Skip Nav

Racism in the United States

Quick search form

❶The disparity in benefits helps to explain why families of color accrue less of a return on each dollar of wealth earned than white families:

Social Media

Working Papers & Publications
The Racial Wealth Gap: Why Policy Matters
Introduction and key findings

Bertrand, Marianne and Sendhil Mullainathan. Labor Studies We perform a field experiment to measure racial discrimination in the labor market. Development of the American Economy. Economic Fluctuations and Growth. International Finance and Macroeconomics. International Trade and Investment. Productivity, Innovation, and Entrepreneurship. The Women Working Longer Project. Illinois Workplace Wellness Study.

The Oregon Health Insurance Experiment. He is also the Mitsui Professor of Economics at M. Evidence from "Weakest Link". At public institutions, increasing tuition and fees are primarily a result of declining state support for higher education shifting a greater share of the costs to students.

For young people who come from families without substantial wealth, education has long been seen as the pathway to greater opportunity and economic security.

However rather than facilitating economic mobility, according to our analyses, current educational inequalities end up being a small, direct net contributor to the racial wealth gap. In addition, it is also likely influencing a number of other variables that shape unequal asset-building opportunities. The next two sections present our empirical analysis exploring how the racial wealth gap would change if educational disparities were reduced.

We tested the effects of equalizing college graduation rates among white, Black, and Latino families on the racial wealth gap. This test did not control for other characteristics that might distinguish those who finish college from those who do not. Instead, it looks at wealth accumulation by race and ethnicity if the proportion of Black and Latino households with a college degree matched the 34 percent college completion rate of whites.

Compared to the effects of changes in homeownership rates on the racial wealth gap, the effects of changing college attainment rates on household wealth for Black and Latino families are modest. Those gains represent an 18 percent wealth increase for Black households, and a 42 percent wealth increase for Latino households. The equalization of college graduation rates raised wealth among Black and Latino families while white wealth was held constant, modestly reducing the racial wealth gap.

The fact that the reduction in the racial wealth gap from equalizing college graduation rates is small does not automatically imply that raising educational attainment is an ineffective means of closing the racial wealth gap. Instead, it suggests that matching the current levels of college degree attainment of white households—in which the benefits of a four-year college degree reach only about a third of households—is unlikely to substantially reduce the wealth gap.

Next, we tested the effects on the racial wealth gap of changing the return on completing a four-year college degree for Black and Latino households to equal the return to graduation of white households. As seen above, the first step in this process estimates the wealth returns to a college degree using a multivariate median regression model for the white population. In order to construct a model equalizing the returns to a college education across groups, we assigned Black and Latino households that had completed college with a value of total wealth equal to the return to college graduation for the median white household: Black and Latino college graduates who already had household wealth above this value did not have their wealth adjusted.

This change does not alter the differential rates of college graduation and thus affects only a subset of the Black and Latino populations. The equalization of returns to a college education raises the medial level of wealth among Black and Latino families, while white median wealth remains constant, modestly reducing the racial wealth gap. This is a 10 percent reduction in the Black-white wealth gap see Figure One reason the reduction in the racial wealth gap is modest when the return to college education is equalized is because the affected households—the 20 percent of Blacks and 13 percent of Latinos that have attained a four-year college degree—is a relatively small proportion of the overall Black and Latino population.

Raising college completion rates at the same time that the returns to a college degree increase would be expected to impact a greater number of households and to decrease the racial wealth gap more significantly.

Disparities in attaining a college education account for only a small portion of the racial wealth gap. Our findings suggest that increasing college completion rates among Black and Latino youth and improving their returns on a college degree would reduce the wealth gap only modestly at the median.

Nevertheless, a number of promising education policies do show potential to make a difference in shrinking racial wealth disparities.

The following sample policies are not a comprehensive list:. American households derive much of their economic security from the labor market, with earned income, employer-provided health coverage, paid leave, and workplace retirement plans offering greater opportunities to build wealth for the employees who have access.

Meanwhile if an employer provides an affordable health insurance plan, employees often spend less than if they had to purchase their own coverage or risk incurring substantial medical expenses that can drain wealth.

