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"Race, Wealth and Inequality in America"

November/December 1995 issue of Poverty & Race

by Melvin L. Oliver & Thomas M. Shapiro

African Americans have not shared equally in the nation's prosperity. They earn less than whites, and they possess far less wealth, whatever measure one may use. Table 4.4 presents data on income along with median wealth figures. The black-to-white median income ratio has hovered in the mid-50 to mid-60 percentage range for the past twenty years or so. Fluctuations have been relatively minor.... and in many ways American society became accustomed to this standard of inequality. In 1988 results from SIPP [the Survey of Income and Program Participation, a Census Bureau instrument introduced in 1984 to track entry into and exit from participation in various government social programs] showed that for every dollar earned by white households black households earned 62 cents.

The median wealth data expose even deeper inequalities. Whites possess nearly twelve times as much median net worth as blacks, or $43,800 versus $3,700: In an even starker contrast, perhaps, the median white household controls $6,999 in net financial assets while the median black household retains no NFA nest egg whatsoever. [As used in the book, Net Worth (NW) is the sum of all assets less debts; Net Financial Assets (NFA) excludes from that figure equity accrued in a home or vehicle.]

Access to Assets

The potential for assets to expand or inhibit choices, horizons and opportunities for children emerged as the most consistent and strongest common theme in our interviews. [In order to supplement their quantitative database, the authors conducted in-depth interviews with a small number of black families in Los Angeles and white families in Boston.] Since parents want to invest in their children, to give them whatever advantages they can, we wondered about the ability of the average American household to expend assets on their children.... We found a strong relationship between the amounts of wealth and the composition of assets. Households with large amounts of total net -worth control wealth portfolios composed mostly of financial assets. Financial investments make up about four-fifths of the assets of the richest households. Conversely, home and vehicle equity represents over 70% of the asset portfolio among the poorest one-fifth of American households, one in three of which possesses zero or negative financial assets.

Table 4.5 reports households with zero or negative net financial assets for various racial, age, education and family groups. It shows that onequarter of white households, 61% of black households and 54% of Hispanic households are without financial resources....

Besides looking at resource deprivation, Table 4.5 also sets criteria for "precarious-resource" circumstances. Households without enough NFA reserves to survive three months at the poverty line ($2,904) meet these criteria. ... 38% of white households and 79% of black households live in precarious-resource circumstances.

Among our interviewees, parents with ample assets planned to use them to create a better world for their children. Those without them strategized about acquiring some and talked about their "wish list." Parents talked about ballet lessons, camp, trips for cultural enrichment or even to Disney World, staying home more often with the children, affording full-time day care, allowing a parent to be home after day care. The parents discussed using assets to provide better educational opportunities for their children....

Figure 4.2 [not shown] looks at the percentage of children in resource-poor households by race. Analysis of [the] data discloses imposing and powerful racial and ethnic cleavages. For example, 40% of all white children grow up in households without financial resources, in comparison to 73% of all black children. Most telling of all perhaps, only 11% of black children grow up in households with enough net financial assets to weather three months of no income at the poverty level. Three times as many white kids live in such households....

Financial wealth is the buried fault line of the American social system: ... highly concentrated wealth at the top; .... steep resource inequality; the disproportionate asset reserves held by various demographic groups; the precarious economic foundation of middle-class life; and how few financial assets most American households can call upon.... Substituting what is known about income inequality for what is not known about wealth inequality limits, and even biases, our understanding of inequality. A thorough understanding of inequality must therefore pay more attention to resources than has been paid in the past.

Comparing Middle-Class Blacks and Whites

Table 5.1 displays the resources that middle-class whites and blacks command. This table incorporates the three ways in which we have previously defined the middle class: first, those earning between $25,000 and $50,000; second, those with college degrees; and third, those working at white-collar jobs, including the self-employed.

... Table 5.1 vividly demonstrates our contention that the black middle class stands on very shaky footing, no matter how one determines middleclass status. Most significant, we believe, is that blacks' claim to middleclass status is based on income and not assets. The net worth middle-class blacks command, ranging from $8000 for white-collar workers to $17 000 for college graduates, largely represents housing equity, because neither the middle-income earners nor the well educated nor white-collar workers control anything other than petty net financial assets. Without wealth reserves, especially liquid assets, the black middle class depends on income for its standard of living. Without the asset pillar, in particular, income and job security shoulder a greater part of the burden....

Income and Wealth

Theories of wealth accumulation emphasize income as the preeminent factor in wealth differentials.... [T]here is a clear relationship between income inequality and wealth accumulation: wealth accrues with increasing income. Since black households earn less than two-thirds as much as the average white household, it only makes sense to ask, to what extent can the gross wealth disparities that we have noted be explained by the well-known income inequality between whites and blacks? Examining blacks' and whites' wealth at similar income levels provides a clear and direct way to respond to this question. Standardizing for income permits us to test whether the black-white disparity in wealth holding emanates from income differences....

