America Becoming Racial Trends and Their Consequences: Volume II (2001) / Chapter Skim
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10. Wealth and Racial Stratification
10. Wealth and Racial Stratification
Pages 222-251
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From page 222... ...
The growing concentration of wealth at the top, and the growing racial wealth gap, have become important public-policy issues that undergird many political debates but, unfortunately, not many policy discussions. Our work takes up this challenge.
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Second, the paper makes an evidentiary contribution to the theory that current racial trends in inequality result, to a significant extent, from past racial policies and practices; and that the racial inequality of today, if left unattended, will contribute to continued racial stratification for the next generation. Third, by looking at new evidence concerning wealth and racial stratification, this paper contributes an impetus to push forward the research and policy agenda concerned with America's racial wealth gap.
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Income is an important indicator of racial inequality; wealth allows an examination of racial stratification. A wealth perspective contends that continued neglect of wealth as a dimension of racial stratification will result in a seriously underestimated racial inequality.
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At their current levels of net financial assets, nearly 80 percent of Black families would not be able to survive at poverty-level consumption for three months. Comparable figures for Whites although large in their own right are one-half that of Blacks.
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Data from the Los Angeles Survey of Urban Inequality show substantial differences in assets and net financial assets between recent immigrants who are primarily from Mexico and Central America and U.S.-born Hispanics (Grant, 2000~. Likewise, place of birth and regional differences among Hispanic groups also complicate a straightforward interpretation of this nationallevel finding.
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U.S.-born Asians have both net worth and net financial assets approaching those of White Los Angelenos; foreign-born Asians, however, report lower wealth than U.S.-born Asians but higher wealth than all other ethnic and racial groups (Grant, 2000~. American Indians form a unique case when it comes to assets.
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From page 228... ...
These figures represent some asset accumulation for both Whites and Blacks between 1988 and 1994; nonetheless, the wealth perspective reveals an economic fragility for the entire American population, as it demonstrates the continuing racial wealth gap. TABLE 10-1 Income, Wealth, Race, and Ethnicity: 1994 Median Median Mean Median Mean Income Nwa NW NFAb NFA White $33,600 $52,944 $109,511 $7,400 $56,199 Black $20,508 $6,127 $28,643 $100 $7,611 Ratio to White 0.61 0.12 0.26 0.01 0.14 Hispanic $22,644 $6,723 $40,033 $300 $15,709 Ratio to White 0.67 0.13 0.37 0.03 0.27 Asian $40,998 $39,846 $117,916 $4,898 $57,782 Ratio to White 1.22 0.67 1.02 0.51 0.98 aNet worth bNet financial assets.
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From page 229... ...
The median figures for both net worth and net financial assets reveal similar gaps in comparison with Whites, but the mean figures for net worth and net financial assets bump Hispanics "ahead" of Blacks. This apparent peculiarity most likely illustrates differences in experiences, country of origin, and immigrant status referred to earlier.
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For the highest quintile households, median net worth for White households was $133,607; significantly lower was the median for Black households, $43,806. The median net financial assets data are just as revealing.
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How much of this gap is closed by controlling for income? Will Black-White wealth become actually quite similar, or will substantial, dramatic racial wealth inequality persist?
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Indeed, after controlling for income, it is prudent to note that the remaining wealth gap is about as large as the racial income inequality gap. So if this exercise is correct, something akin to the original racial income gap remains unexplained after equalizing incomes.
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Does it reflect the pattern of income, or does it provide evidence of a social process that is more independent of income and savings? We know from cross-sectional analyses, for example, that the racial wealth gap is increasing; but we do not yet know what is happening for the same cohort of families over long periods of time.
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The racial wealth gap is another story. In Table 10-4, the racial wealth gap increases at every marker for all age cohorts; and it does so systematically and spectacularly.
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The net financial assets data in Table 10-5 are just as revealing; they show the financial asset gap increasing at least twofold for three of the age cohorts. The gap for the oldest age cohort increases "only" by $17,532 between 1984 and 1994.
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OLIVER AND THOMAS M SHAPIRO TABLE 10-5 Net Financial Assets and Age Cohorts Net Financial Assets (adjusted, 1994 = 100)
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The analytical power derived from examining racial stratification through the lens of wealth is most obvious in the case of Blacks. How do we explain the sources of the enormous racial wealth disparity?
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indicate pervasive and persistent discriminationindividual and institutional in the last years of the twentieth century; in fact, the "economic detour" concept still operates in the most important way typical American families accumulate assets home equity, as will be discussed in the next section. The third concept, the "sedimentation of racial inequality" is synthetic in nature.
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GENERATING CONTEMPORARY RACIAL STRATIFICATION: THE INSTITUTIONAL CONTEXT OF HOUSING, REAL ESTATE, AND FINANCIAL MARKETS Home ownership is without a doubt the single most important means of accumulating assets for the typical American family. Home equity constitutes the largest share of net worth, accounting for about 44 percent of total measured net worth (Eller and Fraser, 1995~.
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From page 241... ...
Several Federal Reserve Board studies, based on the outcome of all loan applications (the release of which is mandated by federal legislation) , show that even when applicants are equally qualified i.e., "creditworthy" Black families are still rejected for home loans 60 percent more often than equally qualified White families (Oliver and Shapiro, 1995a; Ladd, 1998~.
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From page 242... ...
(This analysis includes only those currently still paying off home mortgages and, thus, provides a very conservative estimate of the dynamics.) As seen in Table 10-6, the mean value of homes owned by White families increased $28,605 more than the value of homes owned by Black families.
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From page 243... ...
Financial inheritance has been dismissed as a source of the racial wealth gap on the theory that inheritance is quantitatively unimportant because the vast majority of households do not receive financial inheritances. Further, some claim that racial wealth disparities would be almost the same if wealth derived from past financial inheritances were subtracted out of current wealth.
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The study questions probe, among other things, assumptions about present asset circumstances and optimism about future wealth accumulation. The data reveal some rather dramatic racial differences.
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245 or more bequeathed from 1989 to 1994. Note that the amount is larger than the median net financial assets of American families (see Table 10-2~.
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Based on preliminary insights and emerging trends from this early phase of the research, it is clear that there are those whose assets give them a multitude of options and opportunities, and those who have very limited options from which to choose. More remarkable is how families consciously use or plan to use assets to solidify their class status and racial identification, and, at the same time, consciously plan to improve the life chances of their children.
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The challenge now is to explore how a wealth perspective might inform social policy. Bold and creative initiatives are needed to link the opportunity structure to policies that promote asset formation and begin to close the wealth gap.
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Longitudinal data will be especially useful for examining many of the complex issues regarding wealth accumulation and inequality, some of which have been identified in this paper. In terms of racial stratification, we offer a modest beginning by offering framework questions: · What accounts for the wealth gap over time?
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· How important are intergenerational transfers in wealth accumulation? · How important are intergenerational transfers in perpetuating the racial wealth gap?
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American Journal of Economics and Sociology 49:129-151. 1995a Black Wealth/White Wealth: A New Perspective on Racial Inequality.
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1998 The role of intergenerational transfers in spreading asset ownership. Prepared for Ford Foundation Conference on The Benefits and Mechanisms for Spreading Assets, New York, December 10-12.
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