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Racism & the Economy

How the racial wealth gap has evolved—and why it persists.

October 3, 2022

Lisa Camner McKay

Article Highlights

  • New dataset tracks evolution of racial wealth gap from 1860 to 2020
  • Racial wealth gap today is legacy of vastly unequal wealth for Black and White Americans following Civil War
  • Racial wealth gap has been stagnant for last 40 years due to differences in Black and White households’ wealth portfolios

— W. E. B. Du Bois , The Souls of Black Folk

The dawn of emancipation in the United States saw 4 million former slaves, 90 percent of the Black American population, gain their freedom. But they did so in poverty, as Du Bois describes: A few years prior, they had been counted as wealth, earning and owning nothing in their own name.

After emancipation, proposals to provide former slaves with land so they could survive economically were largely defeated . Thus in 1870, the wealth gap between Black and White Americans was a staggering 23 to 1 . That's equivalent to just $4 of wealth for Black Americans for every $100 for White Americans.

The mission of the Opportunity & Inclusive Growth Institute  is to conduct and promote research that will increase economic opportunity and inclusive growth for all Americans and help the Federal Reserve achieve its maximum employment mandate. Connect with us  to receive emails with Institute news, insights, and events.

Fast forward 150 years and that gap has narrowed to about 6 to 1—and yet, a significant gap remains: average per capita wealth of White Americans was $338,093 in 2019 but only $60,126 for Black Americans.

In the new Institute working paper “ Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860–2020 ,” former Institute visiting scholar Ellora Derenoncourt and colleagues Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick study the evolution of the Black-White racial wealth gap to understand how it has changed and what forces drove those changes.

“We wanted to see if there was something to be learned for policy: Do we see that certain periods were particularly good, particularly bad in terms of convergence? What conclusions can we draw from that?” Kuhn said about one motivation the author team had for undertaking the research.

Drawing on numerous historical resources, the economists construct a new dataset that fills in around 100 years of missing wealth data, from the 1880s to the 1980s, when modern surveys of wealth began. They then use a model of wealth accumulation to investigate the sources of the wealth gap.

So where does wealth come from? Yesterday’s wealth, mostly. Unlike income, which can change quickly—lose a job, take a new job—wealth builds slowly from interest on previous wealth and new savings from income. For that reason, “it takes a lot of time to build wealth and to close an existing wealth gap, especially if the world around you is not stopping to accumulate wealth,” Kuhn said.

The economists’ analysis suggests that, more than 150 years after the end of slavery, today’s racial wealth gap is the legacy of very different wealth conditions after emancipation. While the White-Black income gap has narrowed over time, differences in Black and White Americans’ capital gains rates and savings rates throughout history have slowed the convergence (closing the gap) between Black and White wealth.

The result: An enduring wealth gap that shows no sign of resolving. “It was interesting for us to see how extremely persistent the racial wealth gap is. We saw a lot of things changing in the U.S. economy in the last 70 years, but the racial wealth gap seems to be pretty ignorant of all that,” Kuhn observed.

Evolution of the racial wealth gap

Tracing 150 years of the racial wealth gap 1 reveals rapid early progress followed by frustrating stagnation (Figure 1).

Dawn of emancipation: 1870 to 1900

The thirty years following emancipation saw rapid narrowing of the racial wealth gap, falling from a ratio of 56 to 1 in 1860 on the eve of the Civil War to 23 to 1 in 1870 following emancipation and 11 to 1 in 1900. (In 2019 dollars, that comes to average wealth of $34,000 for a White American and $3,100 for a Black American.) White slaveholders’ loss of slaves as “wealth” explains about a quarter of this convergence. The rest was due to a higher wealth accumulation rate for Black Americans than White Americans.

This convergence, however, is more a matter of statistics than reflection of meaningful economic or political change. Because Black Americans’ wealth was so low in 1870, even small gains translated to big percent increases in wealth and thus large reductions in the wealth gap, even though the difference in the amount of average wealth held by Black Americans and White Americans remained large.

Unfortunately, this period of rapid convergence was relatively short-lived. Proposals to redistribute property to former slaves, such as General William Sherman’s field order allowing freed slaves to establish 40-acre farms on federal land, ultimately failed to garner sufficient political support, and early enforcement of Black Americans’ rights were similarly reversed. By 1900, a racist economic and social order was largely restored.

Racist resurgence: 1900 to 1930

Between 1900 and 1930, the racial wealth gap narrowed tepidly, at a rate around 0.3 percent a year. During this period, Black Americans’ share of national wealth stayed fairly constant, at 1 percent (Figure 2).

“Barriers to Black economic progress were pervasive in the post-Reconstruction era,” the economists observe. For instance, Black Americans had limited access to financial institutions or credit ; they had little opportunity to purchase land; they experienced the violent destruction of their property; they faced widespread discrimination in education and the labor market. In the South, the vast majority of Black farmers were renters or sharecroppers in an economic system that hindered Black workers’ economic progress because White landlords were able to capture their tenants’ improvements to the land simply by not renewing the lease.

Global upheaval: 1930 to 1960

Wealth convergence picked back up modestly during this period, and by 1960 the gap was 8 to 1. (In 2019 dollars, that translates to average wealth of $76,000 for White Americans and $9,000 for Black Americans.) A closer look at the timing reveals this does not appear to be the result of New Deal economic relief or new social insurance policies, which tended to exclude sectors with large representations of Black workers. Rather, labor market dynamics around the time of World War II led to Black workers moving into higher-paying occupations, notably related to war production and defense, which reduced the racial income gap and led to greater gains in Black Americans’ wealth. This movement was facilitated by President Franklin D. Roosevelt’s Executive Order 8802 , which banned “discrimination in the employment of workers in defense industries or government because of race, creed, color, or national origin.”

Civil rights: 1960 to 1980

The civil rights movement was responsible for the fastest period of racial wealth convergence since 1900. Tireless efforts by Black activists to demand equal rights and protections led to the passage of numerous laws that reduced social, political, and economic discrimination, including the Civil Rights Act of 1964, the Voting Rights Act of 1965, the Fair Housing Act of 1968, and expansions to the Fair Labor Standards Act, which sets federal minimum wage policies.

These legislations helped narrow the racial income gap, which in turn narrowed the wealth gap; it fell from 8 to 1 in 1960 to 5 to 1 in 1980. Figure 2 shows that Black Americans’ share of national wealth started increasing more rapidly in 1960 even as the total U.S. population of Black Americans was also increasing.

Stagnation: 1980 to 2020

And then—convergence stopped. In the 40 years between 1980 and 2020, the racial wealth gap actually increased by the equivalent of 0.1 percent a year. The reasons for this stagnation are discussed in the section “A widening gap: The role of capital gains” below.

Unequal initial wealth, unequal wealth accumulation

The next step in the economists' research is to analyze the causes of the racial wealth gap. To do this, they engage in a thought experiment: What if Black and White Americans started with the radically different levels of wealth in 1870 that they did in real life, but their wealth accumulation rates were identical after that? The resulting wealth gap in 2020 would be about 3 to 1 ($100 dollars of White wealth for every $33 dollars of Black wealth). That’s about half of what the actual wealth gap is today, suggesting that unequal levels of wealth in 1870 are a major source of today’s racial wealth gap.

The fact that today’s racial wealth gap is larger than it would be under this optimistic scenario is due to unequal wealth accumulation rates, which of course haven’t been identical for White and Black Americans, as the brief history above of political and economic exclusion makes plain.

Wealth accumulation can be described as a fairly straightforward equation. It starts with yesterday’s wealth and the interest earned on that wealth (capital gains rate). Add to that new savings from income, which is the product of yesterday’s income level, how much income has changed (income growth rate), and how much of that income is saved (savings rate).

While historical data on these rates is difficult to come by, since at least 1950, White Americans have enjoyed a higher average savings rate and capital gains rate than Black Americans (see Table 1).

What drove wealth convergence, then? The income growth rate. The economists estimate that the average annual income growth rate for Black Americans was larger than that of White Americans from 1870 to about 1980. At that point, income convergence stalled; over the last 40 years, the annual income growth rates for Black and White Americans have been essentially the same.

A widening gap: The role of capital gains

Now that income convergence has stalled, the difference in the capital gains rate experienced by Black and White households is the main factor pushing their wealth apart.

The role of capital gains is particularly important here. The high rate of return to capital holdings over the last 40 years—economic parlance for “stocks have really gone up a lot”—is a leading cause of the wealth dispersion in the United States today. According to analysis by economist Emmanuel Saez and others, wealth has become significantly more concentrated during this period: In 1980, the richest 0.1 percent of Americans—about 160,000 households—owned 7.7 percent of national wealth. In 2020, they owned 18.5 percent.

“Given that there are so few Black households at the top of the wealth distribution,” Derenoncourt and co-authors write, “faster growth in wealth at the top will lead to further increases in racial wealth inequality.”

And that’s what’s happening now. On average between 1950 and 2010, Black households held about 7 percent of their wealth in stock equity; among White households, it was 18 percent (Table 2). The portfolios of White households are also more diversified than Black households, which are concentrated in housing wealth. Housing has appreciated since the 1950s, but stock equity has appreciated five times as much.

“At a more general level,” Kuhn stated, “this research emphasizes how important portfolio choice and investment behavior is. It’s not only about putting money aside, but where you put it.”

Why wealth matters

The distribution of wealth in the United States comes under frequent scrutiny because of how skewed it is—and because wealth is a determinant of social and economic outcomes far beyond what someone can buy.

“Wealthier families are far better positioned to finance elite independent school and college education, access capital to start a business, finance expensive medical procedures, reside in higher amenity neighborhoods, lower health hazards, etc.; exert political influence through campaign financing; purchase better counsel if confronted with the legal system, leave a bequest, and/or withstand financial hardship resulting from any number of emergencies,” Institute advisor William Darity Jr. and Darrick Hamilton wrote in a 2010 article analyzing policies to address the wealth gap.

It matters a great deal, then, that White Americans hold 84 percent of total U.S. wealth but make up only 60 percent of the population—while Black Americans hold 4 percent of the wealth and make up 13 percent of the population. Put another way: The wealth of the richest 400 Americans is approximately equal to that of 43 million Black Americans.

The historical analysis and counterfactual simulations by Derenoncourt, Kim, Kuhn, and Schularick provide useful context for thinking about policies to address the racial wealth gap. Without redistribution, the wealth gap will likely persist for centuries. But redistribution alone, without attending to disparities in wealth accumulation, will see the gap reemerge. These approaches, the economists argue, are complimentary.

They are also necessary if the wealth gap is to meaningfully narrow before another 150 years slip by.

Suggested citation: Lisa Camner McKay, “How the Racial Wealth Gap Has Evolved—And Why It Persists,” Federal Reserve Bank of Minneapolis, October 3, 2022, https://www.minneapolisfed.org/article/2022/how-the-racial-wealth-gap-has-evolved-and-why-it-persists .

1 The economists actually compare Black wealth to non-Black wealth—that is, the average wealth among all groups except Black Americans—because the data does not allow them to separate out the wealth of other racial/ethnic groups. As a check, they compare their estimate of non-Black wealth to an estimate of White wealth in the periods 1860–1880 and 1960–2020; the estimates are very similar. Racial/ethnic groups other than White and Black were quite small in the United States prior to 1950. And because White Americans are the wealthiest racial/ethnic group in the United States, using “non-Black wealth” likely underestimates White wealth and therefore underestimates the Black-White wealth gap.

Lisa Camner McKay is a senior writer with the Opportunity & Inclusive Growth Institute at the Minneapolis Fed. In this role, she creates content for diverse audiences in support of the Institute’s policy and research work.

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n African-American man drinking at a "colored" drinking fountain in a streetcar terminal in Oklahoma City, Oklahoma, 1939

Why history continues to shape racial inequality in the US

  • Lukas Althoff
  • Hugo Reichardt

Nearly 160 years after the end of slavery, significant disparities persist between Black and white Americans. This column studies the long-run effects of slavery, and the Jim Crow laws that enforced racial segregation following the Civil War, on Black Americans’ economic outcomes. Those whose ancestors were enslaved until the Civil War have less education, income, and wealth than Black families whose ancestors were free – disparities that persist not simply because of slavery, but because most families enslaved until the Civil War lived in states with strict Jim Crow regimes when slavery ended.

Nearly 160 years since the end of slavery, significant disparities in education, income, wealth, and other metrics continue to exist between Black and white Americans (e.g. Margo 2016, Chetty et al. 2018, Derenoncourt et al. 2022). Policy proposals designed to compensate descendants of enslaved people have recently regained both public and academic attention (Coates 2014, Darity and Mullen 2020a, 2020b, Ray and Perry 2020). Still, the concept of reparations remains divisive, possibly because perceptions diverge on why these inequalities persist. Black Americans and white Democrats tend to attribute racial inequality to past injustices, whereas white Republicans often point to individual choices or insufficient effort (Alesina et al. 2021).

Our latest research presents unprecedented evidence of how deeply racial inequality was entrenched by anti-Black institutions (Althoff and Reichardt 2024). Our results reveal that Black Americans whose ancestors were enslaved until the Civil War still have far lower economic status than Black Americans whose ancestors were free earlier. When and where their environment allowed, formerly enslaved families made considerable economic strides in the decades after becoming free. However, most families who were enslaved until the Civil War lived in regions where Jim Crow laws significantly impeded their economic advancement for almost a century after emancipation. Our evidence highlights the persistent systemic oppression of Black families in the Jim Crow South, which has severely limited their ability to achieve their full economic potential.

It is only recently that such research has become possible. Measuring the degree to which Black families’ economic status is still influenced by the experiences of their ancestors is challenging. Many Black Americans themselves may not know their ancestors’ full stories, making it difficult to measure the long-term effects of enslavement and discrimination. Therefore, researchers face the difficult task of gathering and tracking vast amounts of modern and historical data for individual families to quantify the effects of these experiences. However, recent methodological breakthroughs, such as automated record linkage (Abramitzky et al. 2021), have made this task feasible.

We have developed two innovative methods to identify the enslavement status of Black Americans’ ancestors. The first approach involves tracing the records of Black Americans from the present day back 160 years to their ancestors’ records. The earliest US censuses, in 1850 and 1860, recorded free Black Americans but not enslaved individuals; we classified those whose ancestors can be found in these censuses as descendants of free Black Americans and those whose ancestors could not be found as descendants of enslaved Black Americans. The second method is based on the surnames of Black families. We leveraged the fact that the surnames of free Black Americans often differ from those chosen by enslaved individuals who were freed after the Civil War. Specifically, we assessed the probability of each surname being linked to free Black families versus enslaved families by examining changes in surname frequency across censuses, comparing records exclusively listing free Black Americans to those incorporating (formerly) enslaved families.

Our new methods revealed a stark disparity: Black Americans whose ancestors were enslaved until the Civil War still face significant educational, income, and wealth gaps compared to descendants of those who gained their freedom earlier (see Figure 1). This gap, which we refer to as the ‘Free-Enslaved gap’, remains massive even in 2023, taking on magnitudes equal to 20–60% of the corresponding Black-white gaps.

Figure 1 Free-enslaved gap, 1870–1940

Figure 1 Free-enslaved gap, 1870–1940

Notes : Figure shows the gaps in literacy and occupation skill among prime-age (20–54) male descendants of enslaved versus free Black Americans in each census decade.

Barriers to black economic progress after slavery.

In 1865, when the Civil War ended slavery in the US, two groups of Black Americans existed. One group comprised newly freed Black families in the South (see Figure 2), who often emerged from the Civil War with no belongings and no ability to read or write. The other group was smaller and consisted of Black Americans who had been free before the war, many of them for several decades. These families could be found in both the North and South and had gained some level of wealth and education.

Figure 2 Population by county in 1860

Figure 2 Population by county in 1860

Notes : Figure shows the population sizes of enslaved Black Americans and free Black Americans in the 1860 census.

After the abolition of slavery, Black Americans experienced a short period of progress known as Reconstruction. During this time, many Black Americans learned to read and write. Black men’s participation in voting also reached levels comparable to today’s rates, and many held political office. These achievements were possible due primarily to the presence of Northern Union troops, which ensured that the basic rights of Black Americans were protected in the South after the Civil War.

However, the Jim Crow era began to significantly limit Black economic progress when Reconstruction efforts were abandoned, only 12 years after the end of slavery. Immediately after a political compromise led to the withdrawal of Northern troops in 1877, Southern states began to pass restrictive laws designed to limit Black economic progress. The Jim Crow regimes in different states had varying intensities, often taking away Black Americans’ ability to vote, restricting their economic and geographic mobility, and racially segregating various aspects of life. Black economic progress began to drastically diverge across Southern states after Jim Crow regimes were implemented.

Our results show that Black families whose ancestors had been freed in states that adopted more oppressive policies made far less economic progress during the next century than those freed just a few miles away, on the less oppressive side of the same border (see Figure 3). To investigate the impact of Jim Crow, we zeroed in on Black families whose ancestors were freed in counties located along state borders within the South. For example, under Louisiana’s strict Jim Crow regime, Black families attained over a year’s less education by 1940 compared to families who were freed just a few miles away, in Texas – a state with a far weaker Jim Crow regime. The differences in long-term economic progress that emerged across each state border within the South can be explained by the differential intensity of their Jim Crow regimes. Jim Crow negatively impacted not just education, but also voter participation, school quality, and many other outcomes that were critical to Black economic progress.

Figure 3 Regression discontinuity estimates and Jim Crow

Figure 3 Regression discontinuity estimates and Jim Crow

Notes : Figure relates regression discontinuities (RD) in Black economic progress across state borders (vertical axis) to differences in the intensity of states’ Jim Crow regimes (horizontal axis). Each separate RD estimate is measured in 1940 years of education for Black families whose ancestors were freed on different sides of state borders in 1865. Each label shows the more oppressive before the less oppressive state as measured by the Historical Racial Regime index (Baker 2022). Negative estimates reflect lower education in more oppressive states. Lines show the best linear fit between RD estimates and the differences in Jim Crow intensity, weighted by the inverse of the estimates’ standard error. Shaded areas represent robust 95% confidence bands.

Our findings not only demonstrate the severe, negative impact of Jim Crow laws on the economic progress of the Black community, but also suggest that Jim Crow is the main reason why descendants of families enslaved until the Civil War still have lower economic status than Black families who were freed earlier. If formerly enslaved families had not been concentrated in the centre of Jim Crow, but rather distributed across the country like free Black Americans, the gap between free and enslaved Black families would have been closed by 1940.

Repairing the impact of historical discrimination

While our work stresses that systemic barriers have been a key reason why past discrimination continues to shape racial disparity today, we also show that targeted policies can repair the harm done by those institutions. Specifically, we study one of the most successful educational interventions in US history: the Rosenwald School programme (1910s to 1930s). This programme brought 5,000 schools for Black children to the South, schooling one-third of all Black children during the late Jim Crow era (Aaronson and Mazumder 2011). We show that Black children under the most oppressive regimes benefited the most from gaining access to such a school. This result highlights the immense demand for education that existed among Black Americans even if the returns to education were likely limited at the time.

The economic fate of Black families today remains heavily influenced by conditions set in place more than 160 years ago, underscoring the urgent need for policies that address these deep-rooted disparities. Our research highlights the ways that institutions like Jim Crow, established post-slavery, significantly hindered the economic advancement of formerly enslaved people and their descendants (see also Katznelson 2006, Acharya et al. 2018). Consequently, reparations should not only acknowledge the legacy of slavery but also address subsequent anti-Black institutions. For example, US Senator Raphael Warnock proposed legislation in 2023 to repair the negative effects of discriminatory practices that largely excluded Southern Black veterans from one of the most significant government initiatives in US history, the WWII GI Bill (Warnock 2023, Bound and Turner 2003, Fetter 2013, Althoff and Szerman 2024).

Aaronson, D and B Mazumder (2011), “The Impact of Rosenwald Schools on Black Achievement”, Journal of Political Economy 119(5): 821–88.

Abramitzky, R, L Boustan, K Eriksson, J Feigenbaum and S Pérez (2021), “Automated Linking of Historical Data”, Journal of Economic Literature 59(3): 865–918.

Acharya, A, M Blackwell and M Sen (2018), Deep Roots: How Slavery Still Shapes Southern Politics , Princeton University Press.

Alesina, A, M Ferroni, G Giupponi, C Landais, A Lapeyre and S Stancheva (2021), “ Perceptions of racial gaps, their causes, and ways to reduce them ”, VoxEU.org, 12 November.

Althoff, L and H Reichardt (2024), “Jim Crow and Black Economic Progress After Slavery”, Working Paper.

Althoff, L and C Szerman (2024), "The G.I. Bill and Black-White Wealth Disparities", Work in Progress.

Baker, R (2022), “The Historical Racial Regime and Racial Inequality in Poverty in the American South”, American Journal of Sociology 127(6): 1721–969.

Bound, J and S Turner (2003), “Closing the Gap or Widening the Divide: The Effects of the G.I. Bill and World War II on the Educational Outcomes of Black Americans”, Journal of Economic History 63(1): 145–77.

Chetty, R, M Jones, N Hendren and S Porter (2018), “ Race and economic opportunity in the United States ”, VoxEU.org, 27 June.

Coates, T (2014), “The Case for Reparations”, The Atlantic , June.

Darity, W and K Mullen (2020a), From Here to Equality: Reparations for Black Americans in the Twenty-First Century , University of North Carolina Press.

Darity, W and K Mullen (2020b), “Black reparations and the racial wealth gap”, Brookings, 15 June.

Derenoncourt, E, C H Kim, M Kuhn and M Schularick (2022), “ Wealth of two nations: The US racial wealth gap, 1860–2020 ”, VoxEU.org, 4 July.

Fetter, D (2013), “How Do Mortgage Subsidies Affect Home Ownership? Evidence from the Mid-Century GI Bills”, American Economic Journal: Economic Policy 5(2): 111–47.

Katznelson, I (2006), When Affirmative Action Was White: An Untold History of Racial Inequality in Twentieth-Century America, New York: W. W. Norton.

Margo, R (2016), “ The persistence of racial inequality in the US ”, VoxEU.org, 8 June.

Perry, A and R Ray (2020), “Why we need reparations for Black Americans”, Brookings, 15 April.

Warnock, R (2023), “ Senator Reverend Warnock Reintroduces Legislation to Provide Full GI Bill Benefits to Families of Previously-Denied Black WWII Veterans ”, warnock.senate.gov, 8 November.


The persistence of racial inequality in the US

  • Robert Margo
  • Economic history
  • Poverty and Income Inequality


Wealth of two nations: The US racial wealth gap, 1860-2020

  • Moritz Schularick
  • Chi Hyun Kim
  • Moritz Kuhn
  • Ellora Derenoncourt


Race and economic opportunity in the United States

  • Sonya R. Porter
  • Nathan Hendren
  • Margaret R Jones

Diverging employment pathways among young adults 

Download the Data Appendix here

In this essay, we explore how wage and benefits pathways differ between Black, white, and Latino or Hispanic adults who experienced socioeconomic disadvantage in a dolescence. We find:

  • Upward career mobility leads to higher wages for white adults than for Black and Latino or Hispanic adults. On average, Black and Latino or Hispanic adults in their respective highest-earning trajectory groups earn between 68% to 75% of the average annual earnings of white adults in the highest-earning group. In the second-highest-earning groups, Black and Latino or Hispanic adults also consistently earn less than white adults.
  • Higher-earning groups had relatively high rates of military service, particularly among Black and Latino or Hispanic adults.
  • Among the lowest earners, Black adults had the highest incarceration rates and white adults had the highest rates of work-limiting health conditions.

In a perfectly equitable society, race or ethnicity would not be systematically associated with advantage or disadvantage . But when we examine how employment pathways vary among Black, Latino or Hispanic, and white adults who experienced socioeconomic disadvantage in their teens, that is not what we find (nor is it what other researchers have found when examining economic mobility).

In fact, in Essay 3 of this series, we found that race and ethnicity play a role in predicting the outcomes experienced by these young people even when controlling for a host of other factors. Simply being white or Latino or Hispanic increases the probability of being in an upwardly mobile trajectory group compared to being Black. And as shown in this essay, the wages of Black and Latino or Hispanic adults in higher-earning trajectories are considerably lower than the wages of white adults in higher-earning trajectories.

Who is in the study population?

To identify adults who experienced socioeconomic disadvantage in adolescence, we assess whether they met any of the following criteria in their teens:

  • Lived in a low-income family
  • Neither parent had a postsecondary degree
  • Mother was aged 19 years old or younger when her first child was born
  • Family received public assistance

Anyone who met at least one of the above criteria is included in the analysis.

Early career mobility looks different for white young adults than for Black and Latino or Hispanic young adults

After running separate analyses by race/ethnicity, we find that each population falls into four trajectory groups with similar patterns. They all have one group with very low wages, little wage growth, and few benefits, and they all have three more groups with gradations of higher wages and steeper growth. But wage levels and the rates of growth vary substantially between racial/ethnic populations.

Indeed, economic mobility looks strikingly different depending on race and ethnicity. Among white people, every trajectory group at age 30 has higher earnings than the corresponding trajectory groups among Black and Latino or Hispanic people.

In the lowest-earning group, Group 1 , average annual wages are very low for everyone ($5,000 or less) and poverty rates are extremely high at age 30: 78% of Black people in this group live below the poverty line, as do 46% of Latino or Hispanic people and 42% of white people. Very few people of any race/ethnicity receive any employer-related benefits. More than one-quarter of the Black population falls into this group, compared to 19% of the white population and 15% of the Latino or Hispanic population.

Group 2 has relatively low earnings and sluggish growth for all races and ethnicities. At age 30, average annual earnings for White Group 2 are about $20,000, compared to $17,000 for Latino or Hispanic Group 2 and $14,000 for Black Group 2. Benefit levels are fairly low for everyone, but are slightly higher among white people. Among both Black and white young adults, Group 2 is the most common trajectory group, accounting for 34% of the Black population and 38% of the white population.

In the second-highest-earning group, Group 3 , white adults also have a substantial advantage. At age 30, their average annual earnings are $46,000, compared to about $30,000 among Black Group 3 and $35,000 among Latino or Hispanic Group 3. White Group 3 has a slightly higher benefits index (2.4) than Black Group 3 (1.9) and Latino or Hispanic Group 3 (2.0). (See Essay 2 for a description of the benefits index scoring.) This is the most populous group among Latino or Hispanic people, accounting for 41% of the population.

Economic mobility is greatest among Group 4 for all races/ethnicities we analyzed. It has the steepest wage growth and the highest earnings by age 30, but average annual earnings among Black Group 4 and Latino or Hispanic Group 4 at age 30 are $65,000 and $70,000 respectively, compared to $108,500 among White Group 4. Benefit levels at age 30 are fairly high for everyone. Relatively small shares of each race/ethnicity fall into this group: 9% of white adults, 11% of Black adults, and 15% of Latino or Hispanic adults.

