The Racial Wealth Gap is Persistent — and Growing

One mainstream view, held by many prominent economists, chalks it down to a gap in human capital. More education leads to higher earnings, which allows for more saving and, eventually, more wealth. Black households, the logic holds, have less wealth because their lower levels of human capital generate lower earnings and less savings.

To eliminate the racial wealth gap, this view argues, one must first eliminate the earnings gap.

The authors of this new study – Fenaba R. Addo, William A. Darity, Jr., and Samuel L. Myers, Jr. – poke several flaws in that logic, including that:

• Black households with a college degree hold less wealth than white households headed by someone with a high school diploma or GED.
• Black households headed by someone in a managerial or professional position consistently have significantly less than White households in the same occupations; in fact, Black households in a managerial or professional position make even less than white households headed by someone with working-class employment.
• Ultimately, Black households in the middle-income range have less than one-third the wealth of white households in the same range.

“When it comes to wealth inequality, a rising tide lifted all boats … inequitably,” said Addo, the report’s lead author and an associate professor of public policy at the University of North Carolina-Chapel Hill. “Black-white wealth inequality persists, and it has expanded with the onset of the pandemic.”

The mainstream view focused on earnings overlooks the crucial impact of inherited wealth, which the authors refer to as the “intergenerational transmission chain.” Black households are far less likely to receive familial inheritances or in vivo transfers, gifts made while the donor is still living like vehicles, access to education or homes. Just the anticipation of a gift or inheritance allows white families to make riskier investments, providing assurance for their decisions and thus deepening the divide.

Policy solutions should focus on directly addressing racial wealth disparities rather than simply trying to close the earnings gap.

Federal tax laws have allowed affluent families to transfer wealth to future generations inexpensively. Given that these policies mainly favored white families, reforming inheritance rules could help reduce the racial wealth gap.

How can the U.S. implement reforms that eliminate the racial wealth gap without driving white wealth down?

Another solution the authors recommend is reparations for Black Americans whose ancestors were enslaved in the United States. The most comprehensive plan for this does not involve confiscation of white assets.

The key to closing the wealth gap begins with acknowledging its origins – America’s unfair racial history and the unequal passing down of resources between white and Black American families across generations.