households with a single white parent have more than two times the net worth of two parent black households ...

There are of course lots of questions one can raise about specific findings in this body of research, or raise questions about underlying causes and policy options. Studying the trees is worthwhile but one shouldn't lose sight of the forest. African-American households are experiencing real and severe economic disadvantages in the US economy. 

A version of this article first appeared on Conversable Economist.

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  • William Gibbons

    This is getting harder to explain. Discrimination, differences in school quality and career opportunities are playing a huge role in the persistence and widening of these gaps over time.

  • Ellis Harrison

    Structural racial bias still exists in educational systems, employment and elsewhere....

  • Zack Avery

    Time alone won't close this gap !

  • Tim Biesemans

    Even in 2018 the divergence in earnings for blacks relative to whites is widening

  • Dan Henshaw

    Thought provoking read. As mentioned in your article, these outcomes are not the result of differences in education, age, or experience, but rather reflect other unmeasured factors.

  • Andres E

    These facts are striking

  • Keith Briggs

    It is necessary for all racial groups to fully engage in the economy to achieve a shared national prosperity.

  • Stewart Waggott

    Financial education needs to be heavily reinforced to narrow the wealth and income gaps

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Timothy Taylor

Global Economy Guru

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

   

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