The trajectories of all three populations reflect common patterns, but also differ in important ways

Despite their differences, the trajectories of the different racial/ethnic groups are all shaped by the same well-established labor market and societal patterns, and thus bear certain resemblances to each other. Indeed, they align with the patterns described in the second essay in this series, which reported on the analysis of the study population as a whole, not disaggregated by race/ethnicity.

We list these similarities below and refer you to Essay 2 for more detail:

  • Adults who started with the fewest economic resources in adolescence struggle the most to achieve economic mobility.
  • Poverty rates are extremely high for lower-earning trajectory groups.
  • Those in higher-earning trajectory groups work more consistently, are more likely to work full time/year-round, and have higher education levels than lower-earning trajectory groups.
  • Incarceration, work-limiting health conditions, teen parenthood, and disconnection from school and work are most common among the groups with the flattest earnings trajectories.
  • Military experience and working in a job that is covered by a union contract are most common among the groups with the highest upward mobility.

However, beyond these similarities, trajectories for racial/ethnic groups also differ in important ways.

The racial wealth gap persists, even among those from disadvantaged backgrounds

Among all races/ethnicities, those in the higher-earning trajectories come from families with greater wealth than those in lower-earning trajectories. But wealth levels are higher among the white population at every earnings level. For example, median parental wealth among White Group 4 is approximately $114,000—about four times that of Latino or Hispanic Group 4 ($28,000) and three times of Black Group 4 ($36,000). These disparities apply in the lowest-earning groups as well, with median parental wealth at about $31,000 for White Group 1, $12,000 for Latino or Hispanic Group 1, and $6,000 for Black Group 1.

White and Latino or Hispanic women are disproportionately likely to be low earners compared to white and Latino or Hispanic men

About two-thirds of the members of White Group 1 and Latino or Hispanic Group 1 are women, and females account for decreasing shares of the trajectory groups as earnings rise. Only 17% of White Group 4 and 23% of Latino or Hispanic Group 4 is female. Gender segregation is not nearly as prominent among the Black trajectory groups, as women make up between 43% to 53% of each trajectory group. In fact, women are slightly underrepresented among the lowest Black earners, making up 43% of that group, compared to 49% of the study population as a whole.

Work-limiting health conditions are most common among white low earners

Among all races/ethnicities, work-limiting health conditions are more common among the lowest earners. But rates are highest among White Group 1 members, 28% of whom have a work-limiting health condition at age 27, compared to 18% of Black Group 1 members and 20% of Latino or Hispanic Group 1 members. Since survey respondents define “work-limiting health condition” for themselves, these conditions likely refer to a wide range of situations and problems.

Incarceration rates are high among all low earners, but particularly among Black people

Across races/ethnicities, a history of incarceration is much more common among Group 1 and 2 than the higher-earning groups. But among Black people, rates are very high: More than one-third of Black Group 1 members and 17% of Black Group 2 members have been incarcerated. Rates are lower (although still high) among the other lower-earning groups: More than 20% of both white and Latino Group 1 members have been incarcerated, as have about 15% for white members and 14% for Latino or Hispanic members of Group 2.

Military experience is most common among Black and Latino or Hispanic Group 4 members

The highest-earning groups among both Black and Latino or Hispanic people are disproportionately made up of those with military experience. Twenty percent of Black Group 4 and 17% of Latino or Hispanic Group 4 served in the military, compared to 5% of the Black study population and 7% of the Latino or Hispanic study population. Among Black Group 3 and Latino or Hispanic Group 3, about 8% and 9% percent have military experience, respectively. Among white individuals, about 11% of both Group 3 and 4 served in the military, relative to 7% of the white study population as a whole.

Among the highest earners, white people are more likely than Black and Latino or Hispanic people to work in construction and production occupations

Across all races/ethnicities, members of higher-earning trajectories are more likely to work in management and professional jobs. By age 30, approximately 40% of Black Group 4, white Group 4, and Latino or Hispanic Group 4 are in these roles. White Group 4 also has high shares of workers in construction, production, and transportation at age 30 (39%)—considerably higher than Latino or Hispanic Group 4 (29%) and Black Group 4 (23%). Similarly, members of lower-earning trajectories are much more likely to work in service occupations. Notably, Black Group 1 has substantially higher shares of members in service occupations at age 30 (55%) than other trajectories and other racial/ethnic groups.

Too many young people are falling behind in the transition to adulthood. This is true for every race and ethnicity. But notable differences between groups point to stressors and barriers affecting some more than others.

The high incarceration rates among Black people in our analysis reflect the higher rates of surveillance and racial bias in law enforcement and sentencing that Black communities face. This sets off a deeply negative spiral —damaging future employment prospects for those with a criminal record, disrupting family and community bonds, and increasing the likelihood of future criminal justice involvement.

The prevalence of work-limiting health conditions among the lowest earners (particularly among white people) tracks with other research on the potential causes of declining labor force participation . Most notably, researchers Anne Case and Angus Deaton found an increase in sickness and death among white people with a high school diploma or less. Subsequently, they linked this declining health with the cumulative disadvantages experienced by white people with less than a college degree as the economy and labor market have shifted.

The military, by contrast, appears to play a disproportionately positive role in the economic prospects of Black and Latino or Hispanic individuals. This aligns with the argument that the military provides a path to socioeconomic advancement for people of color and people from low-income backgrounds. Of course, fighting racism in the ranks is an ongoing concern . And others critique the military as a route for social mobility, arguing that its recruitment efforts disproportionately target high schools with student bodies that are predominantly low-income, Black, or Latino or Hispanic —trading on these groups’ more constrained postsecondary opportunities.

Lastly, although this analysis did not address racial discrimination in the labor market, our findings are consistent with research findings on discrimination. For example, job seekers with stereotypically “Black” names on their resume are less likely than those with “white” names to get callbacks from employers, even when they have similar qualifications. Other research makes it clear that Black and Latino or Hispanic workers face undeniable discrimination in the labor market, noting that the “magnitude and consistency of discrimination” in hiring is a “sobering counterpoint” to more optimistic assessments about the declining significance of race. In addition to hiring, racial discrimination manifests itself in the assignments workers are given and the ways their performance is judged and rewarded, which in turn affects career progression . Thus, the lower payoffs people of color experience reflect racism at every stage in the pathway to higher mobility.

Essay 1: Defining socioeconomic disadvantage and identifying employment trajectories

Essay 2: Less than half of adults from disadvantaged backgrounds attain decent wages by age 30

Essay 3: Race, gender, and other factors affect earnings and benefits

Essay 4: Women are more likely than men to be in lower-earning pathways

Essay 6: Policy ideas to expand economic opportunities for young adults

About the Authors

Martha ross, senior fellow – brookings metro, gabriel piña, research scientist ii – child trends, kristin anderson moore, senior scholar and past president – child trends, jessica warren, senior research analyst – child trends, nicole bateman, former senior research analyst – brookings metro.

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A look at how and why we got there and what we can do about it


“Unequal” is a series highlighting the work of Harvard faculty, staff, students, alumni, and researchers on issues of race and inequality across the U.S. This part looks at the racial wealth gap in America.

The wealth gap between Black and white Americans has been persistent and extreme. It represents, scholars say, the accumulated effects of four centuries of institutional and systemic racism and bears major responsibility for disparities in income, health, education, and opportunity that continue to this day.

Consider that right now the net wealth of a typical Black family in America is around one-tenth that of a white family. A 2018 analysis of U.S. incomes and wealth written by economists Moritz Kuhn, Moritz Schularick, and Ulrike I. Steins and published by the Federal Reserve Bank of Minneapolis concluded, “The historical data also reveal that no progress has been made in reducing income and wealth inequalities between black and white households over the past 70 years.”

It’s no surprise. After the end of slavery and the failed Reconstruction, Jim Crow laws, which existed till the late 1960s, virtually ensured that Black Americans in the South would not be able to accumulate or to pass on wealth. And through the Great Migration and after, African Americans faced employment, housing, and educational discrimination across the country. After World War II many white veterans were able to take advantage of programs like the GI Bill to buy homes — the largest asset held by most American families — with low-interest loans, but lenders often unfairly turned down Black applicants, shutting those vets out of the benefit. (As of the end of 2020 the homeownership rate for Black families stood at about 44 percent, compared with 75 percent for white families, according to the Census Bureau.) Redlining — typically the systemic denial of loans or insurance in predominantly minority areas — held down property values and hampered African American families’ ability to live where they chose.

The 2020 pandemic and its economic fallout had a disproportionate toll on people of color, and many expect that it will widen the gap in various areas, including wealth. At Harvard, experts from different disciplines are studying the problem to find its roots and possible ways to level the playing field to ensure all have an equal chance to achieve the American dream. Here we will take a look at a few, several of which focus on education as a long-term path out.

A history older than the nation

Khalil Muhammad , Ford Foundation Professor of History, Race, and Public Policy at the Harvard Kennedy School, traces the roots of disparity to the Colonial period, when the European settlement and conquest of North America took place.

The process began in the second half of the 17th century, said Muhammad, when European settlers stripped Natives of their lands and used Africans as enslaved labor, preventing them from fully participating in the economy and reaping the fruits of their work.

“If we want to undo the cultural infrastructure that is hand in glove with the economic and political racism and domination of people, we have to start very young,” says Khalil Muhammad of the Kennedy School and Harvard Radcliffe Institute.

Photo by Martha Stewart

“The two dominant non-European populations, Indigenous and Africans, were subjected to various coercive forms of labor that would be distinct from the experience of indentured European servants,” said Muhammad, who is also the Suzanne Young Murray Professor at the Harvard Radcliffe Institute . “And as such, racism became an economic imperative to harness land and labor for the purpose of wealth creation, and that did not change in any substantial way until really about the 1960s.”

In fact the founders discovered that the issues of Black slavery and equality were so divisive that they opted to kick the can down the road, hoping some future generation would prove wiser or better.

With the Voting Rights Act of 1965, a crowning achievement of the Civil Rights Movement, African Americans finally gained full citizenship. Many believed that would end the era of Black inequality, but it did not, said Muhammad, because that thinking failed to account for how deeply systemic the problem had become.

Such misconceptions have tended to make it difficult to gain widespread public support for the implementation of policies to close the disparities between Blacks and whites. That’s why it’s important to institutionalize anti-racist practices and policies in civil society and government, said Muhammad, as well to better enforce anti-discrimination laws and investment in schools in low-income neighborhoods. But he also believes a “massive commitment to anti-bias education” starting in kindergarten is necessary.

“If we want to undo the cultural infrastructure that is hand in glove with the economic and political racism and domination of people, we have to start very young,” said Muhammad. “Anti-bias education is a social vaccine to vaccinate our children against the disease of racism. Imagine what the world would look like in a generation.”

A legacy that benefits some and hurts others

Over the past decades, many scholars have examined the Black-white gap in household wealth. But it was in 1995 that sociologists Thomas Shapiro and Melvin Oliver put wealth inequality on the map with their groundbreaking book, “Black Wealth, White Wealth.” Their research analyzed the role of wealth, or accumulated assets, rather than that of income in the persistent racial divide.

“Wealth is distinctive because it can be used as a cushion, and it can be directly passed down across generations,” providing greater opportunity in the present and the future, says Alexandra Killewald, professor of sociology in the Faculty of Arts and Sciences.

Kris Snibbe/Harvard Staff Photographer

“Income is unequal, but wealth is even more unequal,” said  Alexandra Killewald , professor of sociology in the  Faculty of Art and Sciences , who studies inequality in the contemporary U.S.

“You can think of income as   water flowing into your bathtub, whereas wealth is like the water that’s sitting in the bathtub,” she said. “If you have wealth, it can protect you if you lose your job or your house. Wealth is distinctive because it can be used as a cushion, and it can be directly passed down across generations,” providing families more choices and greater opportunity in the present and the future.

Most scholars agree that the legacy of slavery and other subsequent forms of legal discrimination against African Americans have hindered their ability to accumulate wealth. “Today’s African American adults and children are living with the legacy of discrimination, inequality, and exclusion, from slavery to redlining and other discriminatory practices,” said Killewald. “And in turn, white Americans are benefiting from legacies of advantage.”

The typical white American family has roughly 10 times as much wealth as the typical African American family and the typical Latino family. In other words, while the median white household has about $100,000-$200,000 net worth, Blacks and Latinos have $10,000-$20,000 net worth. Depending on the year or how it’s measured, those numbers may change, as shown by a report by the Pew Research Center, but the wealth racial gap has continued for decades . “It’s a staggeringly large number,” said Killewald.

The divide persists across generations, said Killewald, who researched the subject with co-author Fabian Pfeffer of the University of Michigan in an  article  that included striking visualizations. One  of them shows that Black parents tend to have much lower wealth than white parents, and that Black and white children tend to follow the wealth position of their parents, reproducing inequality across generations. The study concludes that “today’s black-white gaps in wealth arise from both the historical disadvantage reflected in the unequal starting position of black and white children and contemporary processes, including continued institutionalized discrimination.”

How inequality affects education

Many scholars consider education to be the key to narrowing the gap, and economist Richard Murnane is one of them.

During the last 40 years, Murnane examined the interactions between the U.S. economy and its educational system and the ways in which it has affected the educational opportunities of low-income children, who are disproportionately Black or Latinx.

“The extraordinary income inequality in the United States diminishes opportunities for low-income families and for children of color,” said Murnane, Juliana W. and William Foss Thompson Research Professor of Education and Society at the Graduate School of Education .

Rising inequality has led to growing gaps in educational resources and learning opportunities between high-income families and their low-income counterparts, as well as residential and educational segregation by income. As a result, inequality poses a danger to the promise that U.S. public education provides children with an equal chance at a better life than their parents.

Unequal distribution of economic growth has played a major role in why children who earn more than their parents has declined sharply in America over the past half century, says Raj Chetty, a professor of economics and co-author of the study “The Fading American Dream: Trends in Absolute Income Mobility Since 1940.”

Stephanie Mitchell/Harvard file photo

“One statement that most everybody across the political spectrum agrees with is that if a child grows up poor, but works hard and takes advantage of opportunities, that child’s children will have a better life,” said Murnane. “That’s less true now.”

A study on the “fading American dream” co-authored by Raj Chetty , William A. Ackman Professor of Economics, and others concluded that “absolute mobility — the fraction of children who earn more than their parents — has declined sharply in America over the past half century primarily because of the growth in inequality.”

Economic mobility rates are lower in the U.S. than in some European countries, and the American dream seems to grow more unreachable as inequality grows. Murnane warns that the government must address the problem as large sectors of the American population sink into despair and frustration.

“A great many people, especially males, have grown up thinking they would take care of their families, and the inability to do that has left them angry, frustrated, and depressed,” said Murnane. “That was what they grew up expecting, and that has not been possible for them. That’s a deep challenge to how people feel about themselves. And that’s a fundamental problem.”

The American dream: Out of reach

Economists Claudia Goldin , Henry Lee Professor of Economics, and Lawrence Katz , Elizabeth Allison Professor of Economics, believe that the solution to reducing income inequality, which is strongly tied to the wealth gap, is to close the educational divide.

Goldin and Katz examined wages and income inequality in the U.S. from the end of the 19th century to the early 21st century in their trailblazing book “The Race Between Education and Technology.”

What they found was that in periods where there was improved access to education amid technological change, as in the early 1900s when public high schools sprouted across the nation amid the Industrial Age, workers’ earnings rose. Inequality began to grow in the 1980s as the economy started to shift toward knowledge-based industries and the supply of highly trained workers fell below demand.

Expanding access to higher education could actually help reduce inequality, say economists Claudia Goldin and Lawrence Katz.

File photos by Rose Lincoln and Kris Snibbe/Harvard Staff Photographers

Around that time, the rates of college graduation began to decrease and overall high school graduation numbers leveled off. For Goldin and Katz, expanding access to higher education could actually help reduce inequality.

“You could wipe out a large fraction of inequality by ramping up the education of individuals who are limited in their ability to access and finish a college education,” said Goldin.

The problem of wealth inequality is more extreme than income inequality since the former builds on the latter, said Katz, and their effects persists across generations. The legacies of the Jim Crow era and racism against Blacks are expressed today in residential segregation, housing discrimination, and discrimination in the labor market.

For Katz, who has been studying housing discrimination and its effects on upward mobility, public policies can be implemented to reduce residential segregation. A study Katz co-authored with Chetty and Nathaniel Hendren , professor of economics, found that when low-income families move to lower-poverty neighborhoods, with help of housing vouchers and assistance, it is “likely to reduce the persistence of poverty across generations.” Chetty and Hendren, along with John Friedman of Brown University, were the co-founding directors of the Equality of Opportunity Project, now expanded and called Opportunity Insights, based at Harvard.

Growing inequality is spoiling the chances to have a better life than the previous generation. Recent numbers show that the top 1 percent has seen their wages grow by 157 percent over the last four decades, while the wages of the bottom 90 percent grew by only 24 percent.

Inequality is one of the factors keeping the American dream out of reach, said Goldin.

“The American dream has sort of shifted from one in which the economic growth of the nation was shared more across the income distribution, where the growth rate of the income of those at the bottom quartile was about the same, if not more, than the growth at the top quartile,” said Goldin. “And today it’s not that way at all: the bottom quartile isn’t going anywhere and the top is going rapidly up.”

To keep the American dream alive and return to the era of shared prosperity, the government must act, said Katz. Both Goldin and Katz believe that an expansion of investment in higher education infrastructure and access to a high-quality college education would have a powerful impact in the lives of many Americans. It could be similar to the effects of the high school movement, which lifted millions of American families out of poverty during the first half of the 20th century.

“In the early 20th century, we allowed everyone access to high school,” said Katz. “We have never done that for college, even though college is as essential today as high school was 100 years ago.”

Additional benefits of higher education

The economic returns of a college degree are important, but the social returns are also valuable, said Anthony Jack , assistant professor of education at the Graduate School of Education.

“Workers who are more educated tend to be in jobs that are more recession- and pandemic- proof,” said Jack, who also holds the Shutzer Assistant Professorships at the Radcliffe Institute. “They also tend to live longer, have better health outcomes, and be more civically engaged. Education means more than just extra dollars in the bank. It’s also the constellation of things that come along with it.”

But the road to college has become increasingly harder, especially for low-income people, even though access to college for disadvantaged students has increased over the past two decades. A report by the Pew Research Center found that the number of enrolled undergraduates from lower-income backgrounds grew from 12 percent in 1996 to 20 percent in 2016. Most of that growth has taken place in public two-year colleges and less-selective institutions.

“Education may be the great equalizer, but access to an equal education has never been part of the American story,” says Anthony Jack, assistant professor of education at the Graduate School of Education.

Selective universities have also opened their gates to poor students, however. In 1998, Princeton became the first Ivy League university to offer full financial aid to low-income students, and others followed suit. At Harvard, 55 percent of undergraduates receive need-based scholarships, and the 20 percent of Harvard parents who have total incomes below $65,000 don’t pay anything at all.

Still, access to college “varies greatly by parent income,” according to a study by Opportunity Insights. Children with parents in the top 1 percent are 77 times more likely to attend elite colleges and universities than children with parents in the bottom 20 percent.

To Jack, those numbers showcase that access to college is highly unequal and is influenced by income, race, wealth, and ZIP code. “Education may be the great equalizer, but access to an equal education has never been part of the American story,” he said. “Higher education is highly stratified. The wealthier the family, the higher the likelihood that students will enter a selective college. The inequality doesn’t end there. What happens if you are one of the few low-income students who make it into these elite schools?”

For Jack, that is not a rhetorical question. The middle son of a single mother who worked as a school security guard, Jack rose from a working-class neighborhood in Coconut Grove, Fla., to attend Amherst College, with the help of financial aid. He then came to Harvard, where he graduated with a doctorate in sociology in 2016. Two years later, Jack wrote the book “The Privileged Poor: How Elite Colleges are Failing Disadvantaged Students” about what it’s like to be a low-income student in selective universities, partly inspired by his own life.

Elite universities have made progress in recruiting more low-income students to their campuses, but there is much more work to be done to ensure that those students use their four years there as a springboard to a better future the same way their richer counterparts do, said Jack.

“The real question is not only how to increase access to colleges and universities,” said Jack. “We must pay attention to what happens once those low-income students move into campus, because that’s where inequality gets reproduced in ways that are sometimes invisible but no less insidious.”  

A Marshall Plan for higher education

  So if greater access to public higher education would help close the wealth gap, what we need is a kind of Marshall Plan to fix the system, says economist David J. Deming , professor of public policy and director of the Malcolm Wiener Center for Social Policy at Harvard Kennedy School .

That U.S. government initiative helped rebuild infrastructure and economy in Europe after the destruction of World War II. Deming’s ambitious proposal would likewise focus resources on overhauling and expanding the size and number of two- and four-year public institutions, with a goal of making access to college virtually universal.

“We ought to set a goal of increasing access to higher education for low-income students and students of color, to basically equalize education opportunity,” said Deming. “We need to invest in public higher education because it actually would make a difference in terms of intergenerational mobility.”

For one, public higher education is where most of the nation’s post-secondary schooling takes place. A report by the National Center for Education Statistics found that of the 19.7 million college students enrolled in the fall of 2019, 14.5 million attended public colleges and universities compared with 5.1 million enrolled in private institutions.

David J. Deming’s vision involves far-reaching investment across two-year colleges and four-year universities.

Kris Snibbw/Harvard file photo

The number of students enrolled in post-secondary education has skyrocketed over the past five decades. The report predicted that by the fall of 2029, more than 20 million students will be enrolled in college. Of them, nearly 15 million will attend public institutions.

Deming’s vision would involve far-reaching investment across two-year colleges and four-year universities, many of which have been historically underfunded and understaffed. Instructors are often adjunct faculty who teach large classes and have high course loads, and many institutions lack tutoring and counseling services to help less-prepared students navigate through college.

In terms of investment per student, the scale of inequality in resources is much greater in higher education than it is at the K-12 level. As an example, Deming points out that a rich school district might spend 20 percent more per student than a poor school district, whereas Harvard spends more than $100,000 per year per student, and Bunker Hill Community College spends about $10,000 or $15,000 per year per student.

“Just purely in terms of dollars and cents, the disparity is much, much greater at the higher education level,” said Deming.

Investing in higher public education won’t solve all the myriad problems that affect inequality, such as the declining minimum wage and discrimination in the labor market, among others. But it would be a big first step, he said.

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Causes and Consequences of Income Inequality – An Overview

Rising income inequality is one of the greatest challenges facing advanced economies today. Income inequality is multifaceted and is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, this review shows that inequality has largely been driven by a multitude of political choices. The embrace of neoliberalism since the 1980s has provided the key catalyst for political and policy changes in the realms of union regulation, executive pay, the welfare state and tax progressivity, which have been the key drivers of inequality. These preventable causes have led to demonstrable harmful outcomes that are not explicable solely by material deprivation. This review also shows that inequality has been linked on the economic front with reduced growth, investment and innovation, and on the social front with reduced health and social mobility, and greater violent crime.

1 Introduction

Income inequality has recently come to be viewed as one of the greatest challenges facing the world today. In recent years, the topic has dominated the agenda of the World Economic Forum (WEF), where the world’s top political and business leaders attend. Their global risks report, drawn from over 700 experts in attendance, pronounced inequality to be the greatest threat to the world economy in 2017 ( Elliott 2017 ). Likewise, the past decade has seen leading global figures such as former American President Barack Obama, Pope Francis, Chinese President Xi Jinping, and the former head of the International Monetary Fund (IMF), Christine Lagarde, all undertake speeches on the gravity of income inequality and the need to address its rise. This is because, as this research note shows, income inequality engenders harmful consequences that are not explicable solely by material deprivation.

The general dynamics of income inequality include a tendency to rise slowly and fluctuate over time. For instance, Japan had one of the highest rates in the world prior to the Second World War and the United States (US) one of the lowest, which has since completely reversed for both. The United Kingdom (UK) was also the second most equitable large European country in the 1970s but is now the most inequitable ( Dorling 2018 : 27–28).

High rates of inequality are rarely sustained for long periods because they tend to lead to or become punctuated by man-made disasters that lead to a levelling out. Scheidel (2017) posits that there in fact exists a violent ‘Four Horseman of Leveling’ (mass mobilisation warfare, transformation revolutions, state collapse, and lethal pandemics) for inequality, which have at times dramatically reduced inequalities because they can lead to the alteration of existing power structures or wipe out the wealth of elites and redistribute their resources. For instance, the pronounced shocks of the two world wars led to the ‘Great Compression’ of income throughout the West in the post-war years. There is already some evidence that the current global pandemic caused by the novel Coronavirus, has led to greater aversion to income inequality ( Asaria, Costa-Font, and Cowell 2021 ; Wiwad et al. 2021 ).

Thus, greater aversion to inequality has been able to reduce inequality in the past, this is because, as this review also shows, income inequality does not result exclusively from efficient market forces but arises out of a set of rules that is shaped by those with political power. Inequality’s rise is not inevitable, nor beyond the control of governments and policymakers, as they can affect distributional outcomes and inequality through public policy.

It is the purpose of this review to outline the causes and consequences of income inequality. The paper begins with an analysis of the key structural and institutional determinants of inequality, followed by an examination into the harmful outcomes of inequality. It then concludes with a discussion of what policymakers can do to arrest the rise of inequality.

2 Causes of Income Inequality

Broadly speaking, explanations for the increase in income inequality have largely been classified as either structural or institutional. Historically, economists emphasised structural causes of increasing income inequality, with globalisation and technological change at the forefront. However, in recent years opinion has shifted to emphasise more institutional political factors to do with the adoption of neoliberal reforms such as privatisation, deregulation and tax and welfare reductions since the early 1980s. They were first embraced and most heavily championed by the UK and US, spreading globally later, and which provide the crucial catalysts of rising income inequality ( Atkinson 2015 ; Brown 2017 ; Piketty 2020 ; Stiglitz 2013 ). I discuss each of these key factors in turn.

2.1 Globalisation

One of the earliest, and most prominent explanations for the rise of income inequality emphasised the role of globalisation ( Borjas, Freeman, and Katz 1992 ; Revenga 1992 ). Globalisation has led to the offshoring of many goods and services that used to be produced or completed domestically in the West, which has created downward pressures on the wages of lower skilled workers. According to the ‘market forces hypothesis,’ increasing inequality is a response to the rising demand for skills at the top, in which the spread of globalisation and technological progress have been facilitated through reduced barriers to trade and movement.

Proponents of globalisation as the leading cause of inequality have argued that globalisation has constrained domestic state choices and left governments collectively powerless to address inequality. Detractors admit that globalisation has indeed had deep structural effects on Western economies but its impact on the degree of agency available to domestic governments has been mediated by individual policy choices ( Thomas 2016 : 346). A key problem with attributing the cause of inequality to globalisation, is that the extent of the inequality increase has varied considerably across countries, even though they have all been exposed to the same effects of globalisation. The US also has the highest inequality amongst rich countries, but it is less reliant on international trade than most other developed countries ( Brown 2017 : 56). Moreover, a recent meta-analysis by Heimberger (2020) found that globalisation has a “small-to-moderate” inequality-increasing effect, with financial globalisation displaying the largest impact.

