Researchers from the Samuel DuBois Cook Center on Social Equity at Duke University set out to address these questions and debunk common myths in their new study “Setting the Record Straight on Racial Wealth Inequality,” available here.
The wealth gap between Black and white households has not improved in over 50 years; in fact, it has slightly widened. Between 2019 and 2022, according to Federal Reserve data, the real disparity in the racial wealth gap in the U.S. grew by about 23 percent at the median and 16 percent at the mean.
Why is the gap between the wealth of Black households and their white counterparts not only persisting but deepening?
One mainstream view, held by many prominent economists, chalks it down to a gap in human capital. More education leads to higher earnings, which allows for more saving and, eventually, more wealth. Black households, the logic holds, have less wealth because their lower levels of human capital generate lower earnings and less savings.
To eliminate the racial wealth gap, this view argues, one must first eliminate the earnings gap.
The authors of this new study – Fenaba R. Addo, William A. Darity, Jr., and Samuel L. Myers, Jr. – poke several flaws in that logic, including that:
“When it comes to wealth inequality, a rising tide lifted all boats … inequitably,” said Addo, the report’s lead author and an associate professor of public policy at the University of North Carolina-Chapel Hill. “Black-white wealth inequality persists, and it has expanded with the onset of the pandemic.”
The mainstream view focused on earnings overlooks the crucial impact of inherited wealth, which the authors refer to as the “intergenerational transmission chain.” Black households are far less likely to receive familial inheritances or in vivo transfers, gifts made while the donor is still living like vehicles, access to education or homes. Just the anticipation of a gift or inheritance allows white families to make riskier investments, providing assurance for their decisions and thus deepening the divide.
Policy solutions should focus on directly addressing racial wealth disparities rather than simply trying to close the earnings gap.
Federal tax laws have allowed affluent families to transfer wealth to future generations inexpensively. Given that these policies mainly favored white families, reforming inheritance rules could help reduce the racial wealth gap.
How can the U.S. implement reforms that eliminate the racial wealth gap without driving white wealth down?
Another solution the authors recommend is reparations for Black Americans whose ancestors were enslaved in the United States. The most comprehensive plan for this does not involve confiscation of white assets.
The key to closing the wealth gap begins with acknowledging its origins – America’s unfair racial history and the unequal passing down of resources between white and Black American families across generations. ///