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Speaking of the Economy
white man on big stack of coins and black man on small stack of coins displaying a gap in earnings
Speaking of the Economy
April 27, 2022

Understanding the Black-White Wealth Gap

Audiences: Business Leaders, Community Advocates, General Public, Policymakers

Urvi Neelakantan and Kristen Broady review their research on differences in wealth between races and potential causes behind these differences. They also discuss potential solutions to closing wealth gaps. Neelakantan is a senior policy economist at the Richmond Fed and Broady is a senior economist, economic advisor, and director of the Economic Mobility Project at the Chicago Fed.



Tim Sablik: Welcome to Speaking of the Economy. I'm your host, Tim Sablik, a senior economics writer at the Richmond Fed. My guests today are Kristen Broady, senior economist, economic advisor and director of the Economic Mobility Project at the Chicago Fed, and Urvi Neelakantan, a senior policy economist at the Richmond Fed.

Kristen and Urvi, welcome to the show.

Kristen Broady: Thank you.

Urvi Neelakantan: Thank you.

Sablik: Both of you have been researching wealth gaps, which is the topic of our conversation today. Urvi, I thought we could start with you. You've dug into the data with your colleagues at Richmond. Maybe you could tell us, first, what is a wealth gap and what do wealth gaps look like across different groups?

Neelakantan: Yes, this is a topic that my co-authors at the Richmond Fed — Kartik Athreya, Grey Gordon, John Jones — and I have been working on for some years now. What motivated us initially was, to us, a puzzling fact that the wealth gap — by that, I just mean the difference in wealth between groups, and you can measure that in many different ways — that gap was so much larger than the income gap between black and white households.

It's puzzling at first glance if you think about the fact that wealth is largely dictated by income. You build wealth when your savings out of your income exceed your expenses. The black-white income gap is roughly two — white individuals earn about twice as much as black individuals. But the wealth of white households is up to six times higher as the wealth of black households. Of course, these numbers are smaller or larger when you look at subgroups: men versus women, for example, or young versus old households. John Jones and I are currently writing an Economic Brief that gets into some of the measurement of the details.

What contributes to the gap remains a bit of a puzzle. There are many different pieces, but exactly how much each contributes is, I think, not quite settled yet.

Sablik: Kristin, you've also been researching this topic. Maybe you could speak to some of the broad findings that you've had in your research.

Broady: Sure. When I was at the Hamilton Project at the Brookings Institution, I co-authored a report on the racial wealth gap. Based on information from the Survey of Consumer Finance[s], in 2019 the median white household held $188,200 in wealth. That was 7.8 times greater than a typical black family's wealth, which was $24,100.

Just to put it in a bit more perspective, this is a decades long trend. Over the past 30 years, the median wealth of white households has consistently dwarfed that of black households, ranging anywhere from a gap of $106,900 in 1992 to $185,400 in 2007. That's a really big gap. And in the second quarter of 2020, white households who account for 60 percent of the U.S. population held 84 percent, or $94 trillion, of total household wealth in the U.S. Comparatively, black households who accounted for 13.4 percent of the population held just 4 percent or $4.6 trillion. That's on a household level and on a broader level.

I could probably take this whole time to talk through income disparities, employment disparities. We've seen that as the pandemic has progressed, who goes to college and how they pay for it, who has student loan debt, which impacts how much money you have to be able to buy a house and how much those houses are worth and how much you then have to pass on to the next generation, which would help them to get started.

Sablik: Right. We'll be digging into some of those issues here today. But I wanted to pause and address a question that I think both of you probably have heard quite a bit. I think we can all agree that this is an important topic of research. But some of our listeners might be wondering why the Fed is interested in this topic.

Kristen, you recently joined the Chicago Fed from Brookings. How do you see this work connecting to the Fed's mission?

Broady: When we think about the mission of the Fed, it's to foster the stability, integrity and efficiency of the nation's monetary and payment system. Since 1977, the Federal Reserve has operated under a mandate from Congress to promote effectively the goals of maximum employment, stable prices, and moderating long-term interest rates.

My research has focused on the racial wealth gap and automation, among other things. We know that there are disparities in income, there are disparities in employment, there are disparities in education, all of these things that impact the goal of maximum employment, right? It's not just maximum employment for the U.S. overall, it's maximum employment for everyone, right? Everyone isn't at maximum employment because of discrimination, because of the racial wealth gap. Then, that's where these two things align.

Sablik: Urvi, how would you answer that question?

Neelakantan: I think Kristen's talked about the big factors. I'll talk about a specific piece of research that we are working on.

We both touched on the tight connection between income and wealth. There's been plenty of good work done on the income gap. But once my co-authors and I started looking into it, we realized that you have to start thinking about what keeps people from working and earning. You notice big differences among black and white men, in particular, in the likelihood or risk of being non-employed.

For less-educated men in particular, the risk of incarceration is not trivial. The U.S. has one of the highest rates, by far, of incarceration in the world. We tried to do just some careful statistical work to measure the correlation between incarceration and other forms of non-employment and earnings gaps. The economist Derek Neal pointed this out several years ago that research on incarceration is needed to understand the employment prospects of less skilled men, in particular. Once you're talking of understanding employment prospects, I think that's very much part of the context for the Fed's mission.

Sablik: Right. You both talked about employment and Kristen mentioned maximum employment, which is something that gets a lot of focus, especially during recessions or downturns. Do we have a sense of how this wealth gap impacted households' experiences during the COVID downturn?

Broady: One of the things that I look at is labor and automation. I wanted to share this statistic. Black and Hispanic workers account for 13 percent and 18 percent of U.S. labor, but they're over-represented in jobs that are at high risk of being automated. When I say high risk, I'm talking about Frey and Osborne's measure, where they have an automation risk score for each different job. So it's not just a made up risk.

