The Color of Money

Why is the racial wealth gap so persistent even as income and education differences grow smaller?

Five Figures to Consider

35% is the increase in number of black-owned businesses in years 2007- 2012
92.3% of African Americans (ages 25 - 29) have graduated from high school
30.5% is the increase in the inflation-adjusted hourly wage of the typical black worker in years 1980 - 2016
6.6% is the current and record-low black unemployment rate
10 is the average multiple of assets white families own relative to black families

The Great Society was a set of social policy reforms spearheaded by President Lyndon B. Johnson in 1964 with the goal of eliminating poverty and racial injustice. Yet, economic disparities between blacks and whites remain among the most visible and persistent features of American society. What has changed in fifty years?

Educational attainment and incomes among African Americans are way up. There is a thriving black middle class. And attitudes have so shifted that not too long ago we elected a black president. Numerous African Americans now hold positions of power, from Ken Chenault, CEO of American Express, to Shonda Rhimes, Hollywood producer and writer, from Wilmot Collins, the Liberian-born mayor of Helena, Montana, to Robert Smith, multi-billionaire engineer and founder of Vista Private Equity. Additionally, entrepreneurship among African Americans is soaring. In 2012, there were 2.6 million black-owned businesses, up 35% from 2007, far exceeding the 6% growth in the African American population.  

On several other measures – educational attainment, wage growth and poverty reduction – African Americans have narrowed the gap with whites significantly. High school graduation rates of African Americans are now almost on par with whites, 92.3% versus 95.5%. College graduation rates have also improved. Today African American women graduate from college at a higher rate than white men. Looking at wages, the inflation-adjusted hourly wage of the typical black worker rose an impressive 30.5% between 1968 and 2016, far outpacing any other U.S. demographic group. However, the typical black worker still makes just 82.5 cents for every dollar earned by the typical white worker. African American inflation-adjusted annual household income saw gains of a whopping 42.8% between 1968 and 2016, surpassing the 37% income growth of the typical white household. African American incomes, however, still trail those of their white peers. Even with a bachelor’s degree an African American earns an average of  $82,300  vs. $106,600 for whites. Poverty rates for African Americans declined to 22% in 2016 from 34% in 1968. Although African Americans are still about 2.5 times as likely to be in poverty as whites, that’s an improvement from 1968 when they were about 3.5 times as likely. For whites, the decline in the poverty rate was much smaller, from 10% in 1968 to 8.8% today.

Alongside the green shoots, however, racial disparities remain substantial and persistent. Unemployment, incarceration, home ownership and rates of overall wealth remain at 1968 levels or worse. While the African American unemployment rate dipped below 7% for the first time in fifty years in April to 6.6% (1968, 6.7%), the white unemployment rate is 3.6% (1968,  3.2%.) The share of incarcerated African Americans tripled between 1968 (604 per 100,000) and 2016 (1,730 per 100,000) and is currently more than six times the white incarceration rate. The share of whites in prison or jail has also increased dramatically, but from a lower starting point. In 1968, whites were incarcerated at a rate of 111 per 100,000, and the share had increased to 270 per 100,000 by 2016. Homeownership among African Americans has barely budged in a half-century, then and now about 43% as compared to 68% rising to 72% today for white householders. In 2016 the median net worth of an average white family was approximately $171,409 ($17,000 in 1968), 10 times the net worth of the median for black families whose average assets in 2016 were $17,409 ($2,467 in 1968).

The sources of these disparities and what to do about them have been heavily studied and debated. A new Stanford University study may shed some light. The key finding is that the  black-white income gap as it relates to intergenerational upward mobility is driven entirely by differences in men’s, not women’s, outcomes. Other studies have found boys benefit more than girls from adult attention and are more sensitive to the effects of disadvantage. Intrinsic to the issue of wealth disparity is the fact that African Americans are less likely to be married and more likely to grow up in single parent households, which means their households are more likely to earn a single income, not two. However, even if they grow up in two-parent families with comparable incomes, education, ability, work ethic and wealth, live on the same city block and attend the same school, black and white men have very different outcomes. Black-white gaps are smaller in low-poverty neighborhoods with lower levels of racial bias among whites and a larger fraction of community marriages and black fathers at home. Black boys’ employment rates are higher and suspension and incarceration rates are lower when there are fathers in the community who can provide boys with role models and mentors. The study’s authors suggest neither policies that reduce inequality for a generation – such as temporary cash transfers, minimum wage increases or basic income programs – nor those that reduce school and housing segregation without increasing integration within schools and neighborhoods are likely to have long-term effects. Instead, efforts focused on mentoring programs, racial bias reduction among whites and reducing discrimination in criminal justice hold the most promise. (African Americans and whites, for instance, use drugs at similar rates but the imprisonment rate of African Americans on drug charges is almost six times that of whites.) Last spring the Justice Department rescinded a memo to prevent low-level drug offenders from receiving harsh minimum sentences, and the 2019 federal budget proposes to decrease funding to the Youth Mentoring Initiative by 40%. Both moves are likely to make it harder for African American families to close our racial wealth gap.

FIVE FIGURE THINKING
We’ve come a long way but race in America is still a predictor of where someone may fall on important economic measures. To close the racial wealth gap we need a fresh approach with policies focused on alternative sentencing for nonviolent crimes and mentoring programs that cultivate ties between African American boys and male adults in their communities.

Sources

After School Alliance, All State Insurance, Brookings Institute, Center on Budget and Policy Priorities, Child Trends, Congressional Research Service, Economic Policy Institute, Federal Reserve System, Government Publishing Office, NAACP, National Bureau of Economic Research, Pew Research, National Institutes of Health, Urban Institute, U.S. Census Bureau, U.S. Small Business Administration