Why Racial Economic Disparity Keeps Growing in the U.S.

A new report highlights how little progress the country has made in addressing racial wealth inequality.
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Sprinklers water the lawns of a new housing development July 28th, 2005, in Hesperia, California.

The racial wealth divide has only grown more severe since the 1980s.

As cities across the country gear up for celebrations around the birth of Martin Luther King Jr., a new report offers a sobering reminder that there's still much work to be done in America on the civil rights front.

The report, released by the Institute for Policy Studies, a progressive think tank, finds that African Americans still hold a fraction of the wealth of their white peers. What's worse, this racial wealth divide has actually grown more severe since the 1980s.

Looking at median household wealth—that is, the wealth of households at the 50th percentile of the income distribution—Institute for Policy Studies researchers Chuck Collins, Dedrick Asante-Muhammad, Josh Hoxie, and Sabrina Terry found that, between 1983 and 2016, the overall metric declined by about 3 percent (from $84,111 to $81,704). That trend is damning all on its own: "In other words, despite three decades of economic growth, great leaps in productivity, and other advances, the typical U.S. family at the statistical middle of the wealth distribution not only saw zero benefit, but saw their wealth go down," the researchers note in their report. (The researches define wealth as "the sum total of assets held by a family minus total household debt.")

But the picture grows uglier once race is factored in. For white families, median wealth actually increased by over 30 percent during that time period, from $110,160 to $146,984. Latino families saw their median household wealth increase by about 50 percent, from $4,289 in 1983 to about $6,591. African-American families, meanwhile, saw their household wealth collapse during that same time period. Between 1983 and 2016, median African-American household wealth declined by over 50 percent, from $7,323 to $3,557. A big chunk of that decline occurred between 1995 and 2013, a time period during which African-American household wealth fell from approximately $12,000 to $1,700.

"Whites are as likely to be millionaires as they are to have zero negative net worth," says Asante-Muhammad. "It's just a much more well distributed wealth scenario than Latinos or blacks, who are much more likely to hold no assets than to be millionaires."

There are many causes behind the racial wealth divide in the United States. For one, African Americans and Latino Americans still earn less money than white Americans and face higher unemployment rates; not unrelatedly, rates of home ownership (a principle means through which families accrue wealth) remain much lower for families of color.

But the racial wealth gap has also been frustratingly impervious to gains in measures such as educational achievement and income. At all levels of both income and education, African-American families hold less wealth than comparable white families. The chart below, from a report on myths about the black-white wage gap co-authored by Duke University researcher Sandy Darity, eloquently illustrates this point:

Put simply, the median household wealth of African-American families with a college degree is actually less than the median household wealth of white families with less than a high school education.

How to account for this disparity? Discrimination, of course, plays a role—researchers have authoritatively demonstrated that minority Americans continue to face discrimination in hiring and promotion practices. But there's another, perhaps equally nefarious explanation: In the American economy, wealth begets wealth. That is, wealth is increasingly concentrated in the hands of the few (mostly white families), and then passed down from parents to children. American politicians have historically ignored this fact, choosing instead to focus on factors like income and education, in the hopes that wealth would follow. As a result, the wealth gap only increases.

"Frequently, when people talk about racial economic equality, they're talking about income inequality," says Darity, who has been studying the racial wealth gap for years. "And one of the things I've focused on has been to try to emphasize that wealth is more important than income for a number of reasons and that those disparities are the ones that need to be tackled at least as intensively as income inequality."

The IPS report highlights a number of suggestions for tackling those disparities, many of which will be familiar to those who've studied the topic: a baby bonds program, investments in affordable housing, an increase in the minimum wage, Medicare-for-All, a federal jobs guarantee, and so on. Despite the grim numbers in this report, Asante-Muhammad is hopeful that the conversation around racial wealth inequality in this country is shifting, pointing to New Jersey Senator Cory Booker's recent baby bonds proposal and various proposals for a job guarantee.

It's a sentiment echoed by Darity, who has authored several high-profile policy proposals that have made waves in the think tank sphere (and influenced some notable politicians), including proposals for a baby bonds program and a federal jobs guarantee. When he first started getting calls from politicians last year about some of his ideas, he says he was gratified but shocked to see politicians finally paying attention to wealth inequality. The complacency of the Obama years, he thinks, has given way to a new reckoning.

"I think that the shock effect of Trump's presidency ... has led people to acknowledge that these kinds of problems still must be addressed," Darity says. "That has prompted a discussion of some of these issues that had not been taking place before. I think the door is open for considering a set of policies as credible and legitimate that previously would not have been in the conversation at all."

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