DURHAM, N.C. – In his 2024 State of the Union address, President Joe Biden said the country’s racial wealth gap is the smallest it has been in 20 years.
However, a new paper from three collaborators at the Samuel DuBois Cook Center for Social Equity at Duke University provides an important correction: The modern racial wealth gap is in fact growing, in large part because of the cumulative impact of the country’s racial history, and intergenerational transfers of wealth from older generations to younger ones.
“When it comes to wealth inequality, a rising tide lifted all boats … inequitably,” said lead author Fenaba R. Addo, associate professor of public policy at the University of North Carolina-Chapel Hill and a Cook Center faculty affiliate. “Black-white wealth inequality persists, and it has expanded with the onset of the pandemic.”
The study, “Setting the Record Straight on Racial Wealth Inequality,” appeared in the May 2024 edition of AEA Papers and Proceedings and is available online.
Also co-authoring the paper were William A. Darity Jr., the Cook Center’s founding director and a professor of public policy, African and African American Studies and economics at Duke, and Samuel L. Myers Jr., a Cook Center distinguished fellow and the director of the Roy Wilkins Center for Human Relations and Social Justice, Hubert H. Humphrey School of Public Affairs at the University of Minnesota.
From 2019 to 2022, the most recent years in which the Federal Reserve’s Survey of Consumer Finances collected household wealth data, the mean gap in net worth between Black and white households grew from $841,900 to $1.15 million — a 38 percent increase that far outpaced inflation during the same period.
Why is this? A traditional view of how the racial wealth gap has developed — and might be alleviated — centers on human capital. It posits that Black households have lower levels of educational attainment, which in turn generates lower earnings and lower savings that can lead to wealth. By this logic, to eliminate the wealth gap, one must first eliminate the earnings gap.
However, the authors make clear the shortcomings of this narrative. Black households in the middle income quintile possess less than one-third the wealth of white households in the same quintile. Nor does education provide a useful lever: Black households headed by someone with a college degree have less wealth than white households led by one with a high school diploma or GED.
Moreover, the authors continue, it is evident that a more meaningful driver of the racial wealth gap is what the authors term the “intergenerational transmission chain.” The role of gifts and inheritances is often overlooked by economists. But familial wealth transfers enable younger generations to experience a sense of economic security and opportunity.
Indeed, income and earnings depend significantly on the wealth of a person’s parents and grandparents.
In other words, wealth begets wealth, and a lack of wealth begets a lack of wealth. As the authors write, because of perpetually inequitable opportunities for Black Americans to accrue wealth, “The story of Black-White wealth inequality in the United States is one of the typical white households consistently having more and the typical Black household holding a relatively small percentage of white wealth.”
Given this framing, Addo and her co-authors go on to highlight alternative policies that may prove more effective at closing the racial wealth gap.
They emphasize that federal tax laws have enabled wealthy families to pass wealth forward to future generations at low cost. Since this policy has primarily benefitted white families, future analysis and reform could prove beneficial to eliminating the racial wealth gap.
Moreover, the authors support reparations for Black Americans whose ancestors were enslaved in the United States, as that would raise the wealth of Black households while not adversely affecting white wealth.
Regardless, they argue that the first step to eliminating the wealth gap is a proper understanding of what has caused it: The inequitable racial history of the country, and the transmission — and lack of transmission — of resources across generations for white and Black Americans, respectively.
“Misleading narratives about wealth creation and the persistence of wealth inequality need to be challenged and corrected,” said Addo. “We aimed to do this with our paper.”
CITATION: Addo, Fenaba R., William A. Darity Jr., and Samuel L. Myers Jr. 2024. “Setting the Record Straight on Racial Wealth Inequality.” AEA Papers and Proceedings, 114: 169-73. DOI: https://doi.org/10.1257/pandp.20241102