We standardized SIPP wealth data into four income brackets. Poverty-level households earn $11,611 or less. Moderate-level incomes range from $11,612 to $24,999. Middle-level household incomes fall between $25,000 and $50,000. High-income households bring in over $50,000. These data only represent households headed by those under age sixty-five, because we did not want the age effects noted in Chapter 4 to cloud the relationship between income, wealth and race....

The data [in Table A5.1, not shown here] are very convincing in one simple respect: differences in observed income levels are not nearly sufficient to explain the large racial wealth gap.... The black-to-white wealth ratio comes closest to equality among prosperous households earning $50,000 or more. Even here where the wealth gap is narrowest, however, blacks possess barely one-half (0.52) the median net worth of their high-earning white counterparts. For net financial assets, the mean ratio... ranges from 0.006 to 0.33. The highest earning black households possess 23 cents of median net financial assets for every dollar held by high-income white households. One startling comparison reveals that poverty-level whites control nearly as many mean net financial assets as the highest-earning blacks, $26,683 to $28,310. For those surviving at or below the poverty level.... poverty means one thing for whites and another for blacks. The general conclusion to be drawn from these straightforward yet very revealing tabulations is that the long-term life prospects of black households are substantially poorer than those of whites in similar income brackets. This analysis of wealth leaves no doubt regarding the serious misrepresentation of economic disparity that occurs when one relies exclusively on income data. Blacks and whites with equal incomes possess very unequal shares of wealth. More so than income, wealth holding remains very sensitive to the historically sedimenting effects of race....

The Composition of Wealth

Closely scrutinizing the composition of wealth may yield additional insights that help explain why the wealth gap between blacks and whites will increase. Table 5.3 [not shown] portrays the composition and distribution of assets for black and white households who held wealth in 1988. In findings consistent with previous studies, SIPP data show that consumable assets make up 73% of the value of all wealth held by blacks. Conversely, whites invest over one-half (51 %) of their aggregate wealth in income-producing assets, in comparison to 28% for blacks. Refining asset categories further to include only liquid financial assets (stocks, mutual funds; bank deposits, IRAs, bonds and income-mortgages), we find that blacks place only 13% of their wealth in direct income-producing assets. In sharp contrast, liquid financial assets account for almost one-third of the total white wealth package....

[The "conspicuous consumption" hypothesis-that lavish spending on cars; clothing and cultural entertainment accounts for blacks' lack of financial assets-is treated and rejected on pp. 107-108.]

Routes to Wealth and Poverty

... [R]acial income differences are not nearly sufficient to explain the large racial wealth disparity that exists in America today. Perhaps, then, we would do well to turn to an examination of certain demographic and social factors often said to cause or exacerbate racial inequality, such as education, age, labor market experience, occupation, family status, gender, number of workers in a household, number of children, industrial sector of employment and work stability....

[With regard to education,] [t]hree points merit emphasis here. First, white household income and wealth outdistance blacks' for similar educational accomplishments. White wealth accumulation at comparable educational levels is five to ten times greater than blacks. Second, increased education abundantly enhances resources for both whites and blacks. Third, even though increased education impressively rewards blacks, their returns dim in comparison to those of whites. To sum up, more formal schooling raises income and wealth for whites and blacks and narrows income inequality in the process, but improved education simultaneously enhances blacks' wealth and places them further behind similarly educated whites.... [Only the education findings are presented here; Oliver and Shapiro on pp. I11-125 of their book deal with the other social and demographic factors they mention: age, labor market experience, occupation, family status, gender, number of workers in household, number of children, industrial sector of employment and work stability.]

Race: The Key Variable

As is clear [from Figure 6.1, not shown], if blacks were more like whites with regard to the pertinent variables, then income parity would be close at hand. The average (mean) racial income difference would be reduced from $11,691 to $5,869. This robust reduction in income inequality is not repeated for wealth. A potent $43,143 difference in net worth remains, even when blacks and whites have had the same human capital and demographic characteristics. Nearly three-quarters (71 %) of the difference is left unexplained. A little over three-quarters of the difference in net financial assets is also unaccounted for. Taking the average black household and endowing it with the same income, age, occupational, educational and other attributes as the average white household still leaves a $25,794 racial gap. Clearly, something other than human capital and identifiably important social characteristics is at work here. We cannot help but conclude that factors related to race are central to the racial wealth gap and that something like a racial wealth tax is at work.