2.2 Technology

A related explanation for inequality draws attention to the impact of technology specifically. The advent of the digital age has placed a higher premium on the skills needed for non-routine work and reduced the value placed on lower skilled routine work, as it has enabled machines to replace jobs that could be routinised. This skill-biased technological change (SBTC) has led to major changes in the organisation of work, as many full-time permanent jobs with benefits have given way to part-time flexible work without benefits, that are often centred around the completion of short ‘gigs’ such as a car journey or food delivery. For instance, the Organisation for Economic Co-operation and Development (OECD) estimated in 2015 that since the 1990s, roughly 60% of all job creation has been in the form of non-standard work due to technological changes and that those employed in such jobs are more likely to be poor ( Brown 2017 : 60).

Relatedly, a prevailing doctrine in economics is ‘marginal productivity theory,’ which holds that people with greater productivity levels will earn higher incomes. This is due to the belief that a person’s productivity is equated to their societal contribution ( Stiglitz 2013 : 37). Since technology is a leading determinant in the productivity of different skills and SBTC has led to increased productivity, it has also become a justification for inequality. However, it is very difficult to separate any one person’s contribution to society from that of others, as even the most successful businessperson owes their success to the rule of law, good infrastructure, and a state educated workforce ( Stiglitz 2013 : 97–98).

Further criticisms of the SBTC explanation, are that there was still substantial SBTC when inequality first fell dramatically and then stabilised in the period from 1930 to 1980, and it has failed to explain the perpetuation of both the gender and racial wage gap, “or the dramatic rise in education-related wage gaps for younger versus older workers” ( Brown 2017 : 67). Although it is difficult to decouple globalisation and technology, as they each have compounding tendencies, it is most likely that globalisation and technology are important explanatory factors for inequality, but predominantly facilitate and underlie the following more determinant institutional factors that happen to be already present, such as reduced tax progressivity, rising executive pay, and union decline. It is to these factors that I now turn.

2.3 Tax Policy

Taxes overwhelmingly comprise the primary source of revenue that governments can use for redistribution, which is fundamental to alleviating income inequality. Redistribution is defended on economic grounds because the marginal utility of money declines as income rises, meaning that the benefit derived from extra income is much higher for the poor than the rich. However, since the late 1970s, a major rethinking surrounding redistributive policy occurred. This precipitated ‘trickle-down economics’ theory achieving prominence amongst American and British policymakers, whereby the benefits from tax cuts on the wealthy would trickle-down to everyone. Subsequently, expert opinion has determined that tax cuts do not actually spur economic growth ( CBPP 2017 ).

Personal income tax progressivity has declined sharply in the West, as the average top income tax rate for OECD members fell from 62% in 1981 to 35% in 2015 ( IMF 2017 : 11). However, the decline has been most pronounced in the UK and the US, which had top rates of around 90% in the 1960s and 1970s. Corporate tax rates have also plummeted by roughly one half across the OECD since 1980 ( Shaxson 2015 : 4). Recent International Monetary Fund (IMF) research found that between 1985 and 1995, redistribution through the tax system had offset 60% of the increase in market inequality but has since failed to respond to the continuing increase in inequality ( IMF 2017 ). Moreover, in a sample of 18 OECD countries encompassing 50 years, Hope and Limberg (2020) found that tax reforms even significantly increased pre-tax income inequality, while having no significant effect on economic growth.

This decline in tax progressivity has been a leading cause of rising income inequality, which has been compounded by the growing problem of tax avoidance. A complex global web of shell corporations has been constructed by international brokers in offshore tax havens that is able to keep wealth hidden from tax collectors. The total hidden amount in tax havens is estimated to be $7.6 trillion US dollars and rising, or roughly 8% of total global household wealth ( Zucman 2015 : 36). Recent research has revealed that tax havens are overwhelmingly used by the immensely rich ( Alstadsæter, Johannesen, and Zucman 2019 ), thus taxing this wealth would substantially reduce income inequality and increase revenue available for redistribution. The massive reduction in income tax progressivity in the Anglo world, after it had been amongst its leaders in the post-war years, also “probably explains much of the increase in the very highest earned incomes” since 1980 ( Piketty 2014 : 495–496).

2.4 Executive Pay

The enormous rising pay of executives since the 1980s, has also fuelled income inequality and more specifically the gap between executives and their employees. For example, the gap between Chief Executive Officers (CEO) and their workers at the 500 leading US companies in 2016, was 335 times, which is nearly 10 times larger than in 1980. It is a similar story in the UK, with a pay ratio of 131 for large British firms, which has also risen markedly since 1980 ( Dorling 2017 ).

Piketty (2014 : 335) posits that the dramatic reduction in top income tax has had an amplifying effect on top executives pay since it provides them with much greater incentive to seek larger remuneration, as far less is then taken in tax. It is difficult to objectively measure an individual’s contribution to a company and with the onset of trickle-down economics and accompanying business-friendly climate since the 1980s, top executives have found it relatively easy to convince boards of their monetary worth ( Gabaix and Landier 2008 ).

The rise in executive pay in both the UK and US, is far larger than the rest of the OECD. This may partially be explained by the English-speaking ‘superstar’ theory, whereby the global market demand for top CEOs is much higher for native English speakers due to English being the prime language of the global economy ( Deaton 2013 : 210). Saez and Veall (2005) provide support for the theory in a study of the top 1% of earners from the Canadian province of Quebec, which showed that English speakers were able to increase their income share over twice as much as their French-speaking counterparts from 1980 to 2000. This upsurge of income at the top of the labour market has been accompanied by stagnation or diminishing returns for the middle and lower parts of the labour market, which has been affected by the dramatic decline of union influence throughout the West.

2.5 Union Decline

Trade unions have typically been viewed as an important force for moderating income inequality. They “contribute to wage compression by restricting wage decline among low-wage earners” and restrain wage surges among high-wage earners ( Checchi and Visser 2009 : 249). The mere presence of unions can also drive up the wages of non-union employees in similar industries, as employers tend to give in to wage demands to keep unions out. Union density has also been proven to be strongly associated with higher redistribution both directly and indirectly, through its influence on left party governments ( Haddow 2013 : 403).

There had broadly existed a ‘social contract’ between labour and business, whereby collective bargaining establishes a wage structure in many industries. However, this contract was abandoned by corporate America in the mid-1970s when large-scale corporate donations influenced policymakers to oppose pro-union reform of labour law, leading to political defeats for unions ( Hacker and Pierson 2010 : 58–59). The crackdown of strikes culminating in the momentous Air Traffic Controllers’ strike (1981) in the US and coal miner’s strike (1984–85) in the UK, caused labour to become de-politicised, which was self-reinforcing, because as their political power dispersed, policymakers had fewer incentives to protect or strengthen union regulations ( Rosenfeld and Western 2011 ). Consequently, US union density has plummeted from around a third of the workforce in 1960, down to 11.9% last decade, with the steepest decline occurring in the 1980s ( Stiglitz 2013 : 81).

Although the decline in union density is not as steep cross-nationally, the pattern is still similar. Baccaro and Howell (2011 : 529) found that on average the unionisation rate decreased by 0.39% a year since 1974 for the 15 OECD members they surveyed. Increasingly, the decline in the fortunes of labour is being linked with the increase in inequality and the sharpest increases in income inequality have occurred in the two countries with the largest falls in union density – the UK and US. Recent studies have found that the weakening of organised unions accounts for between a third and a fifth of the total rise in income inequality in the US ( Rosenfeld and Western 2011 ), and nearly one half of the increase in both the Gini rate and the top 10%’s income share amongst OECD members ( Jaumotte and Buitron 2015 ).

To illustrate the changing relationship between inequality and unionisation, Figure 1 displays a local polynomial smoother scatter plot of union density by income inequality, for 23 OECD countries, 1980–2018. They are negatively correlated, as countries with higher union density have much lower levels of income inequality. Figure 2 further plots the time trends of both. Income inequality (as measured via the Gini coefficient) has climbed over 0.02 percentage points on average in these countries since 1980, which is roughly a one-tenth rise. Whereas union density has fallen on average from 44 to 35 percentage points, which is over one-fifth.

Figure 1: 
Gini coefficient by union density, OECD 1980–2018. Data on Gini coefficients from SWIID (Solt 2020); data on union density from ICTWSS Database (Visser 2019).

Gini coefficient by union density, OECD 1980–2018. Data on Gini coefficients from SWIID ( Solt 2020 ); data on union density from ICTWSS Database ( Visser 2019 ).

Figure 2: 
Gini coefficient by union density, 1980–2018. Data on Gini coefficients from SWIID (Solt 2020); data on union density from ICTWSS Database (Visser 2019).

Gini coefficient by union density, 1980–2018. Data on Gini coefficients from SWIID ( Solt 2020 ); data on union density from ICTWSS Database ( Visser 2019 ).

In sum, income inequality is multifaceted and is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, it has largely been driven by a multitude of political choices. Tridico (2018) finds that the increases in inequality from 1990 to 2013 in 26 OECD countries, was largely owing to increased financialisation, deepening labour flexibility, the weakening of trade unions and welfare state retrenchment. While Huber, Huo, and Stephens (2019) recently reveals that top income shares are unrelated to economic growth and knowledge-intensive production but is closely related to political and policy changes surrounding union density, government partisanship, top income tax rates, and educational investment. Lastly, Hager’s (2020) recent meta-analysis concludes that the “empirical record consistently shows that government policy plays a pivotal role” in shaping income inequality.

These preventable causes that have given rise to inequality have created socio-economic challenges, due to the demonstrably negative outcomes that inequality engenders. What follows is a detailed analysis of the significant mechanisms that income inequality induces, which lead to harmful outcomes.

3 Consequences of Income Inequality

Escalating income inequality has been linked with numerous negative outcomes. On the economic front, negative results transpire beyond the obvious poverty and material deprivation that is often associated with low incomes. Income inequality has also been shown to reduce growth, innovation, and investment. On the social front, Wilkinson and Pickett’s ground-breaking The Spirit Level ( 2009 ), found that societies that are more unequal have worse social outcomes on average than more egalitarian societies. They summarised an extensive body of research from the previous 30 years to create an Index of Health and Social Problems, which revealed a host of different health and social problems (measuring life expectancy, infant mortality, obesity, trust, imprisonment, homicide, drug abuse, mental health, social mobility, childhood education, and teenage pregnancy) as being positively correlated with the level of income inequality across rich nations and across states within the US. Figure 3 displays the cross-national findings via a sample of 21 OECD countries.

Figure 3: 
Index of health and social problems by Gini coefficient. Data on health and social problems index from The Equality Trust (2018); data on Gini coefficients from OECD (2020).

Index of health and social problems by Gini coefficient. Data on health and social problems index from The Equality Trust (2018) ; data on Gini coefficients from OECD (2020) .

3.1 Economic

Income inequality is predominantly an economic subject. Therefore, it is understandable that it can engender pervasive economic outcomes. Foremost economically speaking, it has been linked with reduced growth, investment and innovation. Leading international organisations such as the IMF, World Bank and OECD, pushed for neoliberal reforms beginning in the 1980s, although they have recently started to substantially temper their views due to their own research into inequality. A 2016 study by IMF economists, noted that neoliberal policies have delivered benefits through the expansion of global trade and transfers of technology, but the resulting increases in inequality “itself undercut growth, the very thing that the neo-liberal agenda is intent on boosting” ( Ostry, Loungani, and Furceri 2016 : 41). Cingano’s (2014) OECD cross-national study, found that once a country’s income inequality reaches a certain level it reduces growth. The growth rate in these countries would have been one-fifth higher had income inequality not increased, while the greater equality of the other countries included in the study helped to increase their growth rates.

Consumer spending is good for economic growth but rising income inequality shifts more money to the top of the income distribution, where higher income individuals have a much smaller propensity to consume than lower-income individuals. The wealthy save roughly 15–25% of their income, whereas low income individuals spend their entire income on consumer goods and services ( Stiglitz 2013 : 106). Therefore, greater inequality reduces demand in an economy and is a major contributor to the ‘secular stagnation’ (persistent insufficient demand relative to aggregate private savings) that the largest Western economies have been experiencing since the financial crisis. Inequality also increases the level of debt, as lower-income individuals borrow more to maintain their standard of living, especially in a climate of low interest rates. Combined with deregulation, greater debt increases instability and “was a major contributor to, if not the underlying cause of, the 2008 financial crash” ( Brown 2017 : 35–36).

Another key economic effect of income inequality is that it leads to reduced welfare spending and public investment. Since a greater share of the income distribution is earned by the very wealthy, governments have less income available to fund education, public amenities, and other services that the poor rely heavily on. This creates social separation, whereby the wealthy opt out in publicly funding services because their private equivalents are of better quality. This causes a cycle of increasing income inequality that is likely to eventually lead to a situation of “private affluence and public squalor” ( Marmot 2015 : 39).

Lastly, it has been proven that economic instability is a by-product of increasing inequality, which harms innovation. Both countries and American states with the highest inequality have been found to be the least innovative in terms of the amount of Intellectual Property (IP) patents they produce ( Dorling 2018 : 129–130). Although income inequality is predominantly an economic subject, its effects are so pervasive that it has also been linked to a host of negative health and societal outcomes.

Wilkinson and Pickett found key associations between income inequality for both physical and mental health. For example, they discovered that on average the life expectancy gap is more than four years between the least and most equitable richest nations (Japan and the US). Since their revelations, overall life expectancy has been reported to be declining in the US ( Case and Deaton 2020 ). It has held or declined every year since 2014, which has led to a cumulative drop of 1.13 years ( Andrasfay and Goldman 2021 ). Marmot (2015) has provided evidence that there exists a social gradient whereby differences in affluence translate into increasing health inequalities, which can be shown even down to the neighbourhood level, as more affluent areas have higher life expectancy on average than deprived areas, and a clear gradient appears where life expectancy increases in line with affluence.

Moreover, Marmot’s famous Whitehall studies, which are large-scale longitudinal studies of Whitehall employees of UK central government, found an inverse-relationship between salary grade and ill-health, whereby low-grade workers were four times as likely as high-grade workers to suffer from ill-health ( 2015 : 11). Health steadily improves with rank and the correlation is little affected by lifestyle controls such as tobacco and alcohol usage. However, the leading factor that seems to make the most difference in ill-health is job stress and a person’s sense of control over their work, including the variety of work and the use and development of skills ( Schrecker and Bambra 2015 : 54–55).

‘Psychosocial stresses,’ like those appearing in the Whitehall studies, have been found to be more common and frequent amongst low-income individuals, beyond just the workplace ( Jensen and van Kersbergen 2017 : 24). Wilkinson and Pickett (2019) posit that greater income inequality engenders low self-esteem, chronic stress and depression, stemming from status anxiety. This occurs because more importance is placed on where people fit in a hierarchy with greater inequality. For evidence, they outline a clear relationship of a much higher percentage of the population suffering from mental illness in more unequal countries. Meticulous research has shown that huge inequalities in income result in the poor having feelings of shame across a range of environments. Furthermore, Dickerson and Kemeny’s (2004) meta-analysis of 208 studies found that stress-hormone (cortisol) levels were raised particularly “when people felt that others were making negative judgements about them” ( Rowlingson 2011 : 24).

These effects on both mental and physical health can be best illustrated via the ‘absolute income’ and ‘relative income’ hypotheses ( Daly, Boyce, and Wood 2015 ). The relative income hypothesis posits that when an individual’s income is held constant, the relative income of others can affect a person’s health depending on how they view themselves in comparison to those above them ( Wilkinson 1996 ). This pattern also holds when income inequality increases at the societal level, because if such changes lead to increases in chronic stress, it can increase ill-health nationally. Whereas the absolute income hypothesis predicts that health gains from an extra unit of income diminish as an individual’s income rises ( Kawachi, Adler, and Dow 2010 ). A mean preserving transfer from a richer to poorer individual raises the health of the poorer individual more than it lowers the health of the richer person. This occurs because there is an optimum threshold of income required to maintain good health. Thus, when holding total income constant, a more equal distribution of income should improve overall population health. This pattern also applies at the country-wide level, as the “effect of income on health appears substantial as countries move from about $15,000 to 25,000 US dollars per capita,” but appears non-existent beyond that point ( Leigh, Jencks, and Smeeding 2009 : 386–387).

Income inequality also impacts happiness and wellbeing, as the happiest nations are routinely the ones with low inequality, such as Denmark and Norway. Happiness has been proven to be affected by the law of diminishing returns in economics. It states that higher income incrementally improves happiness but only up to a certain point, as any individual income earned beyond roughly $70,000 US dollars, does not bring about greater happiness ( Deaton 2013 : 53). The negative physical and mental health outcomes that income inequality provoke, also impact key societal areas such as crime, social mobility and education.

Rates of violent crime are lower in more equal countries ( Hsieh and Pugh 1993 ; Whitworth 2012 ). This is largely because more equal countries have less poverty, which leads to less people being desperate about their situation, as lower-income individuals have been shown to commit more crime. Relatedly, according to strain theory, more unequal societies place higher social value in achieving economic success, while providing lower means to achieve it ( Merton 1938 ). This generates strain, which may lead more individuals to pursue crime as a means of attaining financial success. At the opposite end of the income spectrum, the wealthy in more equal countries are also less likely to exploit others and commit fraud or exhibit other anti-social behaviour, partly because they feel less of a need to cut corners to get ahead, or to make money ( Dorling 2017 : 152–153). Homicides also tend to rise with inequality. Daly (2016) reveals that inequality predicts homicide rates better than any other variable and accounts for around half of the variance in murder rates between countries and American states. Roughly 90% of American homicides are committed by men, and since the majority of homicides occur over status, inequality raises the stakes of disputes over status amongst men.

Studies have also shown that there is a marked negative relationship between income inequality and social mobility. Utilising Intergenerational Earnings Elasticity data from Blanden, Gregg, and Machin (2005) , Wilkinson and Pickett (2009) first outline this relationship cross-nationally for eight OECD countries. Corak (2013) famously expanded on this with his ‘Great Gatsby Curve’ for 22 countries using the same measure. I update and expand on these studies in Figure 4 to include all 36 OECD members, utilising the WEF’s inaugural 2020 Social Mobility Index. It clearly shows that social mobility is much lower on average in more unequal countries across the entire OECD.

Figure 4: 
Index of social mobility by Gini coefficient. Data on social mobility index from World Economic Forum (2020); data on Gini coefficients from SWIID (Solt 2020).

Index of social mobility by Gini coefficient. Data on social mobility index from World Economic Forum (2020) ; data on Gini coefficients from SWIID ( Solt 2020 ).

A primary driver for the negative relationship between inequality and social mobility, derives from the availability of resources during early childhood. Life chances have been shown to be determined in early childhood to a disproportionately large extent ( Jensen and van Kersbergen 2017 : 29). Children in more equitable regions such as Scandinavia, have better access to resources, as they go to similar schools, receive similar educational opportunities, and have access to a wider range of career options. Whereas in the UK and US, a greater number of jobs at the top are closed off to those at the bottom and affluent parents are far more likely to send their children to private schools and fund other ‘child enrichment’ goods and services ( Dorling 2017 : 26). Therefore, as income inequality rises, there is a greater disparity in the resources that rich and poor parents can invest in their children’s education, which has been shown to substantially affect “cognitive development and school achievement” ( Brown 2017 : 33–34).

4 Conclusions

The causes and consequences of income inequality are multifaceted. Income inequality is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, it has largely been driven by a multitude of institutional political choices. These preventable causes that have given rise to inequality have created socio-economic challenges, due to the demonstrably negative outcomes that inequality engenders.

The neoliberal political consensus poses challenges for policymakers to arrest the rise of income inequality. However, there are many proven solutions that policymakers can enact if the appropriate will can be summoned. Restoring higher levels of labour protections would aid in reversing the declining trend of labour wage share. Similarly, government promotion and support for new corporate governance models that give trade unions and workers a seat at the table in ownership decisions through board memberships, would somewhat redress the increasing power imbalance between capital and labour that is generating more inequality. Greater regulation aimed at limiting the now dominant shareholder principle of maximising value through share buy-backs and instead offering greater incentives to pursue maximisation of stakeholder value, long-term financial stability and investment, can reduce inequality. Most importantly, tax policy can be harnessed to redress income inequality. Such policies include restoring higher marginal income and corporate tax rates, setting higher corporate tax rates for firms with higher ratios of CEO-to-worker pay, and establishing luxury taxes on spiralling compensation packages. Finally, a move away from austerity, which has gripped the West since the financial crisis, and a move towards much greater government investment and welfare state spending, would also lift growth and low-wages.

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The Stark Racial Inequity of Personal Finances in America

Economic equality is crucial to racial equality. But at nearly every stage of their lives, black Americans have less than whites.

income inequality race essay

By Ron Lieber and Tara Siegel Bernard

We cannot quantify the injustice of a white policeman holding his knee on the neck of a handcuffed, dying black man. And mere numbers cannot fully express the power imbalance involved in the deaths of George Floyd and too many others like him.

But we can measure the economic inequity that serves as their backdrop.

Dollars are like air — crucial to vitality. And when it comes to wealth, black Americans have less at nearly every juncture of life, from birth to death.

Perversely, having less can cost more. Black students borrow more to go to college, don’t finish as often and more frequently default on their student loans. They earn less, and generally have lower credit scores — so they pay higher interest rates. It’s harder for them to save for retirement, and they leave less to the next generation when they die.

An imbalance of societal power cannot be separated from cradle-to-grave economic inequality . This is what that looks like.

Young black families earn far less than similar white families

From board books for toddlers to quality care, it can be costly to get a child started in life. And black families typically have fewer financial resources to draw on.

Black families with a new baby have a median household income of $36,300, according to an analysis of 2018 census data by the Center on Poverty & Social Policy. For white families, it was more than twice as much: $80,000.

Black families were behind other groups, too. For Asian-Americans and Pacific Islanders, the median income was $105,600. Among multiracial families, the figure was $64,000. Hispanic families had $48,400 in income, and Native American and Alaskan Native families had $41,000.

Starting with less makes many things in the future that much harder. For example, every unspent dollar of earnings can potentially be saved for higher education.

A graduation gap in college

Once a child enrolls in college, graduating with a bachelor’s degree isn’t a given. But here, too, blacks have it worse than nearly any other group.

Their six-year completion rate through June 2017 for students starting at a four-year institution was 38.9 percent, according to data from the National Center for Education Statistics. For whites, it was 64.8 percent — even though both groups graduate from high school at roughly the same rate .

Asian-Americans (72.1 percent), mixed-race students (54.5 percent) and Hispanics (50.5 percent) were also ahead of blacks. Only Native Americans and Alaskan Natives finished at a lower rate: Just 26.3 percent within six years.

Starting but not finishing is often the worst of both worlds: Large numbers of these students end up with debt, but they don’t get the degree and the earnings boost that usually come with it.

More student loan debt, and more defaults

A college education is supposed to help pave a path to financial security. For many black students, that’s far from guaranteed: They tend to borrow significantly more than their white peers, and they’re more likely to default on their loans.

Twenty-one percent of black graduates with bachelor’s degrees default. That’s more than five times the rate of their white peers (4 percent). Even white dropouts (18 percent) are less likely to default, according to a 2018 analysis by Judith Scott-Clayton, an associate professor of economics and education in the Economics and Education program at Teachers College, Columbia University.

She looked at data for people who started school for the first time in the 2003-4 academic year and analyzed their experiences over the next dozen years. Only 1.4 percent of Asian bachelor’s degree graduates defaulted during that period, with Hispanic graduates defaulting 8.6 percent of the time.

Black students who earned bachelor’s degrees also accumulated more debt than whites. They borrowed $21,149 on average, nearly twice as much as whites, by the time they left school. (This includes students who didn’t borrow at all.) But it got worse after that: By the end of the 12-year period that Dr. Scott-Clayton examined, blacks owed $64,142 — three times as much as whites. That’s because black degree-holders had both higher levels of graduate school borrowing and lower rates of repayment.

Even with a college degree, black Americans can’t count on getting a paycheck of the same size.

73.4 cents on the dollar

The black/white wage gap was significantly wider in 2019 than at the start of the century — even as Hispanic workers have slightly narrowed their own gap with white workers, according to research from the Economic Policy Institute .

But the gap isn’t a function of differences in education levels. Even among those who attain advanced degrees, blacks were paid 82.4 cents for every dollar earned by their white peers. Hispanics do better, at 90.1 cents on the dollar.

And the gender pay gap expands the racial gap into a chasm: Black women, on average, earn 64 cents for every dollar a white man earns, according to another report from the institute .

The widest homeownership gap in 50 years

The home is the largest asset for many American families, which may help build wealth over time. Paying down a mortgage often serves as a forced savings plan, enabling families to build equity that they can tap in retirement or leave to their heirs.

Black families have long been behind their white peers in homeownership, but that gap is the largest it has been in a half-century, according to the Urban Institute .

In 2018, about 72 percent of white households owned homes, compared with nearly 41.7 percent of blacks, 47.5 percent of Hispanics and 59.5 percent of Asians, according to the institute, using the 2018 American Community Survey. In 1960, nearly 65 percent of whites owned homes, compared with 38.1 percent of blacks, 45.2 percent of Hispanics and 42.8 percent of Asians, according to an analysis of census data.

“The gap in the homeownership rate between black and white families in the U.S. is bigger today than it was when it was legal to refuse to sell someone a home because of the color of their skin,” the Urban Institute wrote .

Fewer retirement accounts, with less in them

The science of measuring retirement assets is imperfect, because older Americans can draw on any number of resources if they have them, including home equity, a pension and Social Security.

Those assets aren’t as flexible, however, as a workplace savings plan like a 401(k) or an individual retirement account. Blacks are less likely to have such accounts, and tend to have less in them when they do.

Sixty percent of white families have at least one retirement account, while just 34 percent of black families do, according to the most recent Federal Reserve Survey of Consumer Finances, which drew on data from 2016. Hispanic families have even fewer, at 30 percent. (The survey does not break other groups into distinct categories.)

Families with white heads of household have balances that dwarf the holdings of families headed by blacks, according to the Employee Benefit Research Institute, which looked at the same Federal Reserve data and measured families with family heads between the ages of 55 and 64.

The median balance was $151,000 for whites and $46,100 for blacks. Hispanics had the lowest numbers here, too, with a median of $43,000.

Less left over for the next generation

The imbalance in homeownership and retirement accounts makes it unsurprising that white households are more likely to receive an inheritance than black ones. In fact, they are about two and a half times as likely to do so, according to research from two Fed economists , Jeffrey P. Thompson and Gustavo A. Suarez.

They looked at households headed by people ages 30 to 59 in 2013 and 2016. Twenty-three percent of white families reported having received an inheritance. Just 9 percent of black families answered affirmatively, and only 5 percent of Hispanic families did so.

Whites received more, too: The median inheritance in white families was $56,217, while blacks received $38,224 and Hispanics were just behind at $37,124.

So even if white families had fallen behind in the first part of adulthood, they had a better chance of catching up with a single boost. And those who are already doing better widen the gap further when a relative dies.

At that point, the process begins anew for their kids. And their kids’ kids.