Black workers are over-represented in 11 of the 30 jobs that employ the most Americans and are at high risk of being automated. Those 30 jobs employ 36 million people, right? When we look at what they are, it's cashiers and taxi drivers and cooks and jobs like that. So, when we think about the pandemic, some of those jobs were deemed essential in the beginning, which meant that those people – Black and Hispanic workers who were over-represented in those jobs — were more likely to get COVID. They were more likely to be exposed because they're in these face-to-face jobs. They're lower wage jobs and, in the next five to 10 years, they're at higher risk than many other jobs of being automated.

Just think about that impact, right, [of] not having steady work necessarily, not having a salaried job but one that is hourly or based on demand that also puts you at risk. And you may be less likely to have health benefits, such that if you do get COVID, how do you pay for the medical costs that you may incur? All of those are issues that were more likely to be experienced by Black and Hispanic workers.

Sablik: I imagine, too, having more wealth can act as a shield against some of the effects of economic downturn as well.

Broady: Yes.

Sablik: We've talked a bit about the effects of this gap. Based on your research, do we have any sense of what seems to be driving the wealth gap between Blacks and whites? Urvi, we can start with your research.

Neelakantan: Yeah, this is an active area of research. Kristin talked about some of the previous work that she's done on it. Work like hers and other people's has suggested a number of factors.

There is, of course, the long shadow of history. We can talk about how long of a shadow that's cast. We've talked about the tight connection between income and wealth. People have also talked about the role of inheritances, differences in expenditures. Think, for example, about the fact that differences in health can lead to large differences in medical expenditures. Differences in insurance could affect how you handle those [as well as] your investment portfolio in different assets, how much debt you hold, the rate of return on all of that. I could go on.

I think what's not quite settled, which is why we have the opportunity to work on it, is which of these factors matter the most. Are all of them playing a role or are there one or two that are the big things? Inheritances come up quite often, but only a small fraction of the overall U.S. population leaves bequests. So, we know that can't be the explanation for the gap in the whole distribution. Now, there may be a lot more wealth being transferred from parents to children while the parents are alive, and it's possible that this happens a lot more in white families than Black families. But the data on transfers that take place when the kids are alive is a little bit harder to come by.

Sablik: Kristen, did you want to add to that?

Broady: Yeah. Looking at data from 2019, we saw that white households were substantially more likely to expect and receive inheritances than Black households. 17 percent of white households expected to receive an inheritance compared to just 6 percent of Black households. When we look at what actually occurred, there's a really big difference. 30 percent of white households did receive an inheritance in 2019 at an average level of $195,500, compared to 10 percent of Black households actually receiving an inheritance and the amount was $100,000. So, we see more white families expecting [and] receiving an inheritance. And when they do, it's around $95,500 more on average. When you think about starting your family or sending children to college or buying a home, that's a really big difference.

Sablik: Right. Is there a sense from the research about any policies that can be taken to help close the wealth gap?

Neelakantan: You'd asked earlier about the Fed's role on this topic. My personal view is that the most promising solutions to addressing the wealth gap lie outside the Fed's policy mandates.

I think about the work that's been done on inequality more generally. While people might argue about specific numbers, I think there is broad agreement that prospects often get baked in by the time people reach their mid-20s. That leads us to look at what happened in their lives up to that point, which means you're talking about early childhood education, nutrition, maternal health, family circumstances, K-12 experience.

I think if you want to invest in improving people's financial outcomes, investing in all of the things I just listed is where you're likely to get the highest returns. Research by economists, such as the Nobel Prize winner James Heckman, has actually tried to quantify this. The returns that he and his co-authors have come up with are higher than on any financial asset you could name by orders of magnitude.

Sablik: Right. Kristen, you've also done quite a bit of research on the impact of education on these issues.

Broady: I'm looking at our paper, and this is really interesting to me. The median wealth of a single white man under the age of 35 is $22,640 — 3.5 times greater than that of a single white woman, 14.6 times greater than a single Black man, and 224 times greater than a single Black woman at that age, which is $101. That that's where we're starting under 35.

I'm not really sure what the Fed can do about this. But I agree that we do need to somehow focus on education: funding for public elementary and high school education, supporting HBCUs and MSIs, or minority serving institutions. When you start off with such a disparity, it makes it very difficult to be upwardly economically mobile.

Sablik: Right.

Broady: I think one of the things that the Fed and other government agencies can do is disaggregating data as much as possible. When we think about the various surveys that are collected, the time within which they're collected [and] who they are collected from, to try to disaggregate as much as possible and as much as ethically make sense so that we are including people from various races and genders. How can we come up with policy solutions for people that we may not be recognizing in the original data collection? I think just focusing on disaggregation, which again the Fed does, but continuing to do that is important.

Neelakantan: I really like the plug for the data because you run into this when you're trying to put the work out also. All the work that's been done has been done on men and white men because they're the bulk of most samples. You run into this when you do incarcerated. The very first cut of the data is, let's take out people who live in institutions. So, you don't even have data on them.

Sablik: Right. I think that speaks to a need to, as you said, hear from many different voices.

In the spirit of that, the Richmond Fed is hosting a District Dialogues event on May 12 to discuss these issues. Kristin, you'll be one of the panelists in that discussion.

Broady: Yes, I am looking forward to it.

Sablik: I definitely encourage our listeners who are interested in joining that discussion to visit our website at Or they could check out the link in the show notes to learn more about that event and how to attend online.

I think that our time is up for this discussion. Kristen and Urvi, I want to thank you both so much for coming on the show to talk about your research and giving us a little preview of the District Dialogues discussion.