Panel Paper: How Measurement of Inequalities in Wealth By Race/Ethnicity Impacts Narrative and Policy

Thursday, November 3, 2016 : 10:20 AM
Morgan (Washington Hilton)

*Names in bold indicate Presenter

Laura Sullivan, Tatjana Meschede and Thomas Shapiro, Brandeis University


Background.Measures of economic security increasingly recognize the importance of wealth and assets in gauging household financial well-being (Sherraden 1991, Caner and Wolff 2004, Brandolini, Magri et al. 2010).  A vital part of the growing conversation regarding the importance of wealth in overall economic security is the recognition that wealth inequalities are particularly significant by race/ethnicity in the United States with households of color, especially black and Latino households, holding much fewer financial assets than their white peers (Kochhar 2004, Shapiro 2004, Oliver and Shapiro 2006).  Evidence also suggests that racial wealth disparities have grown since the Great Recession (Kochhar, Fry et al. 2011).  While the racial wealth gap is typically measured at the median due to the substantial skew of the wealth distribution, much remains unknown about disparities across the distribution.  This study aims to push forward analytic discussions about measurement of the racial wealth gap by examining recent trends in wealth by race using a more complete view of the wealth distribution.

Methods.The Survey of Consumer Finances (SCF) is utilized to underscore differences in wealth accumulation trends across U.S. households pre-, during and post-recession (2001-2013).  Analysis of changes in the wealth, asset holdings and liabilities of white, black and Latino households is examined across the distribution.  Descriptive statistics are combined with significance tests for appropriate sample statistics.  Examination of trends at the respective quartiles for each group allows for a broader understanding of wealth patterns in the interquartile range (IQR) that cannot be determined with a single summary measure.  Trend lines, box plots, and confidence intervals for means and percentiles provide a closer examination of recent wealth patterns than has previously been conducted.

Findings. While the millennium started with enormous racial wealth gaps and all groups saw widespread asset losses during the Great Recession, black households, in particular, saw larger percentage declines in many key asset measures relative to whites at the median, mean and a number of key percentiles. At the 75th percentile, net worth among blacks fell by 40.7 percent compared to 30.4 percent for whites, increasing the relative ratio of white to black wealth at this position in the distribution from 5.1 to 5.9 times. Among more economically vulnerable households, the 25thpercentile fell to zero for black households from $900, while the first quartile for whites was $22,400 in 2013 more than double that of the median wealth among blacks ($11,000).

Implications. While measures of central tendency are important for providing a glimpse of a typical or average person within a population overall or within subpopulation, policy based on a single summary measure will miss much of the diversity of experiences within and across groups.  This analysis highlights how disparities in wealth by race/ethnicity are present across the U.S. wealth distribution more than a single measure of the racial wealth gap at the median can provide.  The analysis provides new insights into the profundity of racial wealth disparities and helps to better inform policies that expand wealth-building opportunities for families of color.