Causes and Consequences of the Racial Wealth Gap Across the Life Course
Lori Ann Campbell
California State University Northridge
February 2015
In this paper I study the patterns of racial wealth inequality in the U.S. over the life course. We know little about how the racial wealth gap changes over the life course due to a paucity of longitudinal data. Using data from the National Longitudinal Survey of Youth 1979 (NLSY79), I examine how the net worth of white, black and Latino families has changed between 1985 – 2012. First, I investigate whether racial inequality shrinks or grows over the life course. As part of this, I examine how the recent recession affected the racial wealth gap. Second, I identify the mechanisms that drive the racial wealth gap and examine whether the mechanisms that are important in predicting the wealth gap when the respondents are young are equally as important in middle age. Lastly, I explore how wealth inequality affects the educational attainment of their offspring. This paper extends our knowledge of both wealth inequality and racial-ethnic inequality and demonstrates how racial inequality changes over the life course using longitudinal data on wealth.
Wealth Inequality in the U.S.
While the story of rising income inequality is well known, wealth inequality is much greater than income inequality, as an examination of the Gini coefficient shows. Between 2001 – 2010, the Gini coefficient for income averaged 0.56 while the Gini coefficient for wealth averaged 0.82 (Keister and Lee 2014), indicating a far greater concentration of wealth than income. In fact, wealth is so concentrated that Saez and Zucman (2014) estimate that the richest 0.1% of families collectively own 22% of U.S. wealth compared to the bottom 90% of families who hold just 23%. Part of the story of wealth inequality is that the growth in wealth among the richest families has largely been among rich, white families while minority families have not seen their wealth increase at the rate that white families have experienced. Scholars have established that extreme racial-ethnic differences in wealth exist (Oliver and Shapiro 1995, Conley 1999, Keister 2004, Campbell and Kaufman 2006). However, most research on racial wealth inequality is based on cross-sectional data, and thus we know little about whether the racial wealth gap grows or shrinks as people move from their youth into middle age and retirement.
NLSY79 Data
The NLSY 1979 is a nationally representative longitudinal panel survey. Over 12,000 young men and women who were ages 14-22 were surveyed in 1979. Today, the former “youth” are between 45-54 years old and data are available from 22 survey waves through 2012. One of the main strengths of the NLSY79 is that the longitudinal nature of the survey permits me to develop a wealth series and examine the factors that affect wealth accumulation over time. Respondents were interviewed annually from 1979 - 1994, and biennially since. Information on wealth was collected annually between 1985 and 1994 and biennially thereafter, with the exception of three years when budget cutbacks forced the deletion of asset questions. The 2012 survey round, the first collected post-recession, was just released in the fall of 2014. I plan to incorporate this more recent data into my analyses this spring.
Preliminary Results
Descriptive results on net worth indicate how the racial-ethnic wealth gap changed over the life course. While these findings are only descriptive, they reveal a large racial gap in wealth that has persisted over time. From 1985 to 2008, the racial wealth gap between whites and blacks increased by approximately $160,000, from $7,300 in 1985 to $167,000 in 2008. The gap between whites and Hispanics also increased over the same time period, by $104,000. In 1985, when respondents were in their 20’s, the median net worth of white families was only $8,400, compared to the wealth of black families and Hispanic families which stood at $1,122 and $3,600, respectively. About ten years later, when the respondents were in their 30’s, the median net worth of white families had increased to $41,000, while the wealth of black families was stood at $4,400 and Hispanic families had $15,300 in net worth. Most respondents were in their 40’s in 2008. White families held $188,400 in wealth compared to $21,500 for black families and $80,000 for Hispanic families. All medians are in 2008 dollars.
Looking only at respondents who graduated from college shows that even among college graduates, there is a racial wealth gap. In 2012, white college graduates hold three times the wealth of African American college graduates and more than $100,000 more wealth than Latino college graduates. Restricting the sample to only those families earning a middle class income ($40,000 - $60,000) shows that the wealth gap shrinks considerably, but the gap still exists. White families with middle class incomes hold nearly $89,000 of wealth compared to $47,000 for African American families and $43,000 for Latino families. Thus, middle class white families still have nearly double the amount of wealth of Latino and Black families.
Preliminary regression results show that, after controlling for education, income, family size and marital status, being Latino and Black still has a statistically significant impact on wealth (p. 01). Those with higher incomes, who are married and who have more education have greater net worth. Future analyses will examine the determinants of wealth when respondents are in their youth, their 30s, and middle age. I will also incorporate occupational status, unemployment, number of children, receipt of inheritance, and homeownership. Additionally, I plan to investigate the consequences of wealth inequality by studying whether wealth is a predictor of differences in educational attainment among the children born to respondents. This analysis is possible because the NLSY79 has followed all of the children born to the female respondents. Longitudinal data are available on the children, many of whom are now young adults who have presumably completed their education. This analysis would allow me to demonstrate whether racial-ethnic inequality in wealth among parents contributes to racial-ethnic differences in the educational attainment of their children.