And here we are.

Ron Lieber has been the  Your Money  columnist since 2008 and is the author of the forthcoming book, " The Price You Pay for College ." More about Ron Lieber

Tara Siegel Bernard covers personal finance. Before joining The Times in 2008, she was deputy managing editor at FiLife, a personal finance website, and an editor at CNBC. She also worked at Dow Jones and contributed regularly to The Wall Street Journal. More about Tara Siegel Bernard

A Guide to Making Better Financial Moves

Making sense of your finances can be complicated. the tips below can help..

Credit card debt is rising, and shopping for a card with a lower interest rate can help you save money. Here are some things to know .

Whether you’re looking to make your home more energy-efficient, install solar panels or buy an electric car, this guide can help you save money and fight climate change .

Starting this year, some of the money in 529 college savings accounts can be used for retirement if it’s not needed for education. Here is how it works .

Are you trying to improve your credit profile? You can now choose to have your on-time rent payments reported to the credit bureaus  to enhance your score.

Americans’ credit card debt and late payments are rising, and card interest rates remain high, but many people lack a plan to pay down their debt. Here’s what you can do .

There are few challenges facing students more daunting than paying for college. This guide can help you make sense of it all .

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Racial and Ethnic Inequality in Poverty and Affluence, 1959-2015

This paper examines patterns and trends in racial inequality in poverty and affluence over the 1959 to 2015 period. Analyzing data from decennial censuses and the American Community Survey, I find that that disparities have generally narrowed over the period. Nevertheless, considerable disparities remain, with whites least likely to be poor and Asians most likely to be affluent on the one hand, and blacks and American Indians much more likely to be poor and less likely to be affluent on the other—and Hispanics somewhat in between. Sociodemographic characteristics, such as education, family structure, and nativity explain some of the disparities—and an increasing proportion over the 1959 to 2015 period, indicative of the growing importance of disparities in human capital, the immigrant incorporation process, and the interaction between economic conditions and cultural shifts in attitudes towards marriage in explaining racial inequality in poverty and affluence. There also are still significant portions of the gaps that remain unexplained, especially for blacks and American Indians. The presence of this unexplained gap indicates that other factors are still at work in producing these disparities, though their effects have declined over time.

Few topics have received as much attention in recent years as the prevalence and nature of racial inequality in the United States. Racial inequality in policing and punishment, for example, was the impetus of the Black Lives Matter movement in 2013. The production and enormous success of the movie The Black Panther , released in 2018, highlighted previous inequality in representation in the movies and media. One of the reasons that these issues continue to resonate is that the material circumstances of the U.S. population historically varied–and continue to vary–by race and ethnicity. For example, in 1959, the first year of the official times series, over half of all blacks were poor, compared to fewer than 1 in 5 of whites. Poverty rates decreased for both groups during the economic boom of the 1960s, but since the early 1970s poverty has mainly fluctuated with the economic cycle, and considerable disparities remain, such that by 2015, 24 percent of blacks and 9 percent of non-Hispanic whites were poor ( U.S. Census Bureau 2016a ).

There is considerable variation in the incidence of poverty across other racial and ethnic groups as well. Poverty rates among American Indians are about as high as among African Americans, poverty rates among Hispanics are only modestly lower, while the poverty rate among Asians more closely resembles that of whites ( U.S. Census Bureau 2016a ). It is likely that a variety of factors help explain patterns across these different groups, including the prevalence of racial discrimination, a legacy of past inequality, the immigration process (principally for Asians and Hispanics), differences in human capital and other sociodemographic characteristics, and social and spatial isolation ( Iceland 2017 ).

Notably, while racial and ethnic disparities in poverty have been documented for some time, there has been considerably less analogous research on racial gaps in the prevalence of affluence , and how these gaps have changed over time. Understanding patterns of affluence are important because, as Richard Reeves (2017) has argued, affluent Americans have considerable control over many kinds of resources, not the least being community amenities and institutions, such as local public schools. Understanding patterns of affluence is all the more important given the growth of income inequality in the United States. Such inequality has been associated stagnant or declining living standards for those at the bottom of the income distribution along with large gains for those at the top ( Piketty 2014 ). Many thus argue we are living in an “age of extremes” ( Massey 1996 ). While we know that the poverty rates of many minority groups have been stagnant in recent years, we know relatively little about the extent to which these groups are part of the affluent class, and how this might have changed over time. Are patterns of poverty and affluence symmetrical, such that groups with higher poverty rates consistency have lower rates of affluence? There is reason to believe that this is not necessarily so, as studies have documented differences in income inequality within groups ( Kochhar and Cilluffo 2018 ).

This paper further investigates the extent to which individual and family-level characteristics help explain racial and ethnic differences in poverty and affluence, and how the influence of these characteristics might have changed over the 1959 to 2015 period. While other data would be needed to examine all of the deep structural roots of racial disparities in poverty and affluence, the analysis here will help ascertain the role of important sociodemographic correlates of poverty—such as educational attainment, family structure, and nativity—in explaining racial disparities. This will provide important information on whether, for example, educational disparities help drive differences among some groups, such as between whites and Hispanics, and whether the significance of these factors have grown or diminished over time. The study will also shed light on whether the factors have a symmetrical effect on poverty and affluence.

In short, this paper is guided by the following questions:

  • What patterns and trends in poverty and affluence by race and ethnicity do we see over the 1959 to 2015 period?
  • How has the relatively likelihood of poverty and affluence by race and ethnicity changed?
  • To what extent do family- and individual-level characteristics help explain differences in the prevalence in poverty and affluence by race and ethnicity, and how have these associations changed over time?

To answer these questions, this study relies on data from the 1960 to 2000 decennial censuses and the 2010 and 2015 American Community Surveys. I calculate rates of poverty and affluence for whites, blacks, Hispanics, Asians, and American Indians. I then investigate, using logistic regressions, the relative likelihood of poverty and affluence by race and ethnicity, and finally, with a decomposition analysis, the extent to which individual- and family-level characteristics explain disparities at different points in time. In doing so, this study helps shed light on the evolving nature of racial and ethnic inequality in poverty and affluence in the United States in this era of profound demographic and economic change.

Overall trends in poverty and affluence by race and ethnicity

Racial and ethnic differences in the prevalence of poverty have been widely documented. Using the official U.S. poverty measure, in 2015, for example, the poverty rate of non-Hispanic whites was 9 percent, compared to 11 percent among Asians, 21 percent among Hispanics, 24 percent among blacks, and 26 percent among American Indians ( U.S. Census Bureau 2016a , 2016c ). There has been a modest narrowing of poverty differentials over time, as the non-Hispanic white poverty rate has inched up since the 1970s, while those of blacks, Hispanics, and Asians are a little lower—though among all groups there are considerable fluctuations in poverty with the economic cycle ( U.S. Census Bureau 2016a ).

Less has been written about the prevalence of affluence, and indeed there is no official government measure of affluence in the United States, nor a standard way to measure it in the literature. It is not uncommon for studies to examine people at different percentiles of the income distribution ( Piketty and Saez 2003 ; Murray 2012 ; Reeves 2017 ). Others have used absolute measures of affluence which are based on an unchanging benchmark over time, much like the official poverty measure ( Rank and Hirscl 2001 ; Danziger and Gottschalk 1995 ; Rothwell and Massey 2010 ). Danziger and Gottschalk (1995) document a significant increase in affluence over time.

The few studies that have looked at patterns of affluence by race and ethnicity find considerable disparities. Among these, Rank and Hirschl (2001) , using data from the Panel Study of Income Dynamics (PSID), take a life course approach to examine the probability of experience a year of affluence (defined as family incomes at least 10 times the poverty threshold) among whites and blacks. They find that only about 13 percent of blacks will experience at least one year of affluence over their lifetime, compared to 55 percent of whites. Their subsequent work confirmed that there was considerable differential in the likelihood of affluence by race ( Hirschl and Rank 2015 ).

Explanations for differences in poverty and affluence

There are a number of broad explanations of racial disparities in poverty and affluence. Among these are racial discrimination, the legacy of historical inequalities, differences in human, social, and cultural capital, immigration-related process (such as immigrant selection and generational incorporation), social and spatial isolation, and culture factors, among others (e.g., Alba and Nee 2003 ; Bourdieu 1977 ; Charles and Guryan 2008 ; Loury 1977 , 2002 ; Iceland 2017 ; Massey 2007 ; Massey and Denton 1993 ; Patterson and Fosse 2015 ; Wilson 1987 ). This analysis does not attempt to measure the impact of all of these; to do so would be beyond the scope possible with the data available and in the space of a journal article. Instead, using census data over a long period of time, I examine some of the important, more proximate, socio-demographic correlates of poverty, including education, family structure, and nativity status, among others. These have been shown to have significant associations with poverty, usually causally so, or at least as both a cause and reflection of poverty. Some of these also shed light on the broader perspectives described above, including human capital and immigration-related perspectives. These analyses will provide information on the extent to which these characteristics explain racial disparities, and the changes in their roles over time.

Below I begin with a discussion of the association between individual- and family-level factors and poverty and affluence. I then describe how they might help explain racial and ethnical differences in poverty and affluence over time. This is followed with a review of the previous empirical literature on these relationships, and I end the background section by detailing this study’s contribution to the literature.

The association of individual- and family-level characteristics with poverty and affluence

Among the most important individual- and family-level factors that may help explain racial and ethnic differentials in poverty and affluence are education, family structure, and nativity. I discuss these and additional factors in turn.

Education, a common marker of human capital, is strongly associated with poverty and affluence. Education helps people be more productive, and as such, more desirable to employers. Of secondary importance, attaining an educational degree also serves as a credential—a signal that an individual is meritorious and capable ( Becker 1994 ). Indicative of the importance of education, 5 percent of the population 25 and older with a BA or greater was poor in 2015, compared to 26 percent among those without a high school degree ( Proctor, Semega, and Kollar 2016 ).

Family structure is strongly associated with poverty (less work has been done on its association with affluence). For example, the poverty rate among married-couple families was 5 percent in 2015, compared to 28 percent among female-headed families ( U.S. Census Bureau 2016b ). Families with two adults are more likely two have two earners to help make ends meet. Single parents often face the challenge of finding and paying for childcare. Other factors may also help explain the higher poverty rates among single parents, such as lower average levels of education among these parents.

Nativity is also strongly associated with socioeconomic status. Immigrants tend to have higher rates of poverty than the native born, even within racial/ethnic groups ( Proctor, Semega, and Kollar 2016 ). Higher poverty rates among the foreign born stem from a variety of factors, as the foreign-born often have lower levels of education than the native-born, they might be less likely to translate their academic credentials into good jobs, they are more likely to have limited English language proficiency, and they may have less knowledge about job market and/or lack productive social capital ( Hoynes, Page, and Stevens 2006 ; Iceland 2013 ; Alba and Nee 2003 ).

Other individual- and family-related factors also help to explain poverty and affluence, and these are included as control variables in the analysis. For example, age is negatively associated with poverty, as earnings generally increase across the life course until retirement ( Rank and Hirschl 2001 ). Poverty rates also are higher in the South and nonmetropolitan areas than in other areas ( Thiede, Lichter, and Slack 2018 ). Women are more likely to experience poverty, and less likely to experience affluence, than men, for a variety of reasons, including lower levels of workforce attachment and discrimination in the labor market ( Blau, Ferber, and Winkler 1998 ; England 2010 ; Rank and Hirschl 2001 ).

How individual and family-level factors might help explain racial and ethnic differentials in poverty and affluence

Education might help explain racial and ethnic differential in poverty and affluence because education levels vary by race and ethnicity. Asians are the mostly likely to have a B.A. or higher degree, followed by whites, blacks, and Hispanics and American Indians (the last two groups have similar levels) ( U.S. Census Bureau 2016c ). Low levels of education among blacks and American Indians reflect historical inequalities, as well the poor quality of many schools in neighborhoods with a high proportion of blacks and American Indians—exacerbated by racial residential segregation ( Massey and Denton 1993 ; Snipp 1992 ; Snipp and Hirschman 2004 ).

One reason for high levels of education among Asians is the Asian immigrants are a very selective group, in that they have higher average levels of education than both people in their countries of origin and native-born Americans in the United States ( Sakamoto and Kim 2013 ; Lee and Zhou 2014 ). One reason for this selectivity is that a relatively high proportion of immigrants from Asia are admitted into the U.S. on the basis of their occupational skills. In contrast, a higher proportion of Hispanics enter because they already have kin living in the United States. Immigrants who enter via the occupational skills provisions have much higher levels of education on average that those who enter on the basis of the family reunification provisions, and in part as a result of this, Hispanic immigrants are much less positively selected on education ( Chiswick 1986 ; Feliciano 2005 ).

The association between family structure and poverty/affluence also likely helps explain racial disparities, given differences in marriage rates across groups: they are lowest among blacks, followed by American Indians, Hispanics, whites, and Asians, and differences generally widened over time ( Raley, Sweeney, and Wandra 2015 ). These difference in household living arrangements could reflect racial and ethnic differences in either the average value placed on marriage (a cultural argument) and/or the relative economic security of men and women (an economic argument). Research suggests that blacks and Hispanics are more supportive of single parenthood than whites and Asians, perhaps reflecting the greater occurrence of single parenthood among the former two groups ( Goldscheider and Kaufman 2006 ; Trent and South 1992 ). On the economic side, Black and Hispanic men have relatively low earnings compared to white and Asian men ( Sakamoto et al. 2000 ; Snipp and Cheung 2016 ). This study cannot distinguish between the cultural and economic argument, but can nevertheless shed light on how differences in family structure more generally affect disparities in poverty and affluence. An important caveat here is that family structure might not only affect poverty, but also be affected by it. In this way, past and current disparities in income by race and ethnicity contribute to differences in family structure, which in turn can further exacerbate poverty and affluence gaps.

The possible role of nativity in explaining racial and ethnic gaps is straight forward, and has been discussed at length in the literature (e.g., Sakamoto, Goyette, and Kim 2009 ; Duncan, Hotz, and Trejo 2006 ; Iceland 2017 ; Perlmann 2005 ; Snipp and Hirschman 2004 ). A significant percentage of Asians and Hispanics are immigrants, and immigrants tend to have lower socioeconomic outcomes than the native-born for reasons described above, so nativity might contribute to differentials in poverty and affluence among these groups.

Among other factors included in this analysis that might help explain racial and ethnic differentials in poverty and affluence, age is negatively associated with poverty and the age structure of racial groups differs—whites are the oldest group, followed by Asians, blacks and American Indians, Hispanics, and multiracial individuals ( Gao 2016 ). Since poverty rates also are higher in the South and nonmetropolitan areas than in other areas, to the extent that racial/ethnic groups are differentially distributed across these areas can affect disparities. American Indians, for example, are over-represented in nonmetropolitan areas ( Snipp and Sandefur 1988 ).

It is possible that racial and ethnic groups might experience different “returns” to the individual- and family-level factors that are examined in this analysis. For example, non-Hispanic whites might receive a greater return to education than non-Hispanic blacks. The decomposition method used here focuses on whether group attributes help explain differences in poverty and affluence, but in the Results section I also speak more briefly to the issue of whether differences in returns are important in explaining broad patterns of change.

Finally, it is important to note that disparities in poverty and affluence might be explained by factors not captured in the decennial census and ACS data. These unobserved factors could include, among others: discrimination, neighborhood conditions arising out racial and ethnic segregation (such as the variation in school quality across neighborhood and physical conditions such as environmental hazards), social capital, and culture and cultural capital. To the extent that disparities in these unobserved factors might have changed, we will see a change in the unaccounted for differences in poverty and affluence by race in the analyses.

Previous Empirical Findings

There are a number of studies that have focused on the effect of individual and family-level factors on racial and ethnic disparities in income and poverty, and especially with regards to average or median earnings (e.g., Farley 1996 ; Hirschman and Wong 1984 ; Sakamoto, Wu and Tzeng 2000 ; Sandefur and Scott 1983 ; Snipp and Cheung 2016 ). Among the most recent, Snipp and Cheung (2016) find that some racial and ethnic gaps in earnings have declined, especially between many Asian groups and whites. Asians are in fact often advantaged, but this can be explained mainly by education and regional clustering. Other studies provide mixed findings on the extent of Asian advantage/disadvantage in earnings, with some showing no disadvantage, but others with many controls showing a small disadvantage. Generally speaking, on the one hand, nativity helps explain some of the Asian disadvantage in earnings, but Asians also have higher earnings because they have higher levels of education ( Kim and Sakamoto 2010 ; Zeng and Xie 2004; see also Sakamoto, Goyette, and Kim 2009 ).

Snipp and Cheung (2016) find only a slight narrowing of gap in earnings between white and African American men, though observed characteristics play a larger role in explaining the gap over time. They attribute some of the unobserved gap to discrimination. The small narrowing of the gap and an increased role of observable characteristics is consistent with other studies, though there is some debate about the magnitude of the decline in black-white earnings and wage inequality ( Couch and Daly 2002 ; Farley 1984 ; Hirschman and Wong 1984 ; Sakamoto, Wu, and Tzeng 2000 ; Western and Pettit 2005 ). Differences in family structure have also been found to contribute to the black-white gap in poverty ( Lichter, Qian, and Crowly 2005 ; Thiede, Kim, and Slack 2017 ). However, the general association between family structure and poverty has weakened over time, as single parents are more likely to be employed than they used to ( Cancian and Reed 2008 ; Danziger and Gottschalk 1995 ; Iceland 2003 ; Sawhill 2006 ).

Snipp and Cheung (2016) also find no convergence in the earnings between Hispanics and whites (see also Sakamoto, Wu, and Tzeng 2000 ), with education playing an important role in explaining part of the gap. This is consistent with other studies showing that Hispanics remain disadvantaged relative to whites in terms of earnings and other socioeconomic outcomes; nativity and lower levels of educational also explain at least some, but not all of the Hispanic-white earnings gap ( Dávila, Mora, and Hales 2008 ; see Duncan and Trejo 2014 ).

Finally, the gap between whites and American Indians has decreased only slightly. Among American Indians, low levels of education are an important factor explaining high levels of poverty, as is spatial isolation in areas without many good jobs. A relatively high proportion of American Indian children live in single parent families as well ( Snipp and Sandefur 1988 ; Sarche and Spicer 2008 ; Sandefur and Liebler 1997 ; Snipp 2005 ).

Contributions of this study

This study contributes to the above literature in several ways. First, while general patterns and trends in poverty by race and ethnicity have been well documented, the analyses provide a careful accounting of the extent to which racial and ethnic gaps in poverty have narrowed, and some of group characteristics that help explain these gaps over a long period of time (more on this point below). Second, even less is known about patterns and trends in affluence. Some studies have indicated important differentials (e.g., Rank and Hirschl 2001 ), but none that I am aware of have tracked trends in affluence by race and ethnicity—and is done so here for the 1959 to 2015 period. As such, this analysis examines who occupies both tails of the income distribution . Doing so is timely given substantial increases in inequality since the 1970s, the accompanying hollowing out of the middle class, and the importance of understanding racial inequalities among both the most vulnerable members of society along with those who have substantial political, economic, and social power ( Reeves 2017 ).

Finally, using decomposition analyses, I examine the role of several individual- and family-level characteristics in explaining racial and ethnic differences in poverty and affluence. Many of these, such as education, family structure, and nativity, are thought to play important roles for different groups-- and their roles have likely have changed over time as the composition of racial and ethnic groups themselves have changed. No previous study has examined the effect of these factors at both the low and high ends of the income spectrum, so it is unknown whether they have similar effect on both. Thus, these analyses will yield a deeper understanding of racial and ethnic disparities in poverty and affluence from 1959 to 2015—a period of dramatic change in the social, economic, and demographic composition of the United States.

Data and Methods

The data for these analyses come from the 1960 to 2000 decennial censuses and the 2010 and 2015 American Community Survey (ACS), compiled and harmonized as part of the Integrated Public Use Microdata Series (IPUMS-USA) ( Ruggles et al. 2015 ). The analysis begins with the 1960 census (which collects information on respondents’ incomes in the previous calendar year), as 1959 marks the beginning of the official poverty time series. In addition, using the absolute measure of affluence described below, only a very small proportion of people were affluent in 1949 (2 percent), and this is all more the case for minority groups (1 percent or less for all groups), which also were demographically a small proportion of the total population in 1949 before growing considerable in subsequent decades. The sample includes people in the poverty universe, which excludes people living in institutionalized group quarters and unrelated individuals under the age of 15.

While I examine change over the entire 1959 to 2015 period, some of the analyses focus on changes between 1959 and 1979, and 1980 to the present. There are conceptual and practical reasons for this choice. Conceptually, the 1960s saw the passage of major Civil Rights legislation, with increased implementation into the 1970s, such as in the form of expanded school busing. The election of Ronald Reagan in 1980 saw the beginning of conservative retrenchment in several areas, including cuts in many government programs, as well as the acceleration of income inequality that began in the 1970s ( Danziger and Gottschalk 1995 ; Gottschalk and Danziger 2005 ). One important practical reason to split the analyses into these two time periods is the greater consistency in racial and ethnic groups definitions beginning in 1980, especially for Asians and Hispanics, as described in more detail below. Using a different cutoff year, such as 1989, would not affect the paper’s conclusions. Racial/ethnic gaps narrowed throughout the period, and the change in the role of, say, family structure in explaining black-white poverty differences, would be evident when using 1979 or 1989 as a midpoint year.

Measuring Poverty and Affluence

I use the official poverty measure in this analysis. Briefly, the official poverty measure has two components: poverty thresholds and the definition of family income that is compared to these thresholds. The thresholds remain the same over time, updated only for inflation. The thresholds vary by family size and number of children. In 2015, the poverty threshold for a family with two parents and two children was $24,036 ( Proctor, Semega, and Kollar 2016 ). A family and its members are considered poor if their income falls below the poverty threshold for a family of that size and composition.

Affluence is defined as family income-to-poverty ratios higher than five times the poverty threshold. For a family of two adults and two children, then, the threshold for affluence was $120,180 in 2015. While any threshold for poverty or affluence is inevitably somewhat arbitrary, this measure is reasonable in a couple of respects. In 2015, this dollar figure would place these families at a little below the 80 th percentile of income ($133,525) ( U.S. Census Bureau 2016d ), which is close to Reeve’s (2017) definition of the upper middle class. Secondly, if we were to choose a threshold much higher, only a very small percentage of the population would be affluent in the early years of this study, given overall increases in standards of living.

I also conducted the analyses with alternative measures of poverty and affluence. While these produce different point estimates of poverty and affluence, all of these yielded conclusions on racial and ethnic differentials similar to those presented here. Among the measures I used were relative poverty and affluence, defined as families with incomes in the bottom and top decile of the income distribution in each given year. Using the top decile as a measure of affluence is common in the literature (e.g., Piketty and Saez 2003 ). Since relative poverty measures are sometimes based on some fraction of income below the national median (as opposed to a bottom decile or quintile), I also conducted additional analyses with a relative poverty measure with a poverty threshold equal to one half the median household income in each year, as well as a relative affluence measure with an affluence threshold equal to twice the median household income in each year. These do not change the conclusions, and the results are shown in appendix tables and briefly discussed in the Sensitivity Analysis section below.

Race and ethnicity

I calculate poverty and affluence among the following mutually exclusive and exhaustive racial and ethnic groups: non-Hispanic whites, non-Hispanic blacks, non-Hispanic Asians, non-Hispanic American Indians, non-Hispanic other races, and Hispanics. There are a few data limitations when extending the analysis back to 1960 because of changes in the way data on race and ethnicity were collected by the U.S. Census Bureau. The categories for whites and blacks did not change much, so trends for these groups are the most reliable. In 1960 and 1970, there were response categories for only specific Asian groups, including Chinese, Japanese, Filipino, and Hawaiian (Korean was first used in 1970). In 1980 and thereafter, additional Asian groups were identified, plus a residual category for “other” Asian. Beginning in 2000, Pacific Islanders had a separate response category; to enhance comparability, I include all people who identify as Asian or Pacific Islander as Asian. Data on Hispanic origin were collected in a question that specifically asks respondents if they are of Hispanic origin or not (separate from the race question). This question was asked in a fairly consistent fashion beginning in 1980. In 1960 and 1970, the IPUMS imputes Hispanic origin using eight criteria based on Hispanic birthplace, parental birthplace, grandparental birthplace, Spanish surname, and/or family relationship to a person with one of these characteristics ( Gratton and Gutmann 2000 ).

With regard to other groups, the response category for American Indians did not change much over time. However, in recent decades, more people have reported being American Indian than would be expected given recorded patterns of fertility, mortality, and migration, indicating that it has become more common to assert an American Indian racial identity than in the past ( Liebler and Ortyl 2014 ; Snipp 1997 ). So patterns and trends in poverty and affluence among American Indians should be viewed with some caution. The “other race” category in the analysis needs to viewed with caution as well, as the Census Bureau used different procedures over time to classify respondents as “other race.” In addition, beginning in 2000, individuals could mark as many races as they pleased; these individuals are categorized as “other race” in the analysis. While people of “other” race are included in the accounting of the complete distribution of the poor and affluent populations, I do not focus on this group in many of the analyses.

I also conducted additional analyses where race groups are defined without reference to Hispanic origin (e.g., people who identified as white were categorized as such regardless of how they responded to the Hispanic origin question). The results of these analyses differed modestly in that racial and ethnic disparities narrowed by more using this approach than what is shown, mainly because whites who are Hispanic have a lower socioeconomic profile than non-Hispanic whites. Thus, the decline in disparities described below are more conservative estimates than the alternative approach.

The analyses focuses on differences poverty and affluence across panethnic racial and ethnic groups over time to because data are missing on a number of subgroups in earlier years, and some of the ethnic groups (e.g., Dominicans) were quite small through most of the study period. However, I include results on the largest Asian and Hispanic ethnic groups for 2015 in Appendix Tables A1 and ​ andA2 A2 to show the extent to which differences in the likelihood of poverty and affluence reported for the panethnic groups are generalizable to subgroups. These results are described briefly in the results section.

Individual and Family Level Variables

I include a number of individual and family characteristics in the analysis, including gender, age, education, family structure, nativity, region, metropolitan status. Specifically, I compute four educational categories for the family householder: less than high school, high school only, some college, and Bachelor’s degree or more. Family structure is measure with variables for female-headed family, married-couple family, and other family type (such as a person living alone or with housemates). Variables are included for family size and number of children of the family householder. People are classified into four regions: Northeast, Midwest, South, and West. There is a dummy variable for whether a person lives in a metropolitan area. The analyses include age of the family householder, and a square term, as the association of age with poverty and affluence may be non-linear (e.g., a decline in affluence among the elderly).

Analytical Strategy

The analysis proceeds as follows. I begin with a descriptive look at patterns and trends in poverty and affluence by race and ethnicity from 1959 to 2015. These analyses will answer the first research question: How have patterns of poverty and affluence by race and ethnicity changed over time? This will be followed by logistic regressions to see how the likelihood of poverty and affluence across groups has changed over time including the sociodemographic characteristics described above. This analysis answers the second question posed: How has the relatively likelihood of poverty and affluence by race and ethnicity changed? These regressions will also show the relationship between the various control variables and poverty and affluence, which will be helpful for understanding results from the subsequent decomposition analysis.