Pensions and k -type plans with an employer contribution offer a mechanism for employers to contribute directly to household wealth, adding to retirement savings. Yet labor markets are one of the primary drivers of the racial wealth gap, accounting for 20 percent of its growth in the last 25 years. Disparities in labor market outcomes arise from a variety of sources, including employment discrimination, lack of geographic access to jobs, and disparate social capital.

Income disparities affect both current consumption and wealth building opportunities. Median Black and Latino families have lower incomes than white families: In addition to lower incomes, Black and Latino families also see less of a wealth return on the incomes they earn—in effect, they are less able to translate each additional dollar of income into wealth. A number of labor market dynamics contribute to these disparities: Blacks and Latinos are less likely to have jobs that include core employer-provided benefits such as health coverage, a retirement plan, or paid time off.

Similarly, Black workers have higher rates of unemployment and longer average unemployment spells, which drains wealth and adds to labor market instability.

The following section will more closely consider the factors that contribute to disparities in labor market outcomes and assesses how equalizing family incomes and returns to income the ability to translate a dollar of income into wealth between whites, Blacks, and Latinos would impact the racial wealth gap. Racial and ethnic inequality in American labor markets was codified and maintained by law for much of U.

It was not until the Civil Rights Act of that federal law prohibited job discrimination on the basis of race, color, religion, sex, and national origin. Yet public policy decisions—from the enduring exclusion of certain job categories to the protections of the Fair Labor Standards Act to immigration laws that inhibit workers from exercising their full rights in the workplace—continue to shape the U.

For most Americans, the vast majority of income comes from a paycheck. Black and Latino workers are not only paid less, but are also more likely to be employed in jobs that fail to offer key benefits such as health coverage, paid leave, or retirement plans. The disparity in benefits helps to explain why families of color accrue less of a return on each dollar of wealth earned than white families: Blacks and Latinos are more likely to pay for necessities like health care out-of-pocket and therefore, to have less to save and invest for the future.

This also means that households of color are more likely to miss out on the tax incentives and wealth-building vehicles provided by employer benefits. The lower rates of college degree completion discussed previously is one important factor. However, white workers with and without college degrees out-earn their Black and Latino counterparts with similar levels of education. The persistence of job discrimination is a critical part of the explanation for the lower incomes of Black and Latino workers.

Here the problem is partly a failure of effective policy enforcement: For the Latino workforce in particular, immigration policy is a barrier to better jobs and higher incomes. Limited English, lack of familiarity with the U. With the exception of those who are already very wealthy, Americans need good jobs to build assets. Yet, policy choices have contributed to the segregation of labor markets, both reducing the incomes of Black and Latino workers compared to whites and reducing the ability of people of color to turn additional income gains into wealth.

As a result, labor market disparities are one of the primary contributors to the racial wealth gap. The next two sections highlight our empirical analysis exploring how the racial wealth gap would change if incomes and returns on income were more equal. For our analysis, we estimated the income distribution of the white population alone and identified the thresholds for each income decile for example, the top ten percent of white households in terms of income, the next ten percent after that, and so on ; we then assigned weights to the Black and Latino households that appear in each decile of the white distribution until those households represent 10 percent of the Black and Latino populations.

This test did not control for other characteristics that might distinguish those in any particular decile. In other words, we shifted the number of estimated households across the income distribution such that whites, Blacks, and Latinos were represented across the income distribution in equal proportions to their presence in the overall population. Those gains represent a percent wealth gain for Black households, and a percent wealth gain for Latino households.

Equalizing Black and Latino incomes to match the white income distribution increases wealth among Black and Latino families who see higher incomes, while white wealth remains constant, modestly reducing the racial wealth gap. The change amounts to 11 percent of the racial wealth gap see Figure The change in the racial wealth gap as a result of equalizing the income distribution is 9 percent. Equalizing returns to an additional dollar of income raises wealth among Black and Latino families while white wealth remains constant, substantially reducing the racial wealth gap.

This is a 43 percent reduction in the Black-white wealth gap see Figure The range of labor market policies that could boost job quality for Black and Latino workers—raising wages, improving benefits, and offering more opportunities for career advancement—is extensive, even before we consider measures to reduce unemployment and increase the ability to turn income into wealth.

