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.
Historical Barriers
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).