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The Surprising Cross-Racial Saga of Modern Wealth Inequality

Why the “racial wealth gap” fails to explain economic inequality in black and white America

H. Armstrong Roberts/ClassicStock/Getty

Lately, critics of the racialized maldistribution of wealth have seized on the notion of a “racial wealth gap” as a defining feature of the American political economy—and insisted that this gap has been a key factor in the radically disparate economic impact of the present Covid-19 recession across our racial divide. Yet the racial wealth gap is not the single-bullet explanation of uneven economic development in black and white America that adherents of the thesis imagine it to be. This becomes clear when we shift the focus of discussion from wealth—the real and investment property that has always been a profound drag on black economic achievement—to income, where progress, while far from robust, has nonetheless been striking. What’s more, the lags in income distribution between black and white American families are key precursors to the cross-generational disparities in racial property-holding tracked under the rubric of the wealth gap. (A similar point can be made about the racial disparities in housing, which I’ll discuss in a future column.)

It’s vital to note, first of all, that longer-term trends in income inequality underscore how important social wage policies that reduce overall inequality have been in addressing racial inequality. Between 1968 and 2016, African Americans, largely as a result of the victories of the civil rights movement and anti-discrimination enforcement, made significant advances into occupations and job categories that had previously kept black workers at the margins of mainstream success—when they admitted them at all. However, the reason that African Americans’ income remains all but unchanged as a percentage of whites’ income since 1968—57 percent in 1968, 56 percent in 2016—is that the gains that African Americans have made in employment and wages have been offset by intensifying income inequality in the country as a whole.

A 2018 study found that during this same 48-year span, African American median family income realized relative gains in the overall national income distribution. In 1968, black median family income ranked in the 25th centile of the national income distribution; this meant that the income of black families fell within this bottom quadrant of American families. In 2016, median black family income had moved up to the 35th centile, meaning that black median income fell slightly ahead of the bottom third of the national income distribution. A substantial gap in racial income rank remained, but it had closed significantly; the African American rank in the national income distribution had increased by 40 percent since 1968. Meanwhile, white median family income moved only from the 54th centile in 1968 to the 57th centile in 2016. Therefore, the rank gap in median family income between blacks and whites closed by 28 percent. Nevertheless, median African American income remained virtually unchanged as a percentage of median white income overall.

The main reason that the overall racial income gap remained practically unchanged was the extreme concentration of income at the top during the last half-century. Lower-income and middle-income families, both black and white, lost income in relation to the richest Americans. As the sociologist Robert Manduca points out, black median income at the 25th centile in 1968 equaled 55 percent of the national mean in that year. But in 2016, income at the 35th centile equaled only 48 percent of the national income average. So despite a notable improvement in African Americans’ median rank in the national distribution of employment and income, their position fell as a percentage of average national income.

Within this larger pattern of stagnation and decline, upper-strata African American families have shown appreciable progress. Between 1967 and 2016, the percentage of black families earning between $35,000 and $100,000 (in 2016 dollars) increased from 35 to 40 percent of the total, and those earning less than $35,000 decreased from 63 to 46 percent. But the greatest increase was among those earning $100,000 or more. In 1967, the number of African American families earning $200,000 or more a year was negligible. By 2016, just under 3 percent of black families had such incomes, and nearly 15 percent were earning more than $100,000 a year.

These trends in income distribution are significant in parsing the racial wealth gap because income distribution directly shapes the maldistribution of wealth across the races. That has been the finding of another recent study published under the aegis of the Federal Reserve Bank of Cleveland, which notes that the income gap seems to be the most important source of persistent black-white wealth inequality.

Researchers have long chronicled the great differences in accumulated wealth between African Americans and whites. But they have been less successful in identifying the causes of those persistent differences. They usually argue that because the gap exists at all levels of income and education, it can’t be attributable to income disparities. As a result, they look to noneconomic factors like neighborhood differences, family size, age, and direct or indirect discrimination. But none of these inquiries really explains how those factors produce the great wealth inequalities.

In reality, the maldistribution of income across the races can supply a good part of the answer to this quandary. Dionissi Aliprantis and his co-authors have estimated the effects that eliminating income inequality at a given point would have produced in the later trajectory of black wealth accumulation—and found them to be significant. They took this approach because incentives for saving and opportunities for accumulating wealth vary over time and through the life cycle. This means in turn that income differences at one point can have significant impact on wealth differences at a later time—a critical consideration, because wealth typically accumulates only gradually.

Aliprantis and his colleagues draw forth this critical point via predictions of what the current wealth gap would be like if income inequality had been eliminated in the 1960s. As they pivoted the actual data forward from 1962, they found the numbers matched up with current outcomes. And in turn they projected that finding to estimate that, if current trends persist, it will take 259 years for black mean wealth to reach 90 percent of the white mean. They then adjusted the model to assume that income equality had been attained in 1962 and to make similar projections from that base. They found that, if median black and white incomes had been equalized in 1962, by 2007 median black family wealth would have been 90 percent of median white family wealth, nearly wiping out the racial wealth gap.

This key finding suggests strongly that the racial wealth gap’s ultimate source is the racial income gap—and therefore closing the income gap would be the most effective route to narrowing the wealth gap. The right-wing panaceas of tax cuts and privatization count for little in redressing the black-white wealth gap, in other words; policies that redistribute income downward will have the greatest direct effect on most African Americans’ capacities to accumulate household or family wealth. There’s a vital lesson here for liberal economic reformers as well: Reversing the great concentration of income at the top that has occurred during the last half-century not only would benefit all working- and middle-class Americans but also would be especially beneficial to African Americans hoping at long last to overcome the economic legacies of discrimination.

This crucial insight should be at the center of revived efforts of substantive reform aimed at eliminating the wealth gap—and making the American socioeconomic hierarchy flatter and fairer across the board. The path forward is to pursue broadly redistributive policies, combined with serious enforcement of anti-discrimination law and related interventions. By contrast, an interpretation of racialized economic disparities that places the wealth gap, in isolation, at the top of the agenda, has not and will not yield any such clear and concrete diagnosis. Examinations of the racial wealth gap seldom do more than document the existence of statistical disparities—and are tellingly vague about their deeper causes.

“Racism” is an alternative to a concrete explanation; it doesn’t tell us how inequalities are produced, and in lieu of that only gives us a name by which we can group, and stigmatize, them. Patterns of racial difference in outcomes can occur for many different reasons, some of them random. Knowing what produces the truly ongoing and germane unequal outcomes behind the wealth gap is the only way we can hope ultimately to address and correct them. What’s more, recognizing that racial economic inequality is in large part a product of 40 years or more of upward redistribution and intensifying concentration of income among the already wealthy creates a different set of necessary political responses. To eradicate the racial wealth gap, we need to link up the pursuit of justice and equality for African Americans to the broader campaign to bring justice and equality to all working Americans.