Below is a sample of three policies with the potential to shrink the racial wealth gap from income and labor market outcomes. The list is far from comprehensive. When it comes to tackling the racial wealth gap, policies matter tremendously. Simply increasing rates of Black and Latino achievement whether it is homeownership, college graduation, or income parity is not sufficient to fully eliminate the gaps in wealth between Black and Latino families and their white counterparts.

In almost every case, equalizing the returns to any given achievement makes a greater difference for the racial wealth gap than eliminating disparities in home purchases, college graduation rates, or wages.

The challenge is that improving the economic returns that households gain requires confronting and changing the deeply entrenched structures discussed throughout this paper— from residential segregation to jobs that lack the benefits that enable households to build assets.

Policymakers must act both to remove barriers to access and achievement and also challenge the deeply-rooted structures that reproduce disproportionate advantages for white households. Our results suggest that policies that successfully address disparities in homeownership rates and returns to income are likely to be the most effective in reducing the racial wealth gap. At the same time, policy details matter. The SIPP is a panel survey following the same households for 2.

Each panel includes a large number of rotating waves with a diverse range of sub-topics. Wave 10 of the panel was chosen for our analyses because it includes the most recent comprehensive data on household assets. In other words, in the case of homeownership, we increased the population weights of existing Black and Latino homeowners in the survey, such that they made up an equal portion of their respective subgroups as white homeowners make up among all whites.

Under this reweighted scenario, the ratio of Black homeowners to renters becomes equal to the existing current ratio of white homeowners to renters. This method keeps all other characteristics, including demographics within the Black homeowner population and Black renter population, respectively, constant.

Since the reweighting technique does not apply any changes to the characteristics of the sample households in the survey, but rather shifts the proportions of particular households present in the population estimates, the method only changes the share of the sub-populations within the full population sample.

The following equations depict the mathematical calculations used to develop new weights to adjust the homeownership rates of blacks to white levels:. The technique outlined here to develop new weights to equalize rates of homeownership is applied to all three policy areas discussed in this report and for Blacks and Latinos. For our estimates of differences in returns to homeownership, college education, and household income, we conducted quantile regression QR analysis at the 50 th percentile, also known as median regression, to estimate typical wealth gains experienced by families who attain these achievements.

Models were conducted separately among whites, Blacks, and Latinos in order to estimate differential returns to these assets experienced by whites and households of color. The key difference between quantile regression and Ordinary Least Square OLS regression is that the former calculates the outcomes of specific distribution percentiles, while the latter calculates estimates based on distribution means.

QR is particularly important in the case of statistical predictions for distributions that are not normal, as it is the case with asset and wealth ownership. For example, an OLS regression model that calculates asset holding disparities between Blacks and whites will only predict averages means for both racial groups, thereby hiding important information about the within-group inequality. QR models solve this problem because they can be specified to different percentiles of the distribution, such as the median.

In other words, they enable us to calculate predictions for wealth holdings among blacks and whites at every level of the distribution.

Navigation menu

Main Topics

Privacy Policy

We perform a field experiment to measure racial discrimination in the labor market. We respond with fictitious resumes to help-wanted ads in Boston and Chicago newspapers. To manipulate perception of race, each resume is assigned either a very African American sounding name or a very White sounding.

Privacy FAQs

Employers' Replies to Racial Names "Job applicants with white names needed to send about 10 resumes to get one callback; those with African-American names needed to send around 15 resumes to get one callback.".

About Our Ads

In human social affairs, discrimination is treatment or consideration of, or making a distinction towards, a person based on the group, class, or category to which the person is perceived to belong. These include age, colour, convictions for which a pardon has been granted or a record suspended, disability, ethnicity, family status, gender identity, . I Introduction Racial disparities are among the most visible and persistent features of American society. For example, in , the median household income of black Americans was $39,, compared with.

Cookie Info

Racism in the United States has been widespread since the colonial jctgkzv.mly or socially sanctioned privileges and rights were given to white Americans but denied to all other races. European Americans (particularly affluent white Anglo-Saxon Protestants) were granted exclusive privileges in matters of education, immigration, voting rights, . Machine Bias There’s software used across the country to predict future criminals. And it’s biased against blacks. by Julia Angwin, Jeff Larson, Surya Mattu and Lauren Kirchner, ProPublica May.