In the United States, racial wealth inequality, particularly the Black-white wealth gap, is massive. In 2019, the median wealth for white households was $188,200, compared to $24,100 and $36,100 for Black and Hispanic households, respectively (Bhutta et al., 2020). To better understand the ongoing persistence of this racial wealth inequality, we outline several historical and contemporary mechanisms that have predominantly supported wealth accumulation for white Americans and/or impeded or exploited wealth opportunities for Black Americans.
Contemporary wealth inequality cannot be fully understood without comprehension of historical barriers that helped shape the wealth trajectories of families over generations. The institution of slavery was instrumental in helping both create and deny wealth in America. Black Americans were brought to the United States as capital. Their mere existence and the exploitation of their labor for chattel slavery directly served to enrich white Americans. Whereas slavery denied the opportunity for Black Americans to generate income to create wealth, it produced capital that enabled white Americans to develop wealth over generations. Not surprisingly, scholars have demonstrated a link between slavery and the Black-white poverty gap (O’Connell, 2012), white economic gain (Reece, 2020), and economic mobility (Berger, 2018). The wealth implications of slavery are indeed huge. The estimated loss of Black wealth as a result of enslavement is $14 trillion in today’s dollars (Darity & Mullen, 2020). Further, with the emancipation of slaves, the unfulfilled federal promise to compensate freed people with “40 acres and a mule” is estimated at $16.5 trillion of wealth loss from Black families (Darity & Mullen, 2020).
The Jim Crow era further constrained the economic opportunities of Black people in a number of ways that exacerbated the intergenerational wealth implications of slavery. For example, limited rights and opportunities led many free Black people to work as sharecroppers (i.e., contracted agricultural laborers). Racism predisposed them to less capital, higher expenses, more unfair arrangements, higher debts, and thus fewer opportunities for economic advancement than white sharecroppers. Sharecropping was thus deemed the “new slavery” by W.E.B. Du Bois for ensuring long-term poverty and economic oppression.
Jim Crow segregation also created barriers to wealth through the exclusion of Black people from many dimensions of everyday life, such as quality housing, education, jobs, and public accommodations. It served as an effective mechanism to limit resources and Black economic progress, which in turn impacted future wealth trajectories. Studies show the impact of segregation is enduring. For instance, areas with higher racial segregation in 1880 have higher contemporaneous intergenerational inequality (Andrews et al., 2017).
Various mechanisms of political disenfranchisement (e.g., literacy tests, poll taxes, grandfather clauses, residential requirements, and white primaries) were coupled with intimidation tactics to impede Black voting during the Jim Crow era. It took almost 100 years and numerous acts of national legislation to enfranchise Black voters. Hence, a significant lack of a political voice resulted in a lack of influence over laws and policies to improve Black economic well-being and thus wealth equality in the longer term.
Federal legislation, particularly during the New Deal and World War II eras, also contributed to wealth inequality. For instance, the National Labor Relations Act of 1935 did not consider agricultural laborers and domestic laborers (who were more likely to be Black) as employees and thereby excluded them from old-age insurance, unemployment compensation, poor assistance, and workers’ rights (Katznelson, 2005). This denied these workers additional income support and opportunities to accumulate more wealth.
New Deal homeownership policies were also consequential. The practice of redlining, which deemed predominantly Black neighborhoods as “high risk” zones, meant Black families often could not qualify for attractive government-insured home loans with a 0 percent down payment and longer repayment terms. Because Black families lacked significant wealth due to the generational impact of slavery, they were significantly less likely to afford a new home, had difficulty moving to desirable suburban neighborhoods, were forced to stay in lower-quality inner-city homes, and were more likely to default on their mortgages (Craemer et al., 2020). Further, G.I. Bill benefits for returning veterans (e.g., low-cost mortgages, low-interest business loans, unemployment benefits, and tuition benefits) disproportionately benefited white Americans due to discrimination against Black veterans. Together, these policies helped create a flourishing white suburban middle class and a Black urban underclass and, coupled with individual-level discrimination via home buying, education admissions, and the labor market, helped solidify wealth inequality for the long term (Craemer et al., 2020).
