Closing the Racial Wealth Gap in the U.S.

March 25, 2016

This feature is part of an ongoing RSF blog series, Work in Progress, which highlights some of the research of our current class of Visiting Scholars.

In the current election cycle, social inequality has emerged as a leading issue for the two Democratic candidates. Bernie Sanders and Hillary Clinton have debated policies for combating inequality, including proposals to raise the minimum wage, expand health care, and increase access to higher education. Both campaigns have also argued that their respective platforms will help address racial inequality. For example, Sanders has stated that his proposal to raise federal minimum wage to $15/hour will disproportionately benefit black and Latino workers, while Clinton has announced a plan for an “Economic Revitalization Initiative” that she claims will expand access to jobs within communities of color.

Yet, as Visiting Scholar William Darity (Duke University) points out in a Dissent article co-authored with Mark Paul, Alan Aja, and Darrick Hamilton, “No presidential candidate is proposing the bold legislation necessary to close the racial wealth gap.” During his time in residence at the Foundation, Darity is investigating the persistence of wealth disparities by race in the U.S. Using data from the National Asset Scorecard for Communities of Color (NASCC), Darity and his colleagues have authored several reports on racial wealth disparities, including the recent “The Color of Wealth in Los Angeles.”

In a new interview with the Foundation, Darity discussed some of the causes and effects of this wealth gap and offered policy solutions for ameliorating persistent disparities.

Q. Your current research at RSF investigates the racial wealth gap in the U.S. While labor economists tend to believe that wealth gaps are driven primarily by income disparities, your ongoing work has explored the ways in which the opposite is true: that wealth disparities might, in fact, drive income disparities. Why doesn't income alone explain the racial wealth gap?

Darity: Differences in income would be a sufficient explanation for wealth disparities if individuals’ wealth accumulation was driven entirely by what happened within the course of their own lives and existed independently of resources that individuals receive from their parents or other relatives. Labor economists have traditionally operated under the assumption that wealth accumulation is generated out of savings from income, and that a given individual’s income is attributable to their level of human capital, primarily educational attainment. From this perspective, if you have a higher educational level, then you’ll have greater income from which you’ll be able to save, so you’ll be wealthier.

However, this is an incomplete view because it doesn’t adequately account for the role of received or inherited resources. In our research on racial wealth disparities, we found that blacks who have college degrees only have about two-thirds of the wealth of whites who never finished high school. So once you take race into account, it’s not at all clear that there’s a direct connection between educational attainment and higher levels of wealth. This has led us to consider that maybe the causation is reversed—where parental wealth, or other forms of prior family wealth, creates the context for individuals to have higher incomes. In this view, wealth drives income, rather than the other way around.

We can consider the resource effects of parental wealth in three ways. The first way an individual can benefit from parental wealth is through direct donation, usually an inheritance at the death of a parent or relative. The second is through what we call “in vivo” transfers, which are transfers that take place while the parent or relative is still living. The third benefit of parental wealth is that it creates conditions of greater economic security and therefore sets the stage stage for greater opportunity for individuals, even if it doesn’t necessarily involve a direct transfer of money.

Another important dimension of parental wealth is timing. That is to say, parents who have more wealth have greater ability to meet specific needs of their children at important times. One example might be a young, recently married couple that wants to purchase a home. If their parents can help them make a down payment on a mortgage early in the marriage, then they’ll have longer to accumulate equity in the home. Another example is parents who discover that their child is being poorly educated at one school and have the monetary resources to move them to another school. The cost of doing this might not necessarily be enormous, but what’s crucial is that they have the resources at that particular time.

Q. How has the rise of neoliberal rhetoric over the past few decades shaped the way that policymakers and the public alike understand and talk about wealth inequality?

This kind of rhetoric, which suggests that people’s deficiencies are attributable primarily to their own behavior and actions, has been used widely since the early 1980s, so we’re approaching almost 40 years of it as the dominant narrative concerning poverty and inequality in the U.S. In fact, we even continue to hear it from the current president, who will say that people, especially black people, need to alter their behavior and practices in order to improve their economic situations.

One of the main points of our report, “Umbrellas Don’t Make it Rain,” is to demonstrate that even when black folk behave in the “correct” way—through seeking education and working hard—they don’t necessarily see a significant improvement in their wealth position. The neoliberal narrative that focuses on individual actions can be powerful, but it’s not correct. And by rejecting it, one is able to instead think about different policies for inequality, rather than simply telling people to pull up their pants.

Q. What kinds of domestic policies might help reduce the racial wealth gap in the U.S.?

I’ve been an advocate of two programs which I describe as “universal but race-conscious.” That is, they would be applied universally, but would have disproportionately greater benefit for the groups that have been historically deprived.

The first is a federal job guarantee, which is an anti-poverty measure intended to address the problems associated with low wages or uncertain wages. By guaranteeing all adults access to the opportunity to work at non-poverty wages, this program would ensure a “living wage” for all. Existing proposals to raise the minimum wage or to mandate a living wage cannot accomplish that aim because you only can receive the minimum or living wage if you have a job. The job guarantee not only would protect individuals from unemployment, but would provide an assurance of a job for everyone at non-poverty wages. It also would include a benefits package containing the same health insurance plan that civil servants receive now. Such a program dramatically would reduce economic insecurity for low-income families and individuals.

The second measure is what we call the “baby bonds” proposal, which is an anti-inequality measure designed to address the wealth gap. This program would create public trust funds for all newborn infants that they could access when they reach eighteen. It’s simply universalizing the model that wealthy families already use—giving kids a trust that they can access at a certain age. The amount of the trust would be graduated based on the wealth position of the parents. And again, this would be a universal program—meaning that every child, regardless of how wealthy their parents are, would receive something—but those kids whose parents have less wealth would have greater amounts in their trusts.

I also favor a third big proposal, reparations for black Americans, as a social justice initiative to compensate for slavery, legal segregation (in the Jim Crow period) and ongoing discrimination.

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