Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860-2020

Abstract

The racial wealth gap is the largest of the economic disparities between Black and white Americans, with a white-to-Black per capita wealth ratio of 6 to 1. It is also among the most persistent. In this paper, we construct the first continuous series on white-to-Black per capita wealth ratios from 1860 to 2020, drawing on historical census data, early state tax records, and historical waves of the Survey of Consumer Finances, among other sources. Incorporating these data into a parsimonious model of wealth accumulation for each racial group, we document the role played by initial conditions, income growth, savings behavior, and capital returns in the evolution of the gap. Given vastly different starting conditions under slavery, racial wealth convergence would remain a distant scenario, even if wealth-accumulating conditions had been equal across the two groups since Emancipation. Relative to this equal-conditions benchmark, we find that observed convergence has followed an even slower path over the last 150 years, with convergence stalling after 1950. Since the 1980s, the wealth gap has widened again as capital gains have predominantly benefited white households, and income convergence has stopped.

Real-Time Inequality

“…Using our microfiles one can also study racial wealth disparities at the household level; results are identical to the DFA. In the Survey of Consumer Finances (used, e.g., by Derenoncourt et al, 2022), racial wealth disparities are higher than in the DFA and our series because of the different wealth totals (in particular the higher total for private business wealth, whose ownership is concentrated among white households). Trends are similar in all series.…”

“…in labor income: on average Black adults earn only about 20% of the average capital income of white adults. This gap itself primarily reflects the major disparities in wealth reported in Figure 10 and recently studied in, e.g., Derenoncourt et al (2022). 31 Property ownership remains much more unequal than labor market incomes and this inequality is a key contributor to the persistent racial income disparities that characterize the United States.…”

Gender and race in entrepreneurial finance

“…The role of wealth, networks, education, and information differs by race or gender before any founding decisions are made. Understanding these disparities (e.g., Derenoncourt et. al.…”

Race and Gender in Entrepreneurial Finance

“…Bradford (2003) documents wealth accumulation differences between black and white entrepreneurs, finding that the former hold a lower fraction of family wealth. Derenoncourt et al (2022)'s 160-year panel shows this wealth disparity has been a persistent feature of the economy with unclear paths for convergence in the medium term. On top of these wealth disparities, Levine and Rubinstein (2017) show that income and household structure matters as well: entrepreneurs (self-employed in incorporated firms) tend to come from high-income, two-parent households.…”

“…The role of wealth, networks, education, and information differs by race or gender before any founding decisions are made. Understanding these disparities (e.g., Derenoncourt et al, 2022) and their own sources is critical to any policy implications.…”