Finally, to answer the third research question (to what extent do family- and individual-level characteristics help explain differences in the prevalence in poverty and affluence by race and ethnicity, and how have these associations changed over time?) I conduct a decomposition analysis using a variant of the well-known Blinder-Oaxaca decomposition for linear regression ( Blinder 1973 ; Oaxaca 1973 ) developed by Fairlie (2005) and Bauer and Sinning (2008) for nonlinear regression models. This decomposition method allows us to estimate the role of group characteristics in explaining differences in poverty and affluence by race in a given period versus what remains unexplained The analyses focus on three time periods: 1959, 1979, and 2015. The decomposition can be written as:

where Y ¯ A − Y ¯ B is the difference in the average probability of the outcome (poverty and affluence) between groups A and B, E βA (Y iA |X iA ) refers to the conditional expectation of Y iA and E βA (Y iB |X iB ) to the conditional expectation of Y iB evaluated at the parameter vector β A ( Bauer and Sinning 2006 ). Thus, the first two terms on the right-hand side of the equation provide an estimate of the impact of differences in the endowments (characteristics) of groups A and B on differences in the outcomes, while the last two terms reveal the effect of differences in coefficients on differences in the outcomes, which are treated as differences that cannot be explained by differences in the characteristics themselves. The contribution of specific characteristics is computed by using the Fairlie command in Stata ( Fairlie 2005 ; Fairlie and Robb 2007 ).

This decomposition approach shares the same potential issue of the original Blinder-Oaxaca decomposition in that results might be sensitive to the choice of the reference group. That is, in the equation above, Group A coefficients (i.e., from models that include only members of Group A) are applied to Group B means in the first two terms, and Group B means are used in the second two terms. An alternative would be to apply Group B coefficients (i.e., from models that include only members from Group B) to Group A means and use Group A means in the latter two terms. A more common approach, and the one used in the following analyses, is to use pooled regression coefficients (from a weighted sample that includes individuals of the two groups being compared) and apply them to means of both groups ( Neumark 1988 ; Oaxaca and Ransom 1994 ; Fairlie and Robb 2007 ). In sensitivity analyses, I find that using different reference group coefficients sometimes affects the magnitude of the effect of endowments, but it does not change this study’s conclusions. This issue is discussed in further detail at the end of the results section.

Descriptive findings

Figures 1 shows trends in poverty by race and ethnicity over the 1959 to 2015 period. The trends in Figure 1 are fairly widely known: poverty fell for all groups in the 1960s, but then fluctuated with the business cycle thereafter. Non-Hispanic whites have the lowest poverty rate (10.3 percent in 2015), followed by Asians (11.9 percent), Hispanics (22.5 percent), blacks (25.0 percent), and American Indians (26.1 percent). 1 Disparities in poverty tend to be larger in 1959 than in 2015, with significant narrowing of gaps during the 1960s. However, some narrowing has occurred in recent decades as well. For example, since 1980, the poverty rate for non-Hispanic whites drifted up from 8.7 percent to 10.3 percent in 2015. In contrast, the poverty rates for all other groups are lower in 2015 than 1980, though sometimes only slightly so.

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Percent Poor by Race/Ethnicity and Year: 1959–2015

Figure 2 shows the percentage of the population that is affluent, by race and ethnicity, where families with incomes over five times the poverty line are considered affluent. Reflecting general increases in living standards, affluence rose for the total population and among all racial and ethnic groups. In 2015, Asians had the highest rate of affluence (35.8 percent), followed by whites (32.9 percent), blacks (14.4 percent), American Indians (13.3 percent), and Hispanics (12.1 percent). Thus, racial and ethnic disparities are large. The absolute gap in percentage of each group that is affluent rose over the period, though the relative differences narrowed substantially. For example, the absolute gap in affluence between whites and blacks was 18.5 percentage points in 2015, up from 6.2 percentage points in 1959. However, whites were 2.3 times more likely to be affluent than blacks in 2015, down from 9.9 times more likely in 1959, and even down modestly from 2.9 times more likely in 1979. Also of note, the gap between the percentage of Asians who were affluent compared with the percentage of whites who are affluent has grown since 2000, signifying a greater Asian advantage over this period.

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Percent Affluent, Defined as Family Income Five Times the Poverty Line or Greater, by Race/Ethnicity and Year: 1959–2015

Multivariate Analysis

I examine the association between race/ethnicity and poverty and affluence over time with a series of logistic regressions. Table 1 shows the descriptive statistics for the independent variables in models. Overall, we see that the mean age of all groups increased over time, with whites having the oldest mean age. Education also increased among all groups. There was a decline in married-couple families for all groups over time, though there are some substantial differences in family structure across groups, with Asians the most likely to be living in married-couple families, followed by whites. Families became smaller over time, and there are substantial differences in the percent foreign-born across groups, with Asians having the highest percentage. The percentage of all groups living in metropolitan areas and in the South generally increased, though there are also some group differences by geography.

Descriptive Statistics, 1959–2015

Source: 1960 and 1980 decennial censuses and 2015 American Community Survey. Note: number of own children, educational attainment, foreign-born status, and age refer to the characteristics of the family householder.

Table 2 shows logistic regression results for the association between race/ethnicity and poverty in 1959, 1979, and 2015. It shows that all groups are more likely to be poor than whites in just about all years, with and without controls. In 2015, for example, that odds of being poor for blacks was 3.16 times that of whites when no controls are in the model. The odds were 1.31, 3.02, and 2.57, and 1.90 for Asians, American Indians, and Hispanics, respectively. The odds of being poor relative to whites generally declined over the period, though the declines for some groups were uneven. For example, the odds of being poor for blacks was 6.33 times that of whites in 1959, dropping to 4.36 in 1979, and finally to 3.16 times in 2015 when no controls are included. Among American Indians there was a continuous decline as well, though among Asians and Hispanics there was an increase between 1959 and 1979, followed by a decline. As noted before, the changes for Asians and Hispanics between 1959 and 1979 should be viewed with some caution, given changes in the definitions of these groups in this period.

Logistic Regressions for Poverty (Odds Ratios)

The control variables help explain some of the differences in the likelihood of poverty by race and ethnicity, but certainly not all. For example, the odds of being poor among blacks relative to whites falls from 3.16 with no controls to 1.71 with controls in 2015. For Hispanics it also drops, from 2.57 to 1.25, and for American Indians, from 3.02 to 1.96. These declines indicate that the observed variables in the model, such as education, age, and family structure, help explain some of the gap in poverty. As has been mentioned earlier, a caveat is that these are not meant to be wholly causal models. Some of the these variables can reflect poverty/affluence.

The control variables are associated with poverty in expected ways. Age has a negative association with poverty, men are less likely to be poor, as are people with higher levels of education. People living in female-headed families and other family types are substantially more likely to be poor than people in married couple families. Family size has a negative association with poverty, though more children are positively associated with poverty. Foreign-born people are more likely to be poor than the native-born in 1979 and 2015, and people living in metro areas are less likely to be poor. There are some regional differences in poverty, though the odds of being poor in the South relative to the Northeast declined over time.

Table 3 show results for affluence. Many of the patterns in this table are the same, but with a couple of important differences. In 1959, racial and ethnic differences were generally quite stark, as the odds ratios for blacks, Asians, American Indians, and Hispanics to be affluent relative to whites were only 0.09, 0.81, 0.17, and 0.26, respectively (without controls). The odds increased for all groups in 1979 (though the increase for Hispanics was slight), and there were further small increases for most groups in 2015, except for Hispanics, where the odds ratio remained at 0.29. In 2015, substantial disparities remain for most groups.

Logistic Regressions for Affluence (Odds Ratios)

One striking exception is that Asians reached parity with whites over the period. In 1979, with the odds of affluence for Asians was 1.01 times that of whites in models without controls. However, once controls were included in the model, the Asian advantage disappeared, and Asians were less likely to be affluent than whites (odds of 0.83), holding other characteristics constant. By 2015, however, the odds for Asians being affluent relative to whites increased to 1.10 times without controls, and differences were slight but associated with advantage (1.03) in models with the control variables. The control variables themselves are associated with affluence in expected ways, as the ones that were positively associated with poverty are for the most part negatively associated with affluence. Education stands out as having a very large association with affluence.

As described in the Data and Methods section, the analyses focus on differences in poverty and affluence across panethnic groups because of missing or sparse data for a number of groups in the earlier years of the study period. However, I include results for specific ethnic groups in 2015 in Appendix Tables A1 and ​ andA2 A2 to show the extent to which results for panethnic groups are generalizable to specific ethnic groups. Table A1 , which focuses on Asians, indicates that three of the five largest Asian groups (Japanese, Filipinos, and Asian Indians) were less likely to poor than non-Hispanic whites in models without controls, though all except Filipinos were more likely to be poor once controls are included, mirroring the panethnic pattern. With regards to affluence, all specific groups except the Vietnamese were more likely to be affluent than whites in models without controls, and three of the groups remained more likely to be affluence in models with controls (Chinese, American Indians, and Japanese). Thus, there is clearly some variation across groups, though general conclusions derived from the panethnic models apply to most of the largest specific ethnic groups.

According to Table A2 , most of the conclusions about Hispanic poverty and affluence apply to the largest specific ethnic groups, with a couple of exceptions. All groups are more likely to be poor than whites in models with controls (except “other Central American”), and most are less likely to be affluent, with the exception of Cubans.

Decomposition analysis

Finally, the decomposition analysis examines whether there are particular individual- and family-level characteristics that explain groups differences in poverty and affluence, and how their effects have changed over time. Table 4 shows results for poverty. The first three rows confirm the descriptive statistics that poverty gaps between various minority groups and whites have generally narrowed over time. Figures in the next row indicate that over the course of the 1959 to 2015 period, the observed characteristics generally explain an increasing share of the poverty gap across groups. For example, the characteristics explains two thirds (67 percent) of the poverty gap between whites and blacks in 2015, up from about half (49 percent) in 1959. The decline in the proportion of the racial and ethnic disparities that cannot be explained by the variables in the models indicates that such unobservable factors play a smaller role than they used to. This could result if factors such as discrimination, neighborhood conditions, and other unobserved causes of disparities have become less important over time, while factors such as differences in human capital, family formation patterns, and factors associated with immigration have become more important.

Decompositions of Differences in Poverty, by Race and Year

Notes: all differences are statistically significant except for # of children for Asians in 1959 and for Hispanics in 2015, and region for Asians in 2015. NA: Not Applicable-- the differences in poverty are too small to be meaningfully explained.

With regard to the black-white poverty gap, differences in family structure, age, and educational attainment play the largest roles in explaining the gap (34, 16, and 15 percent, respectively in 2015), and the roles of each also increased over time. Among Asians, the gap in poverty was very small in 1959, such that the effect of any particular characteristics in explaining the difference would look very large (because the denominator in the calculation is the difference)—so these are not presented in the table. In 2015, observed characteristics explain 91 percent of the white-Asian poverty gap, with nativity explaining the largest portion (more than the entire net gap), followed by age. The table shows that family structure, living in metropolitan areas, and educational attainment are protective—if Asians more resembled whites in these characteristics, then the white-Asian poverty gap would have been even larger.

Among Hispanics, the percent the poverty gap explained by the observed characteristics was 92 percent in 2015 (up from just 31 percent in 1959), with education (46 percent), age (23 percent), and nativity (22 percent) explaining most of the white-Hispanic poverty gap. Thus, Hispanics resemble Asians in that immigration-related factors play an important role, but unlike Asians, education is not protective; rather, it contributes to their relatively high levels of poverty.

With regards to the American Indian-white poverty gap, observed characteristics explained 53 percent of the gap in poverty in 2015 (up from 42 percent in 1959), with, as for black-white gaps, differences in educational attainment, family structure, and age playing the largest roles (explaining 21, 12, and 10 percent of the gap, respectively).

In terms of the role of different factors across groups, we see that family structure played the largest role among blacks. Nativity and age were important among Asians and Hispanics. In addition, education also stood out as being particularly important for Hispanics, and multiple factors were important among American Indians.

Table 5 shows decomposition results when using affluence as the outcome. The patterns are in some ways similar to poverty: observed characteristics tend to explain a greater proportion of the affluence gaps over time, with some exceptions. Among blacks, family structure plays the most prominent role (explaining 32 percent of the gap in 2015), followed by education (25 percent). Interestingly, while the effect of family structure on poverty among African American did not change much between 1979 and 2015, its effect on affluence grew, as the negative association between single parenthood and affluence grew stronger over the period—perhaps due to increasing assortative mating ( McLanahan 2004 ). Among American Indians, education plays the largest role (33 percent in 2015), followed by family size (18 percent), family structure (15 percent) and metropolitan status (12 percent). With regards to metropolitan status, this is a function of people in nonmetropolitan areas considerably less likely to be affluent, and American Indians over-represented in nonmetropolitan areas.

Decompositions of Differences in Affluence, by Race and Year

Notes: all differences are statistically significant except for foreign born for blacks in 1979 and for American Indians in 1979; number of children for all groups in 2015. NA: Not Applicable-- the differences in affluence are too small to be meaningfully explained.

Education and nativity continue to play important roles among Asians and Hispanics. In particular, among Hispanics education plays the largest role (explaining 43 percent of the gap in 2015), followed by family size (21 percent) and nativity (13 percent). Among Asians, gaps again are small, so the decomposition shows relatively large effects of individual characteristics, especially in 1959 and 1979, when the results measured in percentage terms are not very useful. In 2015, Asians were advantaged over whites, with education, family structure, and metropolitan status contributing to their advantage, and family size and nativity working in the opposite direction. 2

Generally speaking, education tends to play a larger role in explaining racial differences in affluence than poverty, indicative of the particularly strong association between human capital and upward mobility. Conversely, nativity tends to be more important for understanding racial disparities in poverty than affluence.

Sensitivity Analyses

The use of alternative poverty and affluence measures.

I also conducted additional analyses with a relative poverty measure with a poverty threshold equal to one half the median household income in each year, as well as a relative affluence measure with an affluence threshold equal to twice the median household income in each year. These results are shown in Appendix Tables A3 and ​ andA4, A4 , respectively. The results are similar to those shown in main decomposition tables for poverty and affluence ( Tables 4 and ​ and5). 5 ). For example, in Appendix Table A3 we see that the difference in relative poverty between whites and blacks declined over the period, and characteristics explained a larger proportion of the difference in 2015 than 1959. The role of family structure increased from 1959 to 1979 and remained stable thereafter. Among Hispanics, the total difference explained by various characteristics also increased over time, and education in particular played a large role. The white-Asian difference in poverty is quite small in all years—to small to meaningfully decompose in 1979 and 2015.

With regards to relative affluence, we again see many similarities. The role of family structure in explaining white-black differences increased steadily over the time period, the Asian-white gap in affluence grew (signifying higher rates of affluence among Asians than whites over time), and education playing an important protective factor. Conversely, education once again plays an important role in the white-Hispanic gap in relative affluence. Among American Indians and whites, several factors remain important in explaining differences.

The Use of Alternative Reference Groups in the Decompositions

As described in the Data and Methods section, results of decompositions can be sensitive to the reference group chosen (i.e., whether one uses regression coefficients from models that contain members of Group A vs. Group B). The decomposition results shown above use regression coefficients from models that pool whites and the minority group members of interest. This section reviews results when using coefficients from models that contain whites only versus those that contain minority group members only.

Overall, the conclusions of this study remain the same regardless of the reference group chosen. Specifically, using a coefficients from a model including only one particular group (e.g., white vs. the minority group) does not consistently produce higher or lower estimates of the role of characteristics in explaining racial and ethnic differences. For example, using pooled regressions of blacks and whites produced an estimate that characteristics explained 67 percent of the white-black gap in poverty (shown in Table 4 ). Using whites as a reference group (i.e., models that include only whites) produced a modestly lower estimate of 57 percent ( Appendix Table A5 ), while using blacks as the reference group produced an estimate of 67 percent ( Appendix Table A6 ). Using pooled regressions produced an estimate that characteristics explained 67 percent of the white-black gap in affluence (shown in Table 5 ). Using whites as a reference group produced a similar estimate of 64 percent ( Appendix Table A7 ), while using blacks as the reference group produced a lower estimate of 55 percent ( Appendix Table A8 ). All of these figures are larger than the respective 1959 estimates, as also shown in the tables, supporting the conclusion that an increasing proportion of the black-white difference in poverty and affluence are explained by these observed characteristics, regardless of the reference group.

One of the reasons that the choice of the reference group has only a modest effect on results is that the independent variables, with some exceptions, tend to have similar associations with poverty and affluence across the racial and ethnic groups (and more so over time). For example, while the odds that a person in a female-headed family is affluent compared to a person in married-couple family in 2015 was 0.25 for the entire pooled sample ( Table 4 ), the odds for regressions that include, in turn, only non-Hispanic whites, non-Hispanic blacks, non-Hispanic Asians, non-Hispanic American Indians, and Hispanics, were 0.24, 0.24, 0.41, 0.19, and 0.24, respectively—a modest band of variability. Similarly, the odds that a person in family where the householder has a BA or more is affluent compared to a person in family where the householder does not have a high school diploma in 2015 was 13.20 for the entire pooled sample. In samples stratified by race, these odds were 11.92, 12.02, 13.40, 9.26, and 15.34 for non-Hispanic whites, non-Hispanic blacks, non-Hispanic Asians, non-Hispanic American Indians, and Hispanics, respectively. These difference are not trivial, but on the whole modest, as they are not great enough to affect the conclusions from the decomposition analysis.

Perhaps the most notable variation in the decomposition results when using different reference groups, is in Asian-white decomposition, where the role of nativity is consistently larger (in both the poor and affluent models) when using coefficients from models with Asians only than in models with whites only or the pooled equations. The reason for this is that association between nativity and poverty and affluence is stronger among Asians than for whites (or whites and Asians pooled). This is suggestive of a strong pattern of generational economic upward mobility among Asians. Among Hispanics, nativity actually plays a smaller role in the poverty decomposition when using coefficients from the Hispanic sample only than the pooled sample, though there is little difference in results by reference group when looking at the role of nativity in explaining affluence.


The goal of this analysis has been to document racial disparities in poverty and affluence from 1959 to 2015 and shed some light on the dynamics of these differences over the period. While trends in poverty have been fairly well documented, we know less about trends in affluence for all of the groups included here—whites, blacks, Asians, Hispanics, and American Indians. I examined changes in the relative likelihood of poverty and affluence by race and ethnicity and then used a decomposition analysis to examine the relative contribution of important sociodemographic correlates of poverty and affluence, including education, family structure, and nativity, and how their effects have changed over time.

The analyses indicate that racial disparities in poverty and affluence are generally large. However, disparities between minority groups and whites generally declined over the period. For example, poverty declined for all groups, but moderately more for minority groups than whites. Similarly, affluence increased substantially for all groups—indicative of rising living standards—but in relative terms more for minority groups than whites.

There is variation across groups. Blacks and American Indians tended to be the most disadvantaged groups, though the magnitude of disadvantage declined over the period, and there was only a little decline in the affluence gap after 1979. Hispanics were less likely to be poor than blacks and American Indians, but about as equally likely to be affluent. The white-Hispanic gap in poverty and affluence actually increased from 1959 to 1979, before declining slightly thereafter. Finally, while Asians continue to be more likely to be poor than whites, they reached parity with whites in affluence in 1979 and surpassed whites by 2015.

A key contribution of this paper lay in the results of the decomposition analyses, which examined which factors in particular were most important in explaining disparities. While a number of previous studies have documented differences in socioeconomic attainment between groups (e.g., Sakamoto and Kim 2013 , Snipp and Cheung 2016 ), they have not focused on the changing roles of groups characteristics in explaining change over time. The findings of this analysis indicates that the effect of these factors varied by group. Among Hispanics and Asians, education and nativity consistently were important factors. For Hispanics, education was particularly important for explaining disparities (explaining between 43 and 46 percent of the poverty and affluence gaps, respectively, in 2015), and we find that its role increased over time, especially with regards to poverty—a finding not widely appreciated in the literature. Among Asians, education was a “protective” factor—if Asians more resembled whites in terms of education, the disparities in poverty would have been larger. Nativity was important for both groups, though more so in explaining poverty differentials than those in affluence (another findings not as widely appreciated in the literature)—suggesting that being foreign born is associated with greater labor market challenges among low skill workers than those at the upper end—many who may have been admitted into the United States on the basis of their skills.

Thus, the analysis supports the notion that the effects of human capital differentials and the immigrant incorporation process are very important for understanding disparities among Hispanics and Asians ( Sakamoto and Kim 2013 ; Lee and Zhou 2014 ; Chiswick 1986 ; Feliciano 2005 ). Highly selective immigration from Asia likely helps explain good socioeconomic outcomes of Asians in the United States, combined with the large emphasis these immigrant parents place on schooling for their children ( Hsin and Xie 2014 ; Lee and Zhou 2014 ; Jiménez and Horowitz 2013 ). While Asian immigrants are positively selected on education, the same is not the case for Hispanics, especially immigrants from Mexico ( Chiswick 1986 ; Feliciano 2005 ). The undocumented status of many Latin American immigrants also slows the economic incorporation process, as such immigrants do not have access to many opportunities in the formal labor market, which would likely have a particularly strong effect on the likelihood of becoming affluent ( Brown 2007 ; Bean et al. 2015 ; Perlmann 2005 ). So to the extent to which immigration levels remain high and the selectivity patterns hold, we should continue to see divergent outcomes among Asians and Hispanics, even as generational progress slowly serves to narrow the gap between whites and Hispanics.

The decomposition analysis also showed that the effect of family structure grew in importance and became the most significant factor among blacks—not only for poverty, but also for affluence, explaining about a third of the disparity in poverty and affluence in 2015. While the impact of family structure on poverty grew mainly between 1959 and 1979, and remained stable thereafter, the effect of family structure on affluence increased further after 1979—a factor not appreciated in the existing literature on disparities in poverty and affluence, and indicative of the importance of comparing the factors that affect each of these outcomes. The patterns are likely a result of the slightly weakening correlation between family structure and poverty in recent decades, as indicated by the decline in poverty among female-householder families ( U.S. Census Bureau 2016b ; Cancian and Reed 2008 ; Baker 2015 ), though the strengthening correlation between family structure and affluence. The latter likely results from the increase in assortative mating by education, and the “diverging destinies” between families with well-educated two-parent families and others, and their contributions to racial inequality ( McLanahan 2004 ; McLanahan and Percheski 2008 ). The fact that family structure plays an important role is indicative of the importance of the interaction between changing economic conditions that have hindered the prospects of less-skilled men and increased opportunities for women, as well as changes in cultural attitudes that have reduced the stigma on single parenthood—both factors may have affected blacks and Hispanics more so than whites and Asians ( Cherlin 2004 , 2009 ; Smock and Greenland 2010 ; Thornton and Young-DeMarco 2001 ; Goldscheider and Kaufman 2006 ; Trent and South 1992 ; Sakamoto et al. 2000 ; Snipp and Cheung 2016 ). The continued increase in single-parenthood among white families ( Murray 2012 ), however, could over time narrow the contribution of family structure to racial and ethnic disparities in poverty and affluence in the future.

Among American Indians, no single factors plays a dominant role—several are important, including education (generally the most important), family structure, and, depending on the outcome, family size, age, or metropolitan status. Thus, it appears that cumulative disadvantages are important for American Indians, who are more likely to have lower levels of human capital, live in single parent families, and have a younger age structure and live in nonmetropolitan areas than other groups.

Finally, the implications of the existence of an unexplained gap for most groups—and its decline over time—are not clear cut, but suggestive. The presence of an unexplained difference is sometimes attributed to discrimination (e.g., Cancio, Evans, and Maume 1996 ; Snipp and Cheung 2016 ), since discrimination typically is not observed in survey data. However, it should be emphasized that there are other unobserved factors in the census data used, including neighborhood conditions, social capital, and cultural capital—all influenced by race-related factors, such as racial and ethnic segregation—that can also play a role. Nevertheless, the findings suggest that these types of factors played a smaller role in explaining racial and ethnic disparities in poverty and affluence over time. Instead, observed characteristics, such as educational attainment (a key indicator of human capital), nativity (indicative of the importance of the immigrant incorporation process), and family structure (indicative of the interaction between economic conditions and culture) played a larger role.

This study has a few limitations. The use of cross-sectional decennial and ACS data precludes making strong causal inferences about the effect of the variables of interest, such as family structure, on poverty. Family structure can be both a cause and reflection of poverty. Thus, this study mainly sheds light on the factors associated with poverty, and how differences in these characteristics across racial and ethnic groups might reflect and contribute to differences in the prevalence of poverty and affluence. This study is also limited to the indictors available in the decennial and ACS files. Ideally we would have a broader array of variables, such as wealth, or experiences of discrimination to further probe inequalities, but these are unavailable. As noted earlier, the definitions of some of the racial and ethnic groups studied also varied over time, especially among Asians and Hispanics prior to 1980, so conclusions that extend to before then need to be made with caution.

In summary, the findings suggest that there were moderate steps toward racial equality in poverty and affluence over the 1959 to 2015 period, consistent with notion that there has been a decline in the significance of race in shaping life chances ( Sakamoto, Wu, and Tzeng 2000 ; Wilson 1980 ). However, despite some narrowing of the racial gap and the general parity between whites and Asians, other large disparities remain, especially for blacks and American Indians. There are likely many causes for continued disparities among these groups, including racial discrimination in the labor market, which serves to reduce employment and wages. The increase in incarceration in the late 20 th century also served to reduce human capital and wages among black men in particular, and these show up in higher poverty rates and lower rates in affluence among black families ( Western and Pettit 2005 ). The legacy of historical inequalities may also play a role, as there is a fair amount of intergenerational transmission of socioeconomic status in the United States ( Duncan and Brooks-Gunn 1997 ; Isaacs, Sawhill, and Haskins 2008 ; Solon 1999 ). Differences in social and cultural capital, social and spatial isolation, and culture factors, may also help explain some of the differences ( Loury 1977 , 2002 ; Massey 2007 ; Massey and Denton 1993 ; Patterson and Fosse 2015 ; Wilson 1987 ). Thus, while gaps between groups have narrowed, considerable differences remain.


This research was supported by the National Institutes of Health, Population Research Institute Center Grant, R24HD041025.

Appendix Table A1.

Logistic Regressions of Poverty and Affluence among Detailed Asian Ethnic Groups, 2015

Appendix Table A2.

Logistic Regressions of Poverty and Affluence among Detailed Hispanic Ethnic Groups, 2015

Appendix Table A3.

Decompositions of Differences in Poverty, Using a Relative Poverty Measure, by Race and Year

Notes: the relative poverty measure uses a poverty threshold that equals one half the median household income. NA: Not Applicable-- the differences in poverty are too small to be meaningfully explained.

Appendix Table A4.