While the magnitude of wealth inequality stems from historical processes and policies outlined above, its ongoing persistence can also be tracked to contemporary practices that continue to impede wealth accumulation for Black households. Current racial wealth inequalities reflect the ability of white families to transfer wealth across generations (Oliver & Shapiro, 2006; Addo & Darity, 2021; McKernan et al., 2014). Not only are white households more likely to receive financial inheritances, but they are also more likely to expect them (Addo & Darity, 2021). Large differences in asset holdings and values are key to wealth gaps. Black households hold fewer assets, and those they do own (e.g., cars and checking accounts) do not appreciate (Oliver & Shapiro, 2006). Less access to fungible assets (e.g., liquid savings and income) means the inability to rely on private wealth as an insurance mechanism to buffer against hard times. For example, during the Great Recession, Black households overwhelmingly withdrew from their retirement accounts, a long-term savings vehicle, to weather the short-term financial crisis (McKernan et al., 2013).
Income from employment and capital are the primary ways households can set aside money to save and build wealth via investments, educational attainment, and asset purchases (Elmi & Lopez, 2021). Yet, racial discrimination in the labor market means less access to competitive wages to be used as a mechanism to build wealth. Black applicants are less likely to receive callbacks (Bertrand & Mullainathan, 2004; Pager, 2003) and get hired (Quillian et al., 2020). This occurs for entry-level positions (Agan & Starr, 2018; Pager, 2008), among the college-educated (Gaddis, 2015), and among those with advanced degrees (Reeves, 2014). Black workers receive lower average earnings, experience less overall employment stability, and reside disproportionately in states where the federal minimum for low-wage workers is binding (Hardy & Logan, 2020). Black workers are disproportionately channeled out of more stable jobs and into less reliable, more precarious, unstable work. For instance, Black workers are disproportionately represented as temporary workers, who earn 40 percent less for the same jobs as permanent workers in the same position (Wilson, 2020). Gender further exacerbates these racial disparities. For every dollar paid to non-Hispanic white men, white non-Hispanic women and Black women are paid 79 and 62 cents, respectively, an indication of the overrepresentation of Black women in low-wage service and sub-minimum wage jobs (Banks, 2019).
Instead of being a source of wealth accumulation, homeownership tends to be costlier for Black households. Due to systematic overassessment, Black homeowners pay, on average, 10 percent more in property taxes than white homeowners and contribute a greater share of their income to housing costs than white households (Hardy & Logan, 2020). Recent reports indicate residential segregation contributes to homes in majority-Black neighborhoods being more likely to be appraised at values 23 percent less than near-identical homes in majority-white neighborhoods (Perry et al., 2018). Black households are often charged higher rates for mortgage loans than white borrowers in similar financial situations (Steil et al., 2018). They were more likely on average to be given subprime mortgages during the housing boom (Bocian, Ernst, & Li, 2008; Faber, 2013) and, most recently, less likely to be approved for mortgage refinancing during the COVID-19 pandemic (Choi, Donnan, & Levitt, 2022; Donnan et al., 2022).
Although disparities in asset holdings drive much of the Black-white wealth inequality, for younger generations, the prevalence of student debt has increased the financial risks associated with pursuing a college degree for Black borrowers and the financial security of Black families. Black young adults who pursue higher education are more likely to use student loans as a form of financial aid. They also accumulate more student loan debt and take longer to repay their debts (Houle & Addo, 2019). These trends are associated with increases in wealth inequality between Black borrowers and their white counterparts (Houle & Addo, 2019; Seamster & Charron-Chenier, 2017) who have less debt and pay down their student debt faster (Houle & Addo, 2019). Black women borrowers are particularly vulnerable. They have the highest student debt burdens (Ishmael, 2022) and the lowest returns to their degree (Paul, Zaw, & Darity, 2022). The median wealth of single Black women was only $5,000 and $500 for those with no degree (Zaw et al., 2017).
Historical barriers helped shape wealth trajectories and unleveled foundations for wealth accumulation, while contemporary barriers ensure that racial wealth gaps persist. To narrow these disparities, efforts must be made to help compensate for generations of lost wealth while simultaneously removing barriers across contemporary institutions, such as housing, education, and the labor market.