The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide

EDITOR'S NOTE: Prosperity Now invited Tatjana to offer this guest blog post on IASP's groundbreaking new study on the burgeoning racial wealth gap.

Wealth inequality has become central to the debate over whether our nation is on a sustainable economic path. New research by Brandeis University's Institute on Assets and Social Policy (IASP) shows the dramatic gap in household wealth that now exists along racial lines in the United States. The IASP study, "The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide," followed 1,700 working-age households over what is now a 25-year period – from 1984 to 2009. This approach offers a unique opportunity to understand what happens to the wealth gap over the course of a generation and the effect of policy and institutional decision-making on how average families accumulate wealth.

This new study found the wealth gap almost tripled from 1984 to 2009, increasing from $85,000 to $236,500. The median net worth of white households in the study has grown to $265,000 over the 25-year period compared with just $28,500 for black households. The dramatic increase in the racial wealth gap has accelerated despite the country's movement beyond the Civil Rights era into a period of legal equality and the election of the first African-American president. The resulting toxic inequality now threatens the U.S. economy and indeed, American society, the study concludes.

Setting out to determine what is driving the disparity today, IASP was able to statistically validate five fundamental factors that together account for two-thirds of the proportional increase in the racial wealth gap. Those five factors include the number of years of homeownership; average family income; employment stability, particularly through the Great Recession; college education; and family financial support and inheritance. While marriage is another factor that was studied, its impact is quite small. Unmistakably, the rise in racial wealth inequality cannot solely be attributed to personal ambition and behavioral choices, but rather reflects policies and institutional practices that create different opportunities for whites and African-Americans.

The report recommends that policymakers take steps such as strengthening and enforcing fair housing, mortgage and lending policies; raising the minimum wage and enforcing equal pay provisions; investing in high-quality childcare and early childhood development; and overhauling preferential tax treatments for dividend and interest income and the home mortgage deduction.

These findings are discussed in detail in the report, which is available here. For more information, please visit iasp.brandeis.edu.

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