Decompositions of Differences in Affluence, Using a Relative Measure of Affluence, by Race and Year

Notes: the relative affluence measure uses a threshold that equals two times the median household income.

Appendix Table A5.

Decompositions of Differences in Poverty, by Race and Year, Using Whites as the Reference Group

NA: Not Applicable-- the differences in poverty are too small to be meaningfully explained.

Appendix Table A6.

Decompositions of Differences in Poverty, by Race and Year, Using the Minority Group as the Reference Group

Note: NA: Not Applicable-- the differences in poverty are too small to be meaningfully explained.

Appendix Table A7.

Decompositions of Differences in Affluence, by Race and Year, Using Whites as the Reference Group

NA: Not Applicable-- the differences in affluence are too small to be meaningfully explained.

Appendix Table A8.

Decompositions of Differences in Affluence, by Race and Year, Using the Minority Group as the Reference Group

1 Poverty rates using data from the American Community Survey are slightly higher than when using data from the Current Population Survey due to better coverage of income in the latter. Using ACS data likely does not introduce bias into the analysis on disparities since poverty rates are higher among all groups using ACS data.

2 The strong negative association between family size and affluence can be explained in large part by the fact that the thresholds for affluence increase with family size. For example, the threshold for affluence for a family with two adults and two children in 2015 was $120,180, while the threshold for affluence for a family with two adults and four children was $158,350.

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Income and Wealth Inequality: Racial and Ethnic Health Disparities Essay

Inequality of income and wealth is a growing concern in modern society. For decades, differences between the affluent and poor have been progressively expanding, with the associated economic and social implications becoming increasingly apparent. The purpose of this essay is to assess the causes and consequences of income and wealth disparities in the United States from 1940 through 2020. This paper will provide one strategy for federal policymakers to lessen these inequities by assessing available research and statistics.

Income inequality may be quantified using a variety of approaches. The Gini coefficient, the 90/10 ratio, and the revenue share of the top 1% are examples of these. The Gini coefficient, which runs from 0 (total equality) to 1 (total inequality), is one of the most extensively used indicators of income inequality (Ndulo & Assié-Lumumba, 2020, p. 69). More income disparity is indicated by a higher Gini coefficient. The 90/10 ratio is used to measure the income of the top 10% of earners to that of the poorest 10% (Ndulo & Assié-Lumumba, 2020, p. 69). The top 1% income share relates the top 1%’s income to the overall income received in a nation (Ndulo & Assié-Lumumba, 2020, p. 69). These indicators give several views on income disparity and can be used to guide policy decisions aimed at reducing inequality. In conclusion, the Gini coefficient, the 90/10 ratio, and the income distribution of the top 1% are all techniques for measuring income disparity. Investing in policies targeted at lowering income disparity can help reduce income inequality, leading to better possibilities for people and a healthier economy overall.

The 90/10 ratio is the most often used metric of income disparity among researchers. For example, according to Horowitz et al.’s study “Trends in Income and Wealth Inequality,” income inequality in the United States has risen since 1980. The 90/10 ratio has dramatically increased over time, from 9.1 in 1980 to 12.6 in 2018. (Horowitz et al., 2020, para. 38). When evaluating the trend, it is possible to conclude that it is alarming since it implies that the economic disparity between the richest and poorest Americans is expanding.

The Gini coefficient, which determines the level of disparity in a country’s income distribution, reflects this tendency as well, with a higher figure indicating a more significant distinction. For example, in 2016, the estimated Gini coefficient in the United States was 0.481 (Horowitz et al., 2020, para. 12). Since a Gini coefficient of 0 represents total equality, and a value of 1 shows total inequality, where one household has all of the money or possessions while all others have none, this statistic implies that income inequality in the country is very significant. Furthermore, the authors claim that the Gini coefficient in the United States grew by nearly 20% between 1980 and 2016. (Horowitz et al., 2020, para. 12). Based on this data, the trend in the United States indicator of income inequality from 1940 to 2020 has been toward higher inequality. As a result, the evaluation indicates that this tendency raises concerns regarding economic prospects and mobility for persons at the bottom of the economic ladder.

Additionally, the income disparity trend is particularly prominent among higher-income households. From 1981 to 1990, the richest 5% of households’ income increased at a pace of 3.2% per year, while the bottom quintile’s income decreased by 0.1% per year (Horowitz et al., 2020, para. 21). In the 1990s, the wealthiest 5% of households fared even better, with their income increasing at an annual average rate of 4.1%, compared to 1% or marginally more for other individuals (Horowitz et al., 2020, para. 22). From 2000 to 2018, yearly average family income rate dropped to 0.3%, although the wealthiest families in the United States continued to outperform other families (Horowitz et al., 2020, para. 5). From 1998 to 2007, the average net worth of the wealthiest 5% of American households climbed from $2.5 million to $4.6 million, nearly double the 45% gain in wealth of the top 20% of families altogether (Horowitz et al., 2020, para. 33). These figures indicate that income inequality in the United States is on the upswing, and that income growth has benefitted the highest incomes in recent decades.

The studies discuss the growing concern among researchers, policymakers, and politicians about the increasing economic inequality in the United States. According to a survey by Biewen and Seckler (2019), the rise of globalization and the expanding use of technology has contributed to the widening gap between the wages of high- and low-skilled workers. Globalization has led to the outsourcing of many low-skilled jobs to countries with lower labor costs, leaving fewer job opportunities for low-skilled workers. At the same time, technological advancements have increased the demand for high-skilled workers while reducing the need for low-skilled workers. This effect has resulted in a significant increase in the wages of high-skilled workers, while wages for low-skilled workers have stagnated or declined (Acemoglu & Restrepo, 2021). Overall, it can be concluded that globalization and technological advances have played a significant role in widening income inequality in the United States.

The effect of globalization and technical improvements is one of the reasons leading to this problem, but other factors also contribute to it. As such, Horowitz et al. (2020) offer evidence that the growth in economic disparity since 1980 is partly due to these issues, as well as the fall of unions and the deteriorating value of subsistence wages. The paper contends that income disparity may lead to fewer opportunities and mobility for those at the bottom of the economic ladder, a phenomenon known as The Great Gatsby Curve (Horowitz et al., 2020). Finally, the article emphasizes the detrimental impact of inequality on the political power of the poor, regional division by income, and the economic expansion itself.

Wealth inequality and income inequality are two separate but related metrics of economic inequality. The unequal distribution of wages among people or households is referred to as income inequality (Amacher & Pate, 2018). In contrast, wealth disparity refers to the unequal distribution of assets without liabilities or obligations (Amacher & Pate, 2018). Since money is more concentrated in the wealthiest individuals, wealth disparity has a more significant impact than income disparity (Amacher & Pate, 2018). This concentration of wealth may result in a variety of economic and social issues, including restricted chances for the less rich to enhance their standard of living, a lack of spending on public goods, and political imbalance.

Moreover, wealth disparity has the potential to influence future generations. Wealth concentration can lead to insufficient expenditure on schools, health care, and other necessary services, reducing social mobility and sustaining inequality for future generations (Christophers, 2021). Furthermore, wealth concentration can result in the formation of a financial elite who utilize their wealth and status to influence political choices, resulting in laws that favor the wealthy over the less fortunate (Christophers, 2021). As a result, reducing wealth disparity is critical for establishing a fair and equitable society.

The inequality of wealth in the United States has grown over the last many years. Upper-income families’ share of collective wealth increased from 60% to 79% from 1983 to 2016, while middle-income families’ part fell almost in half from 32% to 17%, and lower-income households had only 4% of the cumulative wealth in 2016, down from 7% in 1983. (Horowitz et al., 2020, para. 31). From 1998 to 2007, the average net worth of the wealthiest 5% of U.S. families climbed from $2.5 million to $4.6 million, indicating an increase in wealth disparity (Horowitz et al., 2020, para. 31). Even after the Great Recession, the wealth disparity between the richest and poorest households in America more than doubled. In 1989, the wealthiest 5% of households had 114 times the wealth of the middle quadrant, $2.3 million compared to $20,300, and by 2016, this proportion had risen to 248 (Horowitz et al., 2020, para. 36). As a result of increased inequality, those in lower economic strata may have less financial freedom and flexibility.

Overall, the tendency of rising wealth disparity in the United States demands more attention and explanation. As such, wealth concentration leads to political inequality, with the interests of the rich taking precedence over those of the less fortunate. Furthermore, when the rich amass more resources, they may be able to utilize their money to produce more wealth, sustaining wealth concentration over time. This dynamic can create a vicious circle of inequity that is hard to eradicate. High levels of wealth disparity, in the end, harm social stability and economic progress by restricting options for those who are not currently affluent.

Inequality in the United States has risen in recent decades, and there are multiple causes for this. One of the primary causes is the unequal distribution of educational possibilities, which leads to income and wealth inequality. Strauss (2017) found that educational attainment is substantially associated with income levels, with persons with greater levels of education earning much more than those with fewer qualifications. Additionally, according to Strauss (2017), unemployment statistics and educational achievement are closely associated, with better-educated persons seeing lower jobless rates even during recessions. This theory indicates that there is a strong demand for highly educated people and a low demand for individuals with fewer qualifications, resulting in income and wealth discrepancies. Significant relationships between education, wealth, and unemployment support this notion. Other aspects, like globalization, technological progress, and changes in tax regulations, should be addressed while evaluating it. As a result, while Strauss’ theory offers valuable information, it is critical to examine numerous aspects when assessing the causes of wealth disparity.

Furthermore, tax loopholes have long been a source of contention in the debate over the origins of wealth disparity. While some regard tax loopholes as a method for the rich to escape paying their fair share of taxes, others see them as an essential tool for stimulating growth in the economy (Alm, 2021). Notwithstanding this, it is crucial to remember that the effect of tax loopholes on wealth disparity is not apparent and is likely to be impacted by a variety of other variables. As such, past discrimination trends, gaps in educational opportunities, and structural biases within the market structure can all contribute.

Healthcare disparity significantly contributes to income and wealth inequality in the United States. Inequalities in healthcare availability and efficacy, according to Abedi et al. (2021), are frequently associated with income and wealth differences since persons with limited earnings are more likely to lack appropriate healthcare insurance and have access to healthcare services. This insufficient access to healthcare can have negative health consequences, such as higher morbidity and death rates, as well as aggravate pre-existing health issues. Moreover, healthcare costs can be a considerable financial drain for low-income families, leading to higher debt and decreasing monetary sustainability (Abedi et al., 2021). These variables contribute to general economic disparities across the country because those with lower incomes and fewer assets have less opportunity to utilize vital medical care and are more likely to have unfavorable health outcomes as a result. As a result, the evaluation found that healthcare disparity is highly linked to income and wealth inequality in the United States. Thus, addressing healthcare disparity is critical for lowering income and wealth inequality in the United States.

Given the information that has been presented thus far, it is reasonable to infer that those who have private health insurance have a substantially larger net worth than those who do not. Based on data from the U.S. Census Bureau (2022), the wealth difference between those who have the benefit of personal insurance compared to those who do not may be estimated. The cost of private insurance can be considerable, and individuals who do not have access to it may be unable to pay it. In 2021, 8.3% of the population, or 27.2 million individuals, lacked health insurance at some time during the year, compared to 91.7% of those who had coverage for all or part of the year (U.S. Census Bureau, 2022, para. 1). The poverty incidence of 11.6% and the Supplemental Poverty Measure rate of 7.8% indicate that a sizable section of the population may not be able to buy private insurance (U.S. Census Bureau, 2022, para. 1). As a result, it is probable that there is a significant wealth gap between those who have possession of personal insurance as opposed to those who do not.

As previously stated, healthcare disparities are a significant factor in income and wealth inequality in the United States. Those with low incomes are more likely to lack sufficient healthcare insurance and have restricted access to healthcare services. Hence poor access to healthcare is typically related to low income and wealth (Abedi et al., 2021). Inadequate availability of medical care can have severe health repercussions, such as increased morbidity and mortality rates, as well as exacerbate pre-existing health concerns. Additionally, healthcare expenditures can be a significant financial burden for low-income households, resulting in increased debt and decreased economic sustainability (Abedi et al., 2021). Therefore, the evaluation suggests that increasing access to low-cost or public healthcare has the ability to minimize income and wealth disparities. Providing all Americans comprehensive healthcare coverage, whether through a government plan or a single-payer program, would assist in resolving healthcare inequities and creating more economic equality. However, it is crucial to emphasize that healthcare is only one element contributing to income and wealth disparity. Supplementary policies addressing education, labor, and taxation may be required to solve this complicated issue.

As a government policymaker, one possible recommendation for lowering income or wealth disparity would be to raise taxes on the most prosperous individuals and businesses. This approach would aid in the redistribution of wealth and the provision of more resources for social welfare programs aimed at decreasing inequality, such as schools, medicine, and cheaper housing. Furthermore, initiatives that promote educational and vocational opportunities for people from low-income families might assist them in improving their economic potential and minimizing income disparity. Finally, instituting minimum wage increases and supporting unions might help raise salaries for low-skilled employees while reducing wealth disparities. It is vital to stress that any policy aiming at lowering income or wealth disparity must be carefully planned in order to prevent unintended effects, and it must be founded on a comprehensive understanding of the root causes of inequality.

In conclusion, since 1980, income and wealth inequality in the United States has been climbing, indicating growing economic imbalance. Globalization and technological improvements have contributed to the United States’ growing economic disparity, resulting in fewer employment prospects for low-skilled people. Wealth disparity has a more considerable impact than income inequality, and it is worsening in the United States. Inadequate access to healthcare is intimately related to income and wealth inequality, and limited access to healthcare can have severe health repercussions. Increased access to low-cost or socialized medicine has the potential to reduce income and wealth inequality. As a federal policymaker, one possible recommendation for reducing income or wealth disparities would be to raise taxes on the most affluent people and companies. Additionally, it is proposed to promote educational and professional opportunities for low-income families and support unions in their efforts to raise wages for low-skilled workers while reducing wealth disparities.

Abedi, V., Olulana, O., Avula, V., Chaudhary, D., Khan, A., Shahjouei, S., Li, J., & Zand, R. (2021). Racial, economic, and health inequality and COVID-19 infection in the United States . Journal of Racial and Ethnic Health Disparities , 8 (3), 732–742. Web.

Acemoglu, D., & Restrepo, P. (2021). Tasks, automation, and the rise in U.S. wage inequality . Econometrica , 90 (5), 1973–2016. Web.

Alm, J. (2021). Tax evasion, technology, and inequality . Economics of Governance , 22 (4), 321–343. Web.

Amacher, R. C., & Pate, J. (2018). Principles of microeconomics (2nd ed.). Bridgepoint Education.

Biewen, M., & Seckler, M. M. (2019). Unions, internationalization, tasks, firms, and worker characteristics: A detailed decomposition analysis of rising wage inequality in Germany . Journal of Economic Inequality , 17 (4), 461–498. Web.

Christophers, B. (2021). A tale of two inequalities: Housing-wealth inequality and tenure inequality . Environment and Planning A , 53 (3), 573–594. Web.

Horowitz, J. M., Igielnik, R., & Kochhar, R. (2020). 1. Trends in income and wealth inequality . Pew Research Center’s Social & Demographic Trends Project. Web.

Ndulo, M. B., & Assié-Lumumba, N. T. (2020). Education and development: Outcomes for equality and governance in Africa . Springer Nature.

Strauss, S. (2017). The connection between education, income inequality, and unemployment . HuffPost. Web.

US Census Bureau. (2022). Income, poverty and health insurance coverage in the United States: 2021 . Census.gov. Web.

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IvyPanda. (2024, February 25). Income and Wealth Inequality: Racial and Ethnic Health Disparities. https://ivypanda.com/essays/income-and-wealth-inequality-racial-and-ethnic-health-disparities/

"Income and Wealth Inequality: Racial and Ethnic Health Disparities." IvyPanda , 25 Feb. 2024, ivypanda.com/essays/income-and-wealth-inequality-racial-and-ethnic-health-disparities/.

IvyPanda . (2024) 'Income and Wealth Inequality: Racial and Ethnic Health Disparities'. 25 February.

IvyPanda . 2024. "Income and Wealth Inequality: Racial and Ethnic Health Disparities." February 25, 2024. https://ivypanda.com/essays/income-and-wealth-inequality-racial-and-ethnic-health-disparities/.

1. IvyPanda . "Income and Wealth Inequality: Racial and Ethnic Health Disparities." February 25, 2024. https://ivypanda.com/essays/income-and-wealth-inequality-racial-and-ethnic-health-disparities/.


IvyPanda . "Income and Wealth Inequality: Racial and Ethnic Health Disparities." February 25, 2024. https://ivypanda.com/essays/income-and-wealth-inequality-racial-and-ethnic-health-disparities/.

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  • Most Americans Say There Is Too Much Economic Inequality in the U.S., but Fewer Than Half Call It a Top Priority
  • 1. Trends in income and wealth inequality

Table of Contents

  • 2. Views of economic inequality
  • 3. What Americans see as contributors to economic inequality
  • 4. Views on reducing economic inequality
  • Acknowledgments
  • Methodology

Barely 10 years past the end of the Great Recession in 2009, the U.S. economy is doing well on several fronts . The labor market is on a job-creating streak that has rung up more than 110 months straight of employment growth, a record for the post-World War II era. The unemployment rate in November 2019 was 3.5%, a level not seen since the 1960s. Gains on the jobs front are also reflected in household incomes, which have rebounded in recent years.

But not all economic indicators appear promising. Household incomes have grown only modestly in this century, and household wealth has not returned to its pre-recession level. Economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen.

Household incomes are growing again after a lengthy period of stagnation

Household incomes have resumed growing following the Great Recession

With periodic interruptions due to business cycle peaks and troughs, the incomes of American households overall have trended up since 1970. In 2018, the median income of U.S. households stood at $74,600. 5 This was 49% higher than its level in 1970, when the median income was $50,200. 6 (Incomes are expressed in 2018 dollars.)

But the overall trend masks two distinct episodes in the evolution of household incomes (the first lasting from 1970 to 2000 and the second from 2000 to 2018) and in how the gains were distributed.

Most of the increase in household income was achieved in the period from 1970 to 2000. In these three decades, the median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of only 0.3%. If there had been no such slowdown and incomes had continued to increase in this century at the same rate as from 1970 to 2000, the current median U.S. household income would be about $87,000, considerably higher than its actual level of $74,600.

The shortfall in household income is attributable in part to two recessions since 2000. The first recession, lasting from March 2001 to November 2001, was relatively short-lived. 7  Yet household incomes were slow to recover from the 2001 recession and it was not until 2007 that the median income was restored to about its level in 2000.

But 2007 also marked the onset of the Great Recession, and that delivered another blow to household incomes. This time it took until 2015 for incomes to approach their pre-recession level. Indeed, the median household income in 2015 – $70,200 – was no higher than its level in 2000, marking a 15-year period of stagnation, an episode of unprecedented duration in the past five decades. 8

More recent trends in household income suggest that the effects of the Great Recession may finally be in the past. From 2015 to 2018, the median U.S. household income increased from $70,200 to $74,600, at an annual average rate of 2.1%. This is substantially greater than the average rate of growth from 1970 to 2000 and more in line with the economic expansion in the 1980s and the dot-com bubble era of the late 1990s.

Why economic inequality matters

The rise in economic inequality in the U.S. is tied to several factors. These include , in no particular order, technological change, globalization, the decline of unions and the eroding value of the minimum wage. Whatever the causes, the uninterrupted increase in inequality since 1980 has caused concern among members of the public , researchers , policymakers and politicians .

One reason for the concern is that people in the lower rungs of the economic ladder may experience diminished economic opportunity and mobility in the face of rising inequality, a phenomenon referred to as The Great Gatsby Curve . Others have highlighted inequality’s negative impact on the political influence of the disadvantaged, on geographic segregation by income, and on economic growth itself. The matter may not be entirely settled, however, as an opposing viewpoint suggests that income inequality does not harm economic opportunity.

Alternative estimates of economic inequality

This report presents estimates of income inequality based on household income as estimated in the Current Population Survey (CPS), a survey of households conducted by the U.S. Census Bureau in partnership with the Bureau of Labor Statistics. These estimates refer to gross (pretax) income and encompass most sources of income. A key omission is the value of in-kind services received from government sources. Because income taxes are progressive and in-kind services also serve to boost the economic wellbeing of (poorer) recipients, not accounting for these two factors could overstate the true gap in the financial resources of poorer and richer households.

The Congressional Budget Office (CBO) offers an alternative estimate of income inequality that accounts for federal taxes and a more comprehensive array of cash transfers and in-kind services than is possible with Current Population Survey data. The CBO finds that the Gini coefficient in the U.S. in 2016 ranged from 0.595, before accounting for any forms of taxes and transfers, to 0.423, after a full accounting of taxes and transfers. These estimates bracket the Census Bureau’s estimate of 0.481 for the Gini coefficient in 2016. By either estimate, income inequality in the U.S. is found to have increased by about 20% from 1980 to 2016 (The Gini coefficient ranges from 0 to 1, or from perfect equality to complete inequality). Findings from other researchers show the same general rise in inequality over this period regardless of accounting for in-kind transfers.

Yet another alternative is to focus on inequality in consumption, which implicitly accounts for all forms and sources of incomes, taxes and transfers. Some estimates based on consumption show that inequality in the U.S. increased by less than implied by estimates based on income, but other estimates suggest the trends based on consumption and income are similar. Empirically, consumption can be harder to measure than income.

Upper-income households have seen more rapid growth in income in recent decades

The growth in income in recent decades has tilted to upper-income households. At the same time, the U.S. middle class , which once comprised the clear majority of Americans, is shrinking. Thus, a greater share of the nation’s aggregate income is now going to upper-income households and the share going to middle- and lower-income households is falling. 9

The share of American adults who live in middle-income households has decreased from 61% in 1971 to 51% in 2019. This downsizing has proceeded slowly but surely since 1971, with each decade thereafter typically ending with a smaller share of adults living in middle-income households than at the beginning of the decade.

income inequality race essay

The decline in the middle-class share is not a total sign of regression. From 1971 to 2019, the share of adults in the upper-income tier increased from 14% to 20%. Meanwhile, the share in the lower-income tier increased from 25% to 29%. On balance, there was more movement up the income ladder than down the income ladder.

But middle-class incomes have not grown at the rate of upper-tier incomes. From 1970 to 2018, the median middle-class income increased from $58,100 to $86,600, a gain of 49%. 10  This was considerably less than the 64% increase for upper-income households, whose median income increased from $126,100 in 1970 to $207,400 in 2018. Households in the lower-income tier experienced a gain of 43%, from $20,000 in 1970 to $28,700 in 2018. (Incomes are expressed in 2018 dollars.)

More tepid growth in the income of middle-class households and the reduction in the share of households in the middle-income tier led to a steep fall in the share of U.S. aggregate income held by the middle class. From 1970 to 2018, the share of aggregate income going to middle-class households fell from 62% to 43%. Over the same period, the share held by upper-income households increased from 29% to 48%. The share flowing to lower-income households inched down from 10% in 1970 to 9% in 2018.

These trends in income reflect the growth in economic inequality overall in the U.S. in the decades since 1980.

Income growth has been most rapid for the top 5% of families

Even among higher-income families, the growth in income has favored those at the top. Since 1980, incomes have increased faster for the most affluent families – those in the top 5% – than for families in the income strata below them. This disparity in outcomes is less pronounced in the wake of the Great Recession but shows no signs of reversing.

From 1981 to 1990, the change in mean family income ranged from a loss of 0.1% annually for families in the lowest quintile (the bottom 20% of earners) to a gain of 2.1% annually for families in the highest quintile (the top 20%). The top 5% of families, who are part of the highest quintile, fared even better – their income increased at the rate of 3.2% annually from 1981 to 1990. Thus, the 1980s marked the beginning of a long and steady rise in income inequality.

Since 1981, the incomes of the top 5% of earners have increased faster than the incomes of other families

A similar pattern prevailed in the 1990s, with even sharper growth in income at the top. From 1991 to 2000, the mean income of the top 5% of families grew at an annual average rate of 4.1%, compared with 2.7% for families in the highest quintile overall, and about 1% or barely more for other families.

The period from 2001 to 2010 is unique in the post-WWII era. Families in all strata experienced a loss in income in this decade, with those in the poorer strata experiencing more pronounced losses. The pattern in income growth from 2011 to 2018 is more balanced than the previous three decades, with gains more broadly shared across poorer and better-off families. Nonetheless, income growth remains tilted to the top, with families in the top 5% experiencing greater gains than other families since 2011.

The wealth of American families is currently no higher than its level two decades ago

The wealth of U.S. families is yet to recover from the Great Recession

Other than income, the wealth of a family is a key indicator of its financial security. Wealth, or net worth, is the value of assets owned by a family, such as a home or a savings account, minus outstanding debt, such as a mortgage or student loan. Accumulated over time, wealth is a source of retirement income, protects against short-term economic shocks, and provides security and social status for future generations.

The period from the mid-1990s to the mid-2000s was beneficial for the wealth portfolios of American families overall. Housing prices more than doubled in this period, and stock values tripled. 11 As a result, the median net worth of American families climbed from $94,700 in 1995 to $146,600 in 2007, a gain of 55%. 12  (Figures are expressed in 2018 dollars.)

But the run up in housing prices proved to be a bubble that burst in 2006. Home prices plunged starting in 2006, triggering the Great Recession in 2007 and dragging stock prices into a steep fall as well. Consequently, the median net worth of families fell to $87,800 by 2013, a loss of 40% from the peak in 2007. As of 2016, the latest year for which data are available, the typical American family had a net worth of $101,800, still less than what it held in 1998.

The wealth divide among upper-income families and middle- and lower-income families is sharp and rising

The wealth gap among upper-income families and middle- and lower-income families is sharper than the income gap and is growing more rapidly.

The period from 1983 to 2001 was relatively prosperous for families in all income tiers, but one of rising inequality. The median wealth of middle-income families increased from $102,000 in 1983 to $144,600 in 2001, a gain of 42%. The net worth of lower-income families increased from $12,3oo in 1983 to $20,600 in 2001, up 67%. Even so, the gains for both lower- and middle-income families were outdistanced by upper-income families, whose median wealth increased by 85% over the same period, from $344,100 in 1983 to $636,000 in 2001. (Figures are expressed in 2018 dollars.)

The gaps in wealth between upper-income and middle- and lower-income families are rising, and the share held by middle-income families is falling

The wealth gap between upper-income and lower- and middle-income families has grown wider this century. Upper-income families were the only income tier able to build on their wealth from 2001 to 2016, adding 33% at the median. On the other hand, middle-income families saw their median net worth shrink by 20% and lower-income families experienced a loss of 45%. As of 2016, upper-income families had 7.4 times as much wealth as middle-income families and 75 times as much wealth as lower-income families. These ratios are up from 3.4 and 28 in 1983, respectively.

The reason for this is that middle-income families are more dependent on home equity as a source of wealth than upper-income families, and the bursting of the housing bubble in 2006 had more of an impact on their net worth. Upper-income families, who derive a larger share of their wealth from financial market assets and business equity, were in a better position to benefit from a relatively quick recovery in the stock market once the recession ended.