The sharp critic could easily respond to these results, however, by pointing out that we have not included in our analysis a central factor that may very, well account for,a great deal of the unexplained variance, namely marital status. The furor over marital status in relation to the economic condition of black America rages daily. The poor economic fortunes of black families are consistently, in both popular and scholarly discussions, linked to the disproportionate share of black female-headed households. If black households are poor, it is because they are headed by single women who have -not made the necessary human capital investments and who have not been active earning members of the labor force.

To demonstrate the relevance of these ideas for wealth, we conducted similar decomposition analyses for black and white married and single households.... For married heads, differences in wealth-related characteristics between whites and blacks explain 25.8% and 23.1% of the net worth and net financial assets wealth differentials.... Our results indicate that even if the barriers and disadvantages blacks face were leveled tomorrow, about three-quarters of the net worth and net financial assets racial wealth differences would remain. In other words, if married blacks shared income, educational, family, occupational, regional and work experience characteristics with whites, they would still confront a deficit of $46,294 in net worth and $27,160 in net financial assets....

Occupational Mobility and Race

SIPP data confirm and partially document that wealth is transmitted from one generation to another in two additional ways [ways in addition to assets transfer from one generation to another at various life stages and milestones, and inheritance]. First, they reveal the existence of distinctions between white and black patterns of occupational mobility. This part of the story is important, because it speaks to the comparative ability of white and black parents to pass along status... and to help their children move up the social and occupational ladders. Second, and more directly bearing on wealth, SIPP data in conjunction with our interviews highlight the vastly different wealth rewards that social mobility confers on whites and blacks. One classic aspect of the. American Dream is that children achieve a higher status than their parents. We ask if upward mobility carries with it similar levels of wealth for blacks and whites.

We examine mobility differences first by asking how much intergenerational occupational mobility was in evidence in American households in 1988.... Results reveal a tale of "two mobilities." For whites, the mobility figures for the general population are reproduced with a sharper emphasis on achievement and upward mobility. For blacks, the achievement pattern changes significantly. The white population in 1988 evidences high levels of occupational inheritance at the top, with slightly over 60% of those from upper-white-collar backgrounds maintaining their lofty status. Over 70% of those from lower-blue-collar origins achieve higher-ranking occupations.

The black intergenerational mobility trend differs substantially from both the overall and white patterns. The differences are particularly salient in a number of areas. First, blacks from favorable social origins cannot pass this advantage on to their children as readily as whites, most likely because they lack the wealth assets necessary to optimize their children's life chances.... [O]nly a little over one-third of the black parents from upper-white-collar backgrounds successfully transmit their status to their children. Second, blacks are more likely to experience a steeper "fall from grace"; twice as many blacks (0.234) as whites (0.116) from upper-white-collar backgrounds fall all the way to lower-blue-collar positions. Third, status inheritance for blacks is much more likely to produce negative results; nearly two out of five blacks from lower-blue-collar backgrounds remain stuck in unskilled and, for the most part, poorly paid jobs. Finally, rates of "long distance" upward mobility for this group are substantially lower (0.280) than for whites (0.364).

Another telling difference in mobility occurs for those with upper-blue-collar backgrounds, those from skilled blue-collar occupations. Nearly 6Wo of the whites from these backgrounds move up; among blacks, however, only slightly more than one-third do so. An astonishing one-half of all blacks who come from upper-blue-collar families fall to the bottom rung of the occupational hierarchy. The comparable figure for whites is 0.218, giving them less than half the downward mobility experienced by comparable blacks. A final indication of the difference between black and white mobility patterns resides in the tendency for blacks from lowerwhite-collar occupations not to make the short but important stride into professional occupations that typifies the white mobility trend. Less than three in ten blacks from lower-whitecollar families prove able to advance to upper-white-collar occupations, as more than five out of ten of their white counterparts do....

[The final section of the book "Getting Along: Renewing America's Commitment to Racial Justice" focuses largely on an asset formation strategy.]


Racial inequality is still the unsolved American- dilemma. The nation's character has been forged on the contradiction of the promise of equality and its systematic denial. For most of our nation's history we have allowed racial inequality to fester. But there are other choices. These choices represent a commitment to equality and to closing the gap as much as possible, and in so doing redefine the values, preferences, interests and ideals that define us....

To address these fundamental issues, to rejuvenate America's commitment to racial justice, we must first acknowledge the real nature of racial inequality in this country. We must turn away from explanations of black disadvantage that focus exclusively on the supposed moral failings of the black community and attempt to create the kinds of structural supports that will allow blacks to live full and socially productive lives. The effort will require an avowedly egalitarian antiracist stance that transcends our racist past and brings blacks from the margin to the mainstream....

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