The Evolution of Racial Wealth Inequality & Economic Mobility in America
Cai | a Prosperity Now feature
For Black History Month, Prosperity Now reviewed recent economic studies that take a historical perspective on racial wealth inequality and economic mobility in the United States. These studies combine multiple sources of data to uncover historical trends in Black-White economic disparities from the late 19th century to today.
We learn from these studies that despite some economic progress in closing the gap between Black and White Americans over the long run, the economic divide has persisted, with White Americans still possessing on average six times the wealth of Black Americans nowadays, and poorer White children consistently having better opportunities to move up the ladder than their Black counterparts.
While Declining After the End of Slavery, the Black-White Racial Wealth Gap Has Persisted Since the 1980s
In “Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860-2020” (Quarterly Journal of Economics, 2023), researchers document the historical evolution of the racial wealth gap since the 1860s. They uncover a significant narrowing of the racial wealth gap in the first five decades after slavery ended. In 1860, when virtually 90 percent of Black individuals were enslaved, a White American’s wealth was on average almost 60 times that of a Black American. However, by 1910, this disparity had decreased to a factor of approximately 10. Yet, that rapid convergence began to slow down in the first half of the 20th century, and slowed even further in the latter half. Notably, the gap only marginally reduced from a factor of seven to six between 1950 and 2020, with the current wealth of a White American being six times larger than the wealth of their Black counterpart.
Was the rate of this convergence anticipated, or did obstacles hinder Black Americans from narrowing the gap more quickly, particularly in recent decades? To tackle this question, the authors developed an economic model that factors in capital gains and income savings as key drivers of wealth accumulation. According to their findings, if both racial groups had been given equal wealth-building opportunities, the current wealth of a White American would be three times, rather than six times, the wealth of a Black American.
The Racial Wealth Gap in the Last Four Decades
Researchers suggest several reasons for the deceleration of the racial wealth gap in the past four decades. Firstly, the surge in asset markets and the rising wealth-to-income ratios since the 1980s have made capital gains increasingly significant. This period saw racial disparities in household portfolio composition become a key factor in wealth accumulation. White households not only held more assets on average compared to Black households, but also had more diversified portfolios. This diversification reduced their vulnerability to fluctuations in asset prices.
Additionally, the gap was further exacerbated by unequal access to financial markets, higher rates of asset price appreciation for assets owned by White households compared to those owned by Black households, and discrimination on the labor markets (with the wages of White Americans growing faster than those of their Black counterparts over that period). These factors collectively limited Black Americans' access to wealth-building opportunities and contributed to the recent expansion of the racial wealth gap.
What Policies Can Help Close the Racial Wealth Gap?
Overall, the trajectory of the racial wealth gap in America highlights the enduring impact of historical injustices and the ongoing challenges faced by Black Americans in achieving economic equality. It underscores the need for targeted policies and interventions to address these deeply rooted economic disparities and promote a more equitable distribution of wealth.
Policy recommendations to advance racial wealth equity should focus on narrowing gaps in capital gains, savings, and income. The authors’ recommendations include …
Encouraging Black households to diversify their financial assets and hold stock equity.
Enhancing their financial knowledge and retirement or savings strategies.
Advancing their educational and labor-market outcomes (e.g., via better school quality or less discrimination on the labor market).
All of the above can help Black Americans improve the returns on their investments, adopt better savings and retirement planning strategies, and have better job opportunities and income, respectively, thereby reducing the racial wealth gap.
While policies focused on improving financial outcomes through education, savings, and investment can make a significant impact, the idea of reparations addresses the historical roots of the disparity, offering a potentially more direct route to reducing the Black-White wealth gap.
The historical context of racial wealth disparities in America sets the stage for understanding intergenerational wealth mobility and the challenges Black Americans face in achieving economic mobility. We thus now turn our attention to an economic study that examines the different trajectories of Black and White Americans across generations.
Black Americans Have Historically Faced Persistent Challenges in Achieving Economic Progress Across Generations
In “African American Intergenerational Economic Mobility since 1880” (American Economic Journal, 2022), the authors find significant racial differences in intergenerational mobility between Black and White American men from 1880 to 2000. Strikingly, in every generation, poorer White children have always had far better chances of escaping the bottom of the income distribution than similarly poor Black children. In other words, the adult outcomes of Black children have always been worse than those of White children with a comparable socio-economic background. Perhaps even more shocking is the fact that in the earliest decades (1880-1930), men who grew up in the poorest White families were on average better off as adults than men who grew up in the wealthiest Black families.
The study also reveals that if Black children had experienced the same mobility patterns as White children with a similar socio-economic background, then the Black-White mobility gap would have been greatly reduced compared to the trajectory it ended up taking.
Even in the long run, despite changes in policies and institutions, the racial mobility gap has not necessarily improved. In fact, the Black-White mobility gap in 1900 (during the peak era of Jim Crow institutions) was similar to what it was at the beginning of the 1970s (about a decade after the Civil Rights Act).
More recent data (“Intergenerational Wealth Mobility and Racial Inequality”, Socius, 2019) show that the racial mobility gap is still prevalent among current generations. For example, Black individuals who were raised in families that were in the lowest 20 percent of the wealth distribution are significantly more likely to stay at the bottom of the distribution than their White counterparts. Almost half of Black individuals remain in the bottom 20 percent of the wealth distribution when they become adults, compared with approximately a third of White individuals (see Figure 1).
Conclusion
These recent economic studies of racial wealth inequality and economic mobility in America reveals a persistent and deep-seated disparity between Black and White Americans. Historical injustices and systemic barriers have continued to hinder the economic progress of Black Americans, reflected in the enduring racial wealth gap and limited intergenerational mobility. Addressing these issues requires targeted policies and interventions, focusing on equalizing opportunities in wealth accumulation, education, and access to financial resources. Ultimately, a concerted effort is needed to promote economic equality and rectify the historical roots of these disparities, paving the way for a more equitable future.
CHRISTINE CAI is a Research Scientist at Prosperity Now