As with the distribution of aggregate income, the share of U.S. aggregate wealth held by upper-income families is on the rise. From 1983 to 2016, the share of aggregate wealth going to upper-income families increased from 60% to 79%. Meanwhile, the share held by middle-income families has been cut nearly in half, falling from 32% to 17%. Lower-income families had only 4% of aggregate wealth in 2016, down from 7% in 1983.

The richest are getting richer faster

The richest families are the only group to have gained wealth since the Great Recession

The richest families in the U.S. have experienced greater gains in wealth than other families in recent decades, a trend that reinforces the growing concentration of financial resources at the top.

The tilt to the top was most acute in the period from 1998 to 2007. In that period, the median net worth of the richest 5% of U.S. families increased from $2.5 million to $4.6 million, a gain of 88%.

This was nearly double the 45% increase in the wealth of the top 20% of families overall, a group that includes the richest 5%. Meanwhile, the net worth of families in the second quintile, one tier above the poorest 20%, increased by only 16%, from $27,700 in 1998 to $32,100 in 2007. (Figures are expressed in 2018 dollars.)

The wealthiest families are also the only ones to have experienced gains in wealth in the years after the start of the Great Recession in 2007. From 2007 to 2016, the median net worth of the richest 20% increased 13%, to $1.2 million. For the top 5%, it increased by 4%, to $4.8 million. In contrast, the net worth of families in lower tiers of wealth decreased by at least 20% from 2007 to 2016. The greatest loss – 39% – was experienced by the families in the second quintile of wealth, whose wealth fell from $32,100 in 2007 to $19,500 in 2016.

As a result, the wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016. In 1989, the richest 5% of families had 114 times as much wealth as families in the second quintile, $2.3 million compared with $20,300. By 2016, this ratio had increased to 248, a much sharper rise than the widening gap in income. 13

Income inequality in the U.S has increased since 1980 and is greater than in peer countries

Income inequality in the U.S. is rising …

Income inequality may be measured in a number of ways , but no matter the measure , economic inequality in the U.S. is seen to be on the rise.

One widely used measure – the 90/10 ratio – takes the ratio of the income needed to rank among the top 10% of earners in the U.S. (the 90th percentile) to the income at the threshold of the bottom 10% of earners (the 10th percentile). In 1980, the 90/10 ratio in the U.S. stood at 9.1, meaning that households at the top had incomes about nine times the incomes of households at the bottom. The ratio increased in every decade since 1980, reaching 12.6 in 2018, an increase of 39%. 14

Not only is income inequality rising in the U.S., it is higher than in other advanced economies. Comparisons of income inequality across countries are often based on the Gini coefficient , another commonly used measure of inequality. 15 Ranging from 0 to 1, or from perfect equality to complete inequality, the Gini coefficient in the U.S. stood at 0.434 in 2017, according to the Organization for Economic Cooperation and Development (OECD). 16  This was higher than in any other of the G-7 countries , in which the Gini ranged from 0.326 in France to 0.392 in the UK, and inching closer to the level of inequality observed in India (0.495). More globally, the Gini coefficient of inequality ranges from lows of about 0.25 in Eastern European countries to highs in the range of 0.5 to 0.6 in countries in southern Africa, according to World Bank estimates .

  • The median income splits the income distribution into two halves – half the households earn less than the median and half the households earn more. Incomes are adjusted for household size and scaled to represent a household size of three. See methodology for details. ↩
  • Percentage changes are estimated, and other calculations are made, before numbers are rounded. ↩
  • The recession dates are as designated by the National Bureau of Economic Research . ↩
  • It is likely that household incomes did not return to their 2000 level till 2016 or later. A redesign of income questions by the Census Bureau in 2014 is estimated to have given a boost of about 3% to median household income in the U.S. at the time of the redesign. ↩
  • Middle-income” Americans are adults whose annual household income is two-thirds to double the national median, after incomes have been adjusted for household size. Lower-income households have incomes less than 67% of the median and upper-income households have incomes that are more than double the median. See methodology for details. Previous Pew Research Center reports have examined the state of the American middle class in greater detail, including trends within U.S. metropolitan areas. ↩
  • The data source for these estimates is the Current Population Survey, Annual Social and Economic Supplement for 1971 to 2019. In the survey, respondents provide household income data for the previous calendar year. Thus, income data in this section refer to the 1970-2018 period and the counts of people from the same survey refer to the 1971-2019 period. ↩
  • The S&P/Case-Shiller U.S. National Home Price Index increased from 80 in January 1995 to 185 in June 2006 (January 2000=100). It fell to 134 in February 2012 and climbed thereafter, reaching 212 in August 2019. At the start of the Great Recession in December 2007, the S&P 500 index stood at about 1,500, three times its level of about 500 in 1995. After the peak in 2007, the S&P 500 fell below 1,000 in 2009. As of November 2019, the index had reached a level of about 3,000. (S&P 500 historical values downloaded from Yahoo! on Nov. 21, 2019.) ↩
  • Estimates of wealth are from the Survey of Consumer Finances (SCF). The SCF is conducted triennially by the Federal Reserve Board of Governors. It was first fielded in 1983 and the latest survey for which data are available was in 2016. ↩
  • It is not possible to compute the ratio of the wealth of the top 5% of families to the wealth of the poorest 20% because the median wealth of the poorest families is either zero or negative in most years examined. ↩
  • Per the U.S. Census Bureau , the source of these estimates, the 90th percentile household income in 2018 was $184,292 and the 10th percentile household income was $14,629 (incomes not adjusted for household size). ↩
  • The Gini coefficient encapsulates the share of aggregate income held by each person or household. If everyone has the same income, or the same share of aggregate income, the Gini coefficient equals zero. If the income distribution is perfectly unequal, a single person or household holds all aggregate income, the Gini coefficient is equal to one. ↩
  • The OECD is a group of 36 countries, including many of the world’s advanced economies. The OECD’s estimates of the Gini coefficient are for the following years: U.S. – 2017, UK – 2017, Italy – 2016, Japan – 2015, Canada – 2017, Germany – 2016, France – 2016, and India – 2011. ↩

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Racial inequality in the united states.

By: Counselor for Racial Equity Janis Bowdler and Assistant Secretary for Economic Policy Benjamin Harris  

Racial inequality is the unequal distribution of resources, power, and economic opportunity across race in a society. While the discussion of racial inequality in the United States is often focused on economic inequality, racial inequality also manifests itself in a multitude of ways that alone and together impact the well-being of all Americans. This includes racial disparities in wealth, education, employment, housing, mobility, health, rates of incarceration, and more. 1

In her January 2022 remarks at the 2022 ‘Virtual Davos Agenda’ hosted by the World Economic Forum, Secretary of the Treasury Janet Yellen stated, “A country’s long-term growth potential depends on the size of its labor force, the productivity of its workers, the renewability of its resources, and the stability of its political systems.” This concept underpins the Biden Administration’s economic growth strategy, which Secretary Yellen has coined “modern supply side economics.” According to Secretary Yellen, modern supply side economics “prioritizes labor supply, human capital, R&D, and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality.” 2  This reflects a recognition that despite an aim to advance economic growth, many policies in areas such as access to the labor market, housing, and infrastructure have not benefited all Americans. This has impacted the ability of communities of color, rural communities, and other historically marginalized people to fully participate in and benefit from the nation’s prosperity. Our economy as a whole cannot be as productive as possible unless all individuals are given the opportunity to be as productive as possible. As a result, the legacies of structural racism continue to hamper economic growth for everyone. Furthermore, some economic policies that would directly benefit Americans of all races and ethnicities have been undermined by zero-sum arguments that play to fears that one group will benefit at the expense of another. 

There are, of course, moral, legal, microeconomic, and other reasons to promote a more just and equitable society. In a series of blog posts over the coming months, we will focus on the economic argument for reducing racial inequality. The economic cost of racial inequality is borne not just by the individuals directly faced with limited opportunities, but also has spillovers to the entire U.S. economy. Especially as the country becomes more racially diverse (see Figure 1), inequality poses an ongoing threat to our individual and collective economic welfare.  

Figure 1: Changing Racial and Ethnic Composition of the U.S. Population

Figure shows that the county has been come more racially diverse from 1900 to 2020

Notes: Hispanic refers to anyone of Hispanic ethnicity, regardless of race. The remaining groups exclude anyone of Hispanic ethnicity. Prior to the 1980 decennial census, individuals were not directly asked about whether they were of Hispanic origins. For data before the 1980 decennial census, Hispanic is imputed by IPUMS.  Source: Treasury calculations using U.S. Census Bureau data from IPUMS. Steven Ruggles, Sarah Flood, Sophia Foster, Ronald Goeken, Jose Pacas, Megan Schouweiler and Matthew Sobek. IPUMS USA: Version 11.0 [dataset]. Minneapolis, MN: IPUMS, 2021. https://doi.org/10.18128/D010.V11.0  

Deputy Secretary of the Treasury Wally Adeyemo emphasized this argument in his September 2021 blog post: “The exclusion of communities of color from the ladder of economic opportunity holds back economic growth for the entire country. Pursuing racial equity is a vital opportunity to drive innovation and boost growth across the U.S. economy.” 3  When people gain access to the resources they need to build their economic future and withstand financial shocks, it is not just good for individuals and their families, but it also benefits the communities where they live, work, and invest, with beneficial spillovers to the economy as a whole. Likewise, when investments are made that allow millions of people who have been held back economically to reach their full economic potential, it gives the United States an important advantage in an increasingly competitive global economy. We cannot afford to leave talent and opportunity on the table.

Below we briefly discuss the origins and persistence of inequality in the United States, highlight some of the key economic indicators of its impact, and give an overview of the issues we will explore in more depth in future posts.

Origins and Persistence of Racial Inequality in the United States

Racial inequality in the United States today is rooted in longstanding behaviors, beliefs, and public and private policies that resulted in the appropriation of the physical, financial, labor, and other resources of non-white people. While a review of the origins of racial inequity is beyond the scope of this blog, it is important to note the prominent role of inequitable and harmful policies—dating back to before the country’s founding. These include attacks on Native Americans’ political status and expropriation of their land, the reliance on slavery to underpin a significant portion of the colonial and then U.S. economy, and the Jim Crow laws and other formal and informal policies that enforced segregation and severely limited opportunities for non-white Americans. The millions of African Americans who left the southern United States to escape Jim Crow laws faced formal and informal employment, housing, and educational discrimination in destination cities in the North and West. 4  Native Americans who survived the military conquests of the mid-19th century were subject to policies that disenfranchised them, forced their assimilation and relocation, and removed Native children from their households. Anti-Latino sentiment, which grew in the 19th century as emigration from Mexico to the United States increased in the years following the Mexican-American War, grew further following the Great Depression due to concerns that Mexican Americans were taking jobs from European-Americans. 5  Similarly, anti-Asian sentiment grew following the arrival of Chinese immigrants during the California Gold Rush, which was manifested in the Chinese Exclusion Act prohibiting the immigration of Chinese laborers beginning in 1882, and was ignited again after the bombing of Pearl Harbor, with the establishment of Japanese internment camps by executive order, which resulted in the forced relocation and internment of about 120,000 Japanese Americans. 6

While the most targeted racist laws and policies have been repealed or otherwise abandoned, subsequent policies, uneven enforcement of equal protections, and a failure to invest in individuals harmed by de jure and de facto discrimination has resulted in vastly limited opportunities and stark inequities between white and non-white Americans that have continued to this day. For example, maps drawn by the Home Owners Loan Corporation, a now defunct federal agency, to portray the relative riskiness of lending across neighborhoods in the 1930s were used by banks to deny access to credit to residents of the lowest-rated neighborhoods, who were often racial and ethnic minorities, though these policies also hurt poor white individuals. 7  Moreover, this conduct depressed home ownership rates, house values, and rents and increased racial segregation in low-rated neighborhoods in subsequent decades, highlighting the lasting, negative economic consequences of racism on the community and on future residents of these neighborhoods, regardless of race. 8   These and other policies and actions not only led to continued racial disparities in access to resources and opportunities, they also led to differences in the extent to which people of different races benefit from the resources and opportunities they already possess. 9

These disparities are evident in the persistent over-representation of Black and Hispanic Americans among the population in poverty in the United States and in the widening of the racial wealth gap in recent decades. 10   While the poverty rates for all racial and ethnic groups had been declining prior to the COVID-19 pandemic (see Figure 2), the gaps between the rates for Black and Hispanic Americans and non-Hispanic white Americans has remained relatively constant since the early 2000s. At the same time, the gap in average net wealth between Black and Hispanic households and non-Hispanic white households has widened significantly (see Figure 3).

Figure 2. Poverty Rate by Race and Hispanic Origin: 1959 to 2019

income inequality race essay

Figure 3. Household Net Worth by Race and Hispanic Origin: 1989 to 2019

Shows the gap in average net wealth between Black and Hispanic households and non-Hispanic white households has widened significantly from 1959 to 2019

Source: Federal Reserve Board, https://www.federalreserve.gov/econres/notes/feds-notes/wealth-inequality-and-the-racial-wealth-gap-20211022.htm  

Racial disparities in outcomes predictive of future success appear early in life. In 2010, math skills at kindergarten entry were over half a standard deviation higher for white students than for Black or Hispanic students, with similar disparities in reading skills. 11  These disparities in educational outcomes continue into higher education. In 2019, 40 percent of white adults had earned a bachelor’s degree compared to just 26, 19, and 17 percent of Black, Hispanic, and American Indian or Alaska Native adults, respectively. 12

Large educational disparities, coupled with racial discrimination in the labor market and other factors, lead to pronounced differences in economic security across racial groups. In 2019, the unemployment rate was 6.1 percent for both Black and American Indian or Alaska Native adults, compared to just 3.3 and 2.7 percent for white and Asian adults, respectively. Similarly, the rate for Hispanic adults was 4.3 percent and only 3.5 percent for non-Hispanics. 13

In addition, Black and Hispanic adults continue to have considerably lower earnings than White or Asian adults. Median household income in 2020 was roughly $46,000 and $55,500 for Black and Hispanic workers, respectively, compared to $75,000 and $95,000 for white and Asian households, as shown in Figure 4. These earnings differences have changed little since 1970 and are one of the primary contributors to the persistence of the racial wealth gap. In 2019, the median white family had $184,000 in family wealth compared to just $23,000 and $38,000 for the median Black and Hispanic families, respectively. 14

Racial disparities in educational and economic outcomes not only impact the economic well-being of racial and ethnic minorities, they have also been shown to inhibit economic growth for the U.S. economy as a whole, which affects the economic security of every American, regardless of race. For example, recent research by economists Chang-Tai Hsieh, Erik Hurst, Charles I. Jones, and Peter J. Klenow shows that up to 40 percent of growth in U.S. GDP per capita between 1960 and 2010 can be attributed to increases in the shares of women and Black men working in highly skilled occupations, likely due to changes in social norms that previously hindered talented women and Black men from pursuing their comparative advantage. 15  This research suggests that sexist and racist social norms prevented the U.S. economy from reaching its full potential and that working to ensure that every American has an equal opportunity to pursue the career he or she chooses should improve economic outcomes for all.

Figure 4. Real Median Household Income by Race and Hispanic Origin: 1967 to 2020

Figure showing Black and Hispanic adults continue to have considerably lower earnings than White or Asian adults. Median household income in 2020 was roughly $46,000 and $55,500 for Black and Hispanic workers, respectively, compared to $75,000 and $95,000 for white and Asian households.

Racial gaps in well-being extend beyond educational attainment and economic security. Health disparities, for example, also begin early in life and persist over the lifespan. Black and Hispanic Americans face higher rates of child abuse, 16  lead exposure, 17  obesity in childhood, 18  and chronic illness in adulthood than white Americans. 19  These groups often experience restricted access to quality health care, an issue further illuminated by the recent global pandemic. Compared to white non-Hispanic Americans, Hispanic, Black non-Hispanic, and American Indian or Alaska Native non-Hispanic Americans are 1.8, 1.7, and 2.1 times more likely to die from COVID-19. 20   Moreover, as the COVID-19 pandemic has shown, the inequitable distribution of healthcare in the United States can negatively impact the health of all Americans, including those with access to high-quality services.

In addition, people of color in the United States are over-represented in neighborhoods with high poverty rates. In 2019, nearly a quarter of American Indians or Alaska Natives, 21 percent of non-Hispanic Black people, and 17 percent of Hispanic people lived in high-poverty neighborhoods, defined as Census tracts with a poverty rate of 30 percent or higher. In contrast, only 4 percent and 6 percent of white and Asian or Pacific Islander people lived in high-poverty neighborhoods. 21  High-poverty neighborhoods often lack vital resources and amenities like good schools, large and affordable grocery stores, reliable public transportation, and safe and clean community spaces that enable residents to succeed in the classroom and on the job.

It is important to note that while we have reliable measures and data sources to define the differences in many outcomes between racial and ethnic groups over the past forty years, our ability to trace racial inequality back further and examine the country’s progress since the end of slavery is limited by the quality and quantity of data available. For example, greater disparities exist within the Asian American and Pacific Islander group than are often evident in aggregate data, and data on Native communities in the United States is usually inadequate for any in depth analyses. Moreover, for some outcomes such as wealth, our ability to measure contemporary differences is also limited by data availability.

Roadmap for this Blog Series

Upcoming posts will discuss in greater depth the extent of racial inequality in economic security and explain how differences in in educational opportunity and attainment, neighborhoods and environmental factors, health and access to healthcare, and employment and job quality, contribute to and are caused by the persistence of racial disparities in economic well-being. Each post will highlight important facts, discuss how key outcomes have evolved over time, and emphasize the connections with other components of economic inequality, with the goal of calling attention to areas where more work is needed to advance racial equity. In addition, we will discuss issues related to data quality and coverage that affect our ability to truly understand the trajectory of racial inequality in the United States.

[1] Shapiro, Thomas M. The Hidden Cost of Being African American: How Wealth Perpetuates Inequality . Oxford: Oxford University Press, 2004.

[2] https://home.treasury.gov/news/press-releases/jy0565

[3] https://home.treasury.gov/system/files/136/American-Rescue-Plan-Centering-Equity-in-Policymaking.pdf

[4] Derenoncourt, Ellora. 2022. “Can You Move to Opportunity? Evidence from the Great Migration.” American Economic Review 11 (2): 369-408.

[5] https://www.history.com/news/the-brutal-history-of-anti-latino-discrimination-in-america

[6] https://www.britannica.com/event/Japanese-American-internment. For additional details on the economic impacts of inequitable government policy, see:

  • Aaronson, Daniel, Daniel Hartley, and Bhashkar Mazumder. 2021. “The Effects of the 1930s HOLC ‘Redlining’ Maps.” American Economic Journal: Economic Policy 13 (4): 355-92.
  • Carruthers, Celeste K., and Marianne H. Wanamaker. 2017. “Separate and Unequal in the Labor Market: Human Capital and the Jim Crow Wage Gap.” Journal of Labor Economics 35 (3): 655-696.
  • Jones, Maggie E.C. 2021. “The Intergenerational Legacy of Indian Residential Schools.” Unpublished working paper. Available at: https://maggieecjones.files.wordpress.com/2021/02/intergenerationalrs.pdf
  • Rothstein, Richard. The color of law: A forgotten history of how our government segregated America . Liveright Publishing, 2017.

[7] https://www.britannica.com/topic/redlining

[8] Aaronson, Daniel, Daniel Hartley, and Bhashkar Mazumder. 2021. “The Effects of the 1930s HOLC ‘Redlining’ Maps.” American Economic Journal: Economic Policy 13 (4): 355-92.

[9] Pfeffer, Fabian T., and Alexandra Killewald. 2018. “Generations of Advantage: Multigenerational Correlations in Family Wealth.” Social Forces 96 (4): 1411-42.

[10] Wealth is the total financial value of what an individual or household owns (assets) minus all debts (liabilities), representing the sum of financial resources available to an individual or household at a point in time. Assets include the value of a home, retirement savings, stocks, bonds, money in the bank, and other items of value, while liabilities include home mortgages, auto loans, credit card debt, and student debt. The racial wealth gap is the difference in wealth held by different racial and ethnic groups.

[11] Reardon, Sean F., and Ximena A. Portilla. 2016. “Recent Trends in Income, Racial, and Ethnic School Readiness Gaps at Kindergarten Entry.” AERA Open 2(3): 1-18. https://doi.org/10.1177/2332858416657343.

[12] https://nces.ed.gov/programs/digest/d20/tables/dt20_104.10.asp

[13] https://www.bls.gov/opub/reports/race-and-ethnicity/2019/home.htm

[14] https://www.stlouisfed.org/open-vault/2020/december/has-wealth-inequality-changed-over-time-key-statistics

[15] Hsieh, Chang-Tai, Erik Hurst, Charles I. Jones, and Peter J. Klenow. 2019. “The Allocation of Talent and U.S. Growth.” Econometrica , 87 (5): 1439-1474.

[16] Dakil, Suzanne R., Matthew Cox, Hua Lin, and Glenn Flores. “Racial and Ethnic Disparities in    Physical Abuse Reporting and Child Protective Services Interventions in the United States.” Journal of the National Medical Association 103(9-10): 926-931.

[17] Teye, Simisola O., Jeff D. Yanosky, Yendelea Cuffee, Xingran Weng, Raffy Luquis, Elana Farace, and Li Wang. 2021. “Exploring Persistent Racial/Ethnic Disparities in Lead Exposure among American Children Aged 1-5 Years: Results from NHANES 1999-2016.” International Archives of Occupational and Environmental Health 94: 723-730.

[18] Anderson, Sarah E., and Robert C. Whitaker. 2009. “Prevalence of Obesity Among US Preschool Children in Different Racial and Ethnic Groups.” Arch Pediatr Adolesc Med. 163(4):344–348. doi:10.1001/archpediatrics.2009.18

[19] Quiñones, Ana R., Anda Botoseneanu, Sheila Markwardt, Corey L. Nagel, Jason T. Newsom, David A. Dorr, Heather G. Allore. 2019. “Racial/Ethnic Differences in Multimorbidity Development and Chronic Disease Accumulation for Middle-Aged Adults.” PLoS ONE 14(6): e0218462. https://doi.org/10.1371/journal.pone.0218462

[20] https://www.cdc.gov/coronavirus/2019-ncov/covid-data/investigations-discovery/hospitalization-death-by-race-ethnicity.html

[21] https://nationalequityatlas.org/indicators/Neighborhood_poverty#/?geo=01000000000000000

Racial Inequality in America


How it works

The United States has been struggling with racial inequality for decades, and the media has been paying more attention to this issue. Race can impact the likelihood of graduating high school, attending college, or even maintaining a livable income as an adult (Back and Solomos, 2020). An individual’s racial ethnicity is a factor when determining these outcomes and is worth noting. If you are skeptical of your race’s role in the number of options you have, look no further than statistical evidence.

There is a considerable gap between races regarding employment, wealth, being convicted, and even the chances of getting a high score on standardized tests. Racial inequality in America has been manifested in various forms. For example, as this statistic points out, a black man is more likely to be convicted or serve longer in jail than a white man. According to Maltby (2017, p. 39), a study by The Sentencing Project shows that African-American and Latino people are more likely to drop out of high school. In contrast, the statistics show that black men are less likely than their white counterparts. Moreover, African Americans, Latinos, and Native Americans are more likely to be born into a family without wealth, less educated, and lower income. In the United States of America, minority groups are disproportionately unemployed – a fact that black men face more often than those who are white, for comparison purposes.

Compelling research evidence has found that minorities – Asians, non-Hispanic whites, Hispanics, and blacks – are unemployed due to racial segregation. Racial segregation pushes minorities out of the workforce and removes their ability to make a living. One example of this geographic movement is the creation of suburbs. The more suburbs are built, the further it is from where black Americans continue to stay in central cities, which leads to limited job opportunities (Frost, and Edgell, 2017, p. 289). The lack of workforce transportation in the suburbs leads to a significant amount of racial segregation. It leads to a higher unemployment rate among the Hispanic and Black populations. The racial disparity has contributed to the big divide between black and white Americans. The fact that white Americans have been gaining a lot of wealth at the expense of other minority groups is a significant factor in this inequality.

Blacks and Whites have historically had different opportunities in the job market, and the situation is one that still exists in many modern societies. The United States is specific in its white supremacy culture, which rewards whites over any other race. It leads to a higher number of African American unemployment in America. It is due to the lack of academic success among many African Americans, leading to employment inequality. Kuhn, Schularick, and Steins (2020, p. 3498) assert that African Americans face racial discrimination in the job market. They face barriers that cannot always be overcome, such as not having the right skills or education to enter the modern workforce. But there are ways to overcome this, and they can usually improve with dedicated effort and by reaching out to people who can help them grow their portfolio and give them some advice on what they should do.

 Racial inequality exists in America, and it is a large part of why the wealth of black Americans and Latinos is lower than that of whites. It is not uncommon for black Americans to have less access to financial institutions which can help them accumulate wealth – it is an issue that America faces. As a result, many families experience low wealth since they often cannot afford to save or invest as much. Black American workers have historically been subject to racial inequality. Most Blacks experience the same educational barriers, including funding from property taxes (King, 2017, p. 371). Racial segregation in America means that some schools are predominantly white and some predominantly black, leading to a disparity in their education – blacks face more obstacles. Over time, the tax wealth of black communities has decreased and is comparable to that of neighboring districts. It leads to inadequate school funding, affecting many blacks living in central cities. Racist inequality between blacks and whites is significantly impacting American education quality.

African Americans tend to earn less than their White counterparts. It can also cause income disparity amongst families, depending on how much education the family members have and how high their salaries are. African-American and Latino students are more likely to drop out of high school. Some parents view poverty as the cause, while others see racism in school policies. Access to education can be challenging for these families. The fact that the Americans are poor makes it hard for them to educate their children. The funding of the district where they live, as well as property tax, often prevents them from supporting an adequate education. It makes the children drop out of secondary school. That racism reinforces poverty for black Americans is a frightening reality. According to Donnelly (2017, p. 13), most of the time, a black man will be jailed or convicted more often than his white counterpart. Then, you have to consider education as well. The African-American community has fewer resources to spend on education than whites, so schools are not accessible for some of the world’s most prominent ethnicities.

In a sample criminal case, Tuner was a student-athlete at Stanford University and was convicted of sexual assault. Tuner’s sentence would have been fourteen years, but the prosecutor submitted an advisory recommendation to the presiding judge that it should be six years. It shows how justice inequality in America, to which this case belongs, makes black Americans take longer sentences for more minor crimes than white Americans for more significant crimes. Racial inequality is still a severe issue today. Whites have a lot more wealth than blacks in America; this is attributed to poverty among black Americans. According to a Mazzocco (2017, p.67), blacks are more prone to discrimination in the job market. They are paid less than whites, leading them into poverty. Instead, income inequality has increased over the past 20-25 years. Since many whites live in the suburbs and not cities, minorities are often left to end up in poor urban areas with limited opportunities. It is mainly racial inequality that leads to this situation where those minorities who find themselves in jobs or businesses tend to be situated at the bottom of the social ladder.

Moreover, white residential places have better educational opportunities than those in the inner city because of their financial resources. It is a problem in the US, where schools that offer inferior education tend to be focused on disadvantaged populations. Property tax revenue is mainly used to fund education in the US. However, the city cannot afford to provide for all students equally in impoverished neighborhoods. It leads to inequality between black children and white children. Ultimately, blacks in America experience racial inequality, adversely affecting their lives.

Reference List

  • Back, L. and Solomos, J. (eds.) (2020)  Theories of race and racism: A reader . Routledge.
  • Donnelly, E. A. (2017) “The politics of racial disparity reform: Racial inequality and criminal justice policymaking in the states,”  American journal of criminal justice: AJCJ , 42(1), pp. 1–27. doi: 10.1007/s12103-016-9344-8.
  • Frost, J. and Edgell, P. (2017) “Distinctiveness reconsidered: Religiosity, structural location, and understandings of racial inequality: Distinctiveness reconsidered,”  Journal for the scientific study of religion , 56(2), pp. 277–301. doi: 10.1111/jssr.12334.
  • King, D. (2017) “Forceful federalism against American racial inequality,”  Government and opposition , 52(2), pp. 356–382. doi: 10.1017/gov.2016.52.
  • Kuhn, M., Schularick, M. and Steins, U. I. (2020) “Income and wealth inequality in America, 1949–2016,”  The journal of political economy , 128(9), pp. 3469–3519. doi: 10.1086/708815.
  • Maltby, E. (2017) “The political origins of racial inequality,”  Political research quarterly , 70(3), pp. 535–548. doi: 10.1177/1065912917704518.
  • Mazzocco, P. J. (2017) “The reality of racial inequality in America,” in  The Psychology of Racial Colorblindness . New York: Palgrave Macmillan US, pp. 59–72.


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What Is Income Inequality?

  • How It Works
  • Measurement
  • How to Reduce It
  • U.S. Income Inequality

The Bottom Line

Income inequality definition: examples and how it's measured.

income inequality race essay

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

income inequality race essay

Investopedia / Sabrina Jiang

Income inequality refers to how unevenly income is distributed throughout a population. The less equal the distribution, the greater the income inequality. Income inequality is often accompanied by wealth inequality, which is the uneven distribution of wealth.

Populations can be divided up in different ways to show different levels and forms of income inequality, such as income inequality by gender or race. Different measures, such as the Gini Index , can be used to analyze the level of income inequality in a population.

Key Takeaways

  • Income inequality can result in a lack of opportunities for better standards of living and stable financial futures, and political and social upheavals.
  • Income inequality studies help to show the disparity of income among different population segments.
  • When analyzing income inequality, researchers study distributions based on gender, ethnicity, geographic location, and occupation.
  • Case studies and analyses of income inequality, income disparity, and income distributions are provided regularly by a variety of top sources.
  • The Gini Index is a popular way to compare income inequalities universally across the globe.

Understanding Income Inequality

Income inequality, or the imbalance of income earned by a group people, exists in countries throughout the world. In the U.S., these differences in income have become pronounced over the past fifty years. Income inequality is not the same as wealth inequality; the former involves salaries/wages while the latter involves net worth.

Causes of Income Inequality

Some of the factors that affect income inequality include:

Globalization: The increase in trade among nations resulted in the move of manufacturing and other jobs by corporations in the U.S. to countries where labor costs were cheaper. For working-class and middle-class Americans, this meant that secure, even generational, jobs and income disappeared.

Advances in Technology: While a boon in many ways, certain workplace technological advancements, such as automation, have led to the loss of jobs for blue-collar workers and lower wages for less educated workers.

Gender and Race Bias: Income disparities have always been clearly visible for women and people of color. It's widely acknowledged that, for example, male employees typically earn more than female employees in the same job positions. Likewise, white males earn more than non-white males.

Education: Workers with less than a high-school education experience less growth in wages than those with college educations and post graduate degrees. The announcements of multi-million dollar salaries and bonuses (even in troubling economic times) going to C-Suite executives drives this income disparity home.

Economic Conditions: When economic conditions weaken, financial turmoil, unemployment, slowing business investment, and more can affect incomes.

Taxation: Although high-income earners pay a larger percentage of their income in taxes than lower-income earners, federal taxation has not put the brakes on increasing income inequality. That may be due to certain tax policies, e.g., those related to corporate taxation, the capital gains tax rates, and income tax cuts, that benefit those with higher income more than those with lower income.

Consequences of Income Inequality

Some degree of income inequality is to be expected because of basic differences in talent, effort, and simple chance. However, according to the International Monetary Fund (IMF) , too much income inequality could "erode social cohesion, lead to political polarization, and ultimately lower economic growth."

Political upheaval and the disappearance of social, educational, and economic opportunities to improve standards of living and financial futures can also be consequences of income disparity.

Analysis of Income Inequality

Income inequality and income disparity can be analyzed through a variety of segmentations. Income distributions by demographic segmentation form the basis for studying income inequality and income disparity.

The different types of income segmentations studied when analyzing income inequality may include:

  • Geographic location
  • Historical income

How to Measure Income Inequality

One way to measure income inequality is to compare the income of a large group of high earners (for example, the top 10%) to the national median or average. Another approach compares the income of a lower-earning group (say, the bottom 10%) to the median or average.

Other researchers have begun looking at tax records of those with the highest incomes to draw conclusions about these most affluent slices of society.

A frequently used tool for measuring income inequality is the Gini Index. It was developed by Italian statistician Corrado Gini in the early 1900s to help quantify and more easily compare income inequality levels across countries of the world. The index can range from 0 to 100, with a higher level indicating greater income inequality among a country’s population and a lower level indicating less.

The latest available data from the World Bank shows South Africa reporting one of the highest income inequality dispersions with a Gini Index level of 63.0. The United States has a Gini Index level of 39.7. The Slovak Republic has the World Bank’s lowest Gini Index reading at 23.2.

How to Reduce Income Inequality

Dispersions of income inequality are an ongoing area of analysis for both local and global governing institutions. The IMF and World Bank have a goal to help improve the income of the lowest 10% of earners in all countries through their missions relating to financial stability, long-term economic development, and poverty reduction.

Globally, new innovations in financial technologies and production are helping to improve the banking services for the world’s lowest-income earners, as a worldwide initiative for financial inclusion is underway.

In addition, income inequality will be addressed more successfully when political, economic, and social leaders can agree on basic approaches to its improvement:

  • Governments should step in when the free market is ineffective in increasing income.
  • Governmental policies that promote income inequality must be acknowledged.
  • Fiscal actions can improve income disparities.
  • Universal health care could provide some increase in income equality.
  • Improving the stability of other social programs such as Social Security and Medicaid could also relieve cost concerns for an enormous number of individuals.
  • Better access to educational opportunities could improve socio-economic mobility.

Income Inequality in the United States

Income inequality in the U.S. has been increasing since the 1970s. Throughout the 20th century and up to the present, this inequality has been exacerbated by government tax and labor policies and ongoing discrimination by race and gender. A weakening middle class has also contributed to income inequality.

The organizations below conduct research and produce analysis reports on various examples of income inequality, income disparity, and income distributions in the U.S.

Urban Institute

In an analysis of 50 years of economic data, the Urban Institute showed that the poorest got poorer while the richest got much richer.

Between 1963 and 2016:

  • The poorest 10% of Americans went from having zero assets to being $1,000 in debt.
  • Families in the middle-income segment more than doubled their prior average wealth.
  • Families in the top 10% had more than five times their prior wealth.
  • Families in the top 1% had more than seven times their prior wealth.

The Urban Institute also researches the racial and ethnic wealth gap in the U.S. The organization reported that White families in 1963 had amassed a median wealth of approximately $45,000 more than families of color. By 2019, the median wealth for White families increased to approximately $153,000 more than Latinx families and $165,000 more than Black families.

Federal Reserve

The Federal Reserve provides a quarterly Distributional Financial Accounts report. This report shows wealth distributions for U.S. households. As of the fourth quarter of 2022, the Federal Reserve showed the following distributions of wealth across the U.S.

Economic Policy Institute

The Economic Policy Institute released a 2018 report showing a general trend toward increasing incomes of the top earners following the 2008 recession . Between 2009 and 2015, the Economic Policy Institute shows that the incomes of those in the top 1% grew faster than the incomes of the other 99% in 43 states and Washington D.C.

There can be many factors associated with this trend, including salary stagnation for wage-earning Americans, tax cuts for the richest Americans, a loss of manufacturing jobs, and a soaring stock market that inflated the worth of corporate executives and hedge fund managers.

Post-recession, companies are also investing heavily to hire and keep workers with specialized skills in fields such as engineering and  healthcare . This has caused reductions or new automation takeovers in other functions, pushing down wages for workers in less competitive jobs.

Furthermore, EPI data tracks wages by segment on a regular basis. As of 2022, it showed the following averages for Whites, Blacks, and Hispanics.

Institute for Women’s Policy Research

Income inequality is an economic concept that tends to hit some segments of populations harder than others, with significant wage gaps often identified for women, Blacks, and Hispanics working in the U.S. 

According to a study of incomes for full-time workers by the Institute for Women's Policy Research, in 2021 women of all races and ethnicities were paid an average of 83.1% of the salaries paid to men. When both part- and full-time incomes are included, women earn just 77.3 cents for each dollar a man earned.

The same report also broke down earnings by race and gender. It noted that, compared to the median weekly earnings of White men working full-time, Hispanic women earned 58.4% of that amount, Black women earned 63.1%, and White women earned 79.6%.

Pew Research Center

Data from the Pew Research Center also identifies income inequalities by gender . In 2022, according to its latest analysis of hourly earnings of full- and part-time employees, women earned an average of 82% of what men earned. This is not much of an improvement over the pay gap in 2002, when women earned 80% as much as men.

An income gap refers to the difference in income earned between demographic segments.

Why Is Income Inequality a Problem?

It's a serious problem because the lack of financial stability for large portions of a population can promote potentially destructive social and economic upheaval generally, as well as financial hardships and lower standards of living, in particular.

What Are 3 Effects of Income Inequality

Financial hardship for many, persistent poverty, and a dispirited populace that could be ripe for social and political unrest are just a few of the effects of income inequality.

How Can We Fix Income Inequality?

To reduce income inequality, governments and private sectors must address its various causes, including discrimination, unfair taxation, wage stagnation, and more that lead to large imbalances in compensation.

Income inequality is the disparity of incomes across a population. Some income inequality is always to be expected because people bring different degrees of talent, effort, and luck to their endeavors. But large imbalances in income have been caused and maintained by discrimination, taxation policies, the downfall of labor unions, troublesome economic conditions such as slow growth and high inflation, and more.

Countries must address income inequality to combat the disproportionate prosperity, financial hardship, and loss of social and economic opportunities that can lead to social discontent and political instability.

Tax Policy Center. " Briefing Book; How do taxes affect income inequality? "

Center for American Progress. " The American Middle Class, Income Inequality, and the Strength of Our Economy ."

International Monetary Fund. " The IMF and Income Inequality ."

World Bank. " Gini Index (World Bank Estimate) ."

Urban Institute. " Nine Charts About Wealth Inequality in America (Updated) ."

Urban Institute. " How Policymakers Can Ensure the COVID-19 Pandemic Doesn’t Widen the Racial Wealth Gap ."

The Federal Reserve. " DFA: Distributional Financial Accounts ."

Economic Policy Institute. " The Incomes of the Top 1 Percent Grew Faster Than the Bottom 99 Percent in 43 States and the District of Columbia From 2009-15 ."

Economic Policy Institute. " State of Working America Data Library ."

Institute for Women's Policy Research. " Gender Wage Gaps Remain Wide in Year Two of the Pandemic ."

Pew Research Center. " Gender pay gap in U.S. hasn’t changed much in two decades ."

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Income Inequality Essay

income inequality race essay

The Inequality Of Income Inequality

Income Inequality Income inequality has been a major concern around the world, and it mainly links to how economic metrics are distributed among individuals in a country. Economists generally categorise these metrics in wealth, income and consumption. Wilkinson and Picket (2009) showed in their studies that inequality has drawbacks that lead to social problems. This is because income inequality and wealth concentration can hinder or delay long term growth. In 2011, International Monetary Fund economists

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Abstract: One of the social issues concerning power, status, and class in American society today is income inequality. The income gap between the social classes has increased drastically throughout the last few decades, creating a significant gap between the wealthy and the poor. This gap has become so large that the middle class has nearly diminished, creating a social class comprised of the rich and the poor. The significant gap between the two social classes is unhealthy for the economy because

Inequality And Inequality Of Income Distribution

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Essay about income inequality

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Professor Douglas English 1-A 26 May 2013 Works Cited Dobelstein, Andrew W. Moral Authority, Ideology, And The Future Of American Social Welfare. [N.p.]: Westview Press, 1999. eBook Collection (EBSCOhost). Web. 15 May 2013. Frank, Robert. “Income inequality: Too Big to Ignore”. Graff, Gerald, Cathy Birkenstein, and Russel Durst. "They Say, I Say": The Moves That Matter in Academic Writing : With Readings. New York: Norton, 2012. 432-447 Print. Murray, Harry. "Deniable Degradation: The Finger-Imaging

Inequality Of Income Inequalities

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In “Inequality Has Been Going on Forever… but That Doesn’t Mean It’s Inevitable” by David Leonhardt, he responds to the issue of income inequality between the wealthy and the poor. He starts out with explaining that rising income inequality has been going on for so long that it is starting to look inevitable. Leonhardt then states that Thomas Piketty had wrote that income inequality has been a historical norm. Piketty also writes that the inequality has risen all throughout modern history, with some

yet only a minority of individuals get to enjoy it. Income inequality has been proven to be detrimental to not only the economy, but to the overall well-being of a nation as it leads to societal upset and can potentially prompt a decline in progression as a nation. Over time, income inequality has led to negative results in the United States, as well as many other nations including Greece. Consequently, the solution to prevent income inequality from deteriorating a nation and prevent economic upset

Background of Income Inequality The history of income inequality in the United States has affected the lives of many citizens. The problem with inequality has evolved over time and has influenced previous public administration policies in the U.S. The problem can be traced back to the American economic depressions; the latest being in 2009 in which many households were directly and indirectly affected. Even though all economic classes were affected, the people which were most affected was the

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Income inequality is assessed by using “Gini coefficient” (Gini, 1909) and it is one of the commonly used measurement tools across the globe. The Gini coefficient is normally explained by using Lorenz curve where the income of individuals are arranged from the lowest income level to the highest income level (Lorenz, 1905). A Gini coefficient with zero means perfect equality, whistle one or 100 percent means maximum inequality (Rogerson, 2013) . Based on income inequality measurement tool; Gini coefficient

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Racism And Income Inequality Essay

income inequality race essay

Show More Hunter Depalma ECON 221 Butler February 13, 2015 Racism & Income Disparity: Income Effect Income disparity is an ongoing complication within the United States not only between men and women, but between races. Many people in our country are poor, and the improvement in their lives that the ending of income inequality can bring them is great. For the most part this shifts demand curves from the incomes increasing and decreasing, negatively and positively. Some argue that our society here in America is set up to where the lower working class cannot escape poverty. We have provisions and burdens in our economy that will keep regressing the lower class. There is growing recognition that we need an inclusive economy that works for eve-ryone—not …show more content… From the data shown before, Mississippi has a greater gap in unemployment and average medium income as compared to the state of Maryland. Mississippi also has a more prevalent problem of segregation and racism as where Maryland does not. We can assume that because racism in engrained in Mississippi’s founding provisions that it is harder to get rid of, since the state is engulfed with lingering segre-gation from family history and culture. Maryland on the other hand has a mild history of racism, but was more adequate to change and transition to more equal laws for African Americans and Whites. There could be a hypothesis that states who were more susceptible to cultural change have a less marginal gap between incomes. Though racial discrimination has been a prominent obstacle in our country as a whole, we can look to states like Maryland for hope. Maryland still has a large gap differentiating the incomes of African Americans and Whites, but it has been de-creasing within the last 10 years from the data given above. We could also make the conclusion that education has a powerful stake in income inequality and poverty within America. Looking at the percentage of individuals that have obtained a Bachelors degree or higher in the state of Mis-sissippi, we can see that races with low education automatically have a higher percentage of pov-erty. For example, 14% of African American women obtained a Bachelors degree in the state of Mississippi and had a poverty rate of 38% while 22% of White females obtained a bachelors de-gree and only had a poverty rate of 14% (Hill). The lower earnings of African-Americans, which are to an extent explained by lower educational attainment, mean higher poverty rates (Hill). Higher poverty rates mean less employed African Americans which cannot be counted into the working class. A widening gap within our incomes could be due to lack of African Americans working, making the number

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Wealth disparities by race grew during the pandemic, despite income gains, report shows

FILE - Television screens on the floor of the New York Stock Exchange show the news conference of Federal Reserve Chair Jerome Powell, Wednesday, Jan. 31, 2024. A strong performance in financial markets, particularly an outsize gain for the stock market in 2021, helped entrench existing trends of wealth inequality during the pandemic. (AP Photo/Richard Drew, File)

FILE - Television screens on the floor of the New York Stock Exchange show the news conference of Federal Reserve Chair Jerome Powell, Wednesday, Jan. 31, 2024. A strong performance in financial markets, particularly an outsize gain for the stock market in 2021, helped entrench existing trends of wealth inequality during the pandemic. (AP Photo/Richard Drew, File)

FILE - Trader Edward Curran works on the floor of the New York Stock Exchange, Wednesday, Jan. 31, 2024. A strong performance in financial markets, particularly an outsize gain for the stock market in 2021, helped entrench existing trends of wealth inequality during the pandemic. (AP Photo/Richard Drew, File)

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income inequality race essay

NEW YORK (AP) — A strong performance in financial markets, particularly an outsize gain for the stock market in 2021, helped entrench existing trends of wealth inequality during the pandemic, new data released this week show.

According to a report from the New York Federal Reserve Bank, the real net worth of white individuals outgrew that of Black and Hispanic individuals by 30 percentage points and 9 percentage points respectively, from the first quarter of 2019 through the second quarter of 2023.

The period featured a remarkable level of government financial support and, after the initial shock of the pandemic, a surprisingly strong job market. The unemployment rate for Black Americans in particular is now at 5.3%, near a record low, compared to an overall unemployment rate of 3.7%. Earnings for the typical Black full-time worker are up 7.1% since before the pandemic.

Closing the wealth gap is more difficult because a significantly larger number of white households traditionally have money in stocks and mutual funds. A separate Fed survey shows that as of 2022, about 65.6% of white households had investments in stocks, compared with 28.3% for Hispanic households and 39.2% for Black households.

FILE - The front of the New York Stock Exchange is shown on Thursday, April 11, 2024 in New York. (AP Photo/Peter Morgan, File)

“The study really shows the difference between making gains when it comes to income, and closing that gap, versus when it comes to wealth,” said Janelle Jones, Vice President of Policy and Advocacy at the Washington Center for Equitable Growth.

While government support such as increased unemployment benefits and stimulus checks helped stave off a COVID-induced recession, financial asset prices rose so significantly with the reopening of the economy through 2021 that racial wealth disparities increased. And while those market-linked assets did fall in 2022 when the Federal Reserve rapidly increased interest rates, “those declines did not fully offset the earlier rises,” according to the New York Fed.

“Much of the divergence in net worth by race and ethnicity since 2019 can be attributed to divergence in the real values of financial asset holdings,” wrote the report’s authors — including the fact that Black households have more wealth concentrated in pensions than in stocks, mutual funds and exchange-traded funds, or ETFs.

More than 50% of Black financial wealth is invested in pensions, the New York Fed found. Less than 20% of Black wealth is stored in private businesses, corporate equities, and mutual funds. In contrast, less than 30% of white financial wealth is invested in pensions, with about 50% invested in businesses, equities, and mutual funds.

“Black workers are still more likely to be unionized, which may play a part in the pension story,” said Jones. “But how folks are exposed to the ability to invest in the stock market — whether or not it’s something they grow up doing — we know that’s different for white families than for people of color.” Black family members are less likely to get an inheritance, she said.

During the pandemic, the real value of Black-held financial assets dropped in 2022 to below its 2019 level and continued to decline steadily, while the real value of Hispanic-held financial assets dipped below its 2019 level in 2022 and stagnated. Neither group’s real financial assets have recovered to their 2019 values.

Owning a business is another component of financial wealth, and separate data show Black-owned businesses had a tougher time during the pandemic.

While less than 10% of all U.S. business owners are Black, Black-owned businesses were also more concentrated in industries hardest hit when COVID first spread, according to Economic Policy Institute analysis of government data. In April of 2020, more than 40% of Black business owners reported they were not working, compared with only 17% of white business owners.

The industries with the largest total job losses early in the pandemic were also sectors where more Black-owned businesses are concentrated — accommodation, food services, retail, health care, and social assistance. About 28% of Black-owned businesses are found in these industries, compared with just under 20% of white-owned businesses, according to the Bureau of Labor Statistics.

Still, Treasury Deputy Secretary Walley Adeyemo said Wednesday that economic conditions are improving for Black households, citing rising employment and wages for Black Americans since before the pandemic, and an increase in Black business ownership and participation in the stock market.

Adeyemo suggested that some “policy prescriptions” might be needed to even out the distribution of financial wealth in the U.S.

“The gap between Black and white wealth in America is still too great,” he said.

“The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.”



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    Rising income inequality is one of the greatest challenges facing advanced economies today. Income inequality is multifaceted and is not the inevitable outcome of irresistible structural forces such as globalisation or technological development. Instead, this review shows that inequality has largely been driven by a multitude of political choices. The embrace of neoliberalism since the 1980s ...

  7. Racial and ethnic income inequality in America: 5 key findings

    Key findings on the rise in income inequality within America's racial and ethnic groups. Income inequality - the gap in incomes between the rich and poor - has increased steadily in the United States since the 1970s. By one measure, the gap between Americans at the top and the bottom of the income ladder increased 27% from 1970 to 2016 ...

  8. The Stark Racial Inequity of Personal Finances in America

    Among multiracial families, the figure was $64,000. Hispanic families had $48,400 in income, and Native American and Alaskan Native families had $41,000. Starting with less makes many things in ...

  9. Racial and Ethnic Inequality in Poverty and Affluence, 1959-2015

    Racial inequality in policing and punishment, for example, was the impetus of the Black Lives Matter movement in 2013. ... Understanding patterns of affluence is all the more important given the growth of income inequality in the United States. ... RWI Discussion Papers, No. 49. [Google Scholar] Bean Frank D., Brown Susan K., and Bachmeier ...

  10. Black Americans' Views of Racial Inequality, Racism, Reparations and

    More than a year after the murder of George Floyd and the national protests, debate and political promises that ensued, 65% of Black Americans say the increased national attention on racial inequality has not led to changes that improved their lives. 1 And 44% say equality for Black people in the United States is not likely to be achieved, according to newly released findings from an October ...

  11. Racial Inequality Essay

    Racial Inequality Essay. Sort By: Page 1 of 50 - About 500 essays . Decent Essays ... "The income gap between black and white households is roughly the same today as it was in 1970. And whereas whites born into affluent neighborhoods tended to remain in affluent neighborhood, blacks tended to ... "Racial inequality is a disparity in ...

  12. PDF Inequality Matters

    of between-group inequality in the United States. Racial inequality is rooted in slavery, colonialism, and conquest (Frederickson, 1981; Omi & Winant, 1994; Takaki, 1987). Gender inequality certainly derives in part from a history of cultural norms in the family and other domains of the private sphere and institutionalized sex discrimination

  13. Income and Wealth Inequality: Racial and Ethnic Health Disparities Essay

    The 90/10 ratio is the most often used metric of income disparity among researchers. For example, according to Horowitz et al.'s study "Trends in Income and Wealth Inequality," income inequality in the United States has risen since 1980. The 90/10 ratio has dramatically increased over time, from 9.1 in 1980 to 12.6 in 2018.

  14. Trends in U.S. income and wealth inequality

    From 2015 to 2018, the median U.S. household income increased from $70,200 to $74,600, at an annual average rate of 2.1%. This is substantially greater than the average rate of growth from 1970 to 2000 and more in line with the economic expansion in the 1980s and the dot-com bubble era of the late 1990s.

  15. Racial Inequality in the United States

    By: Counselor for Racial Equity Janis Bowdler and Assistant Secretary for Economic Policy Benjamin Harris Racial inequality is the unequal distribution of resources, power, and economic opportunity across race in a society. While the discussion of racial inequality in the United States is often focused on economic inequality, racial inequality also manifests itself in a multitude of ways that ...

  16. Racial inequality in America

    Essay Example: The United States has been struggling with racial inequality for decades, and the media has been paying more attention to this issue. Race can impact the likelihood of graduating high school, attending college, or even maintaining a livable income as an adult (Back and Solomos

  17. Income Inequality

    If a family's total income is less than the official poverty threshold for a family of that size and composition, then they are considered to be in poverty. Page Last Revised - July 6, 2022. Income inequality is the extent to which income is distributed unevenly among a population.

  18. Income Inequality Definition: Examples and How It's Measured

    Income inequality is the unequal distribution of household or individual income across the various participants in an economy. Income inequality is often presented as the percentage of income to a ...

  19. Income Inequality Essay

    The Inequality Of Income Inequality Essay. Abstract: One of the social issues concerning power, status, and class in American society today is income inequality. The income gap between the social classes has increased drastically throughout the last few decades, creating a significant gap between the wealthy and the poor.

  20. Racism And Income Inequality Essay

    The racial wealth gap is actually caused by employer discrimination, racial income gap, and high unemployment levels held disproportionately by African Americans versus caucasians. Wealth inequality has not improved within the last fifty years. The average wealth has increased, but it has not increased equally among all races.

  21. Wealth disparities by race grew during the pandemic, despite income

    NEW YORK (AP) — A strong performance in financial markets, particularly an outsize gain for the stock market in 2021, helped entrench existing trends of wealth inequality during the pandemic, new data released this week show. According to a report from the New York Federal Reserve Bank, the real net worth of white individuals outgrew that of ...

  22. Gender and Race Based Income Inequality and Its Impacts on People

    Apart from the gender income and welfare inequality, race income and welfare inequality is another social issue that worthy concern. In line with the ''Hong Kong Poverty Situation Report on Ethnic Minorities 2016'', to exclude the foreign domestic helpers, there were 254 700 ethnic minorities in Hong Kong in 2016.

  23. PDF Essays on Educational Inequality

    ESSAYS ON EDUCATIONAL INEQUALITY Essays on Educational Inequality: Learning Gaps, Social-Emotional Skills Gaps, and Parent Enrichment Outside of School Time Kathleen Lynch Heather Hill ... Effects of a Summer Mathematics Intervention for Low-Income Children: A Randomized Experiment 87 Conclusion 141 . ESSAYS ON EDUCATIONAL INEQUALITY iii