Duke professor's research examines the racial wealth gap

Data from the Samuel DuBois Cook Center on Social Equity explains why middle-class should not be defined by income

William Darity Jr.

It’s been a while since the Great Recession, when millions of people lost jobs, homes, their savings, between late 2007 and mid 2009. Nobody has called the last decade the Great Recovery, but many people have managed to rebuild their wealth portfolios. Though not everyone.

William Darity Jr., Samuel DuBois Cook Professor of public policy, African and African American studies, and economics as well as the director of the Samuel DuBois Cook Center on Social Equity, puts it simply. If you’re Black, he says, economically “things go worse.” What’s more, while almost all groups showed at least some recovery of wealth in the decade since the recession ended, Black and Latinx families in the professional segment of the labor force lost wealth and are still behind where they were. Black families started out with less wealth, and then during the Great Recession, Black families lost more wealth than any other group, collectively losing 48 percent of their wealth, while white families lost 26 percent. Latinx families lost 44 percent.

The evidence is in economic data. One important point: In their research, Darity and his coauthor, Fenaba Addo, faculty affiliate of the Cook Center and associate professor of public policy at the University of North Carolina-Chapel Hill, are talking wealth here, not income.

“There’s a disconnect between employment and accumulation of wealth,” Darity says. “The primary factor that determines how wealthy a household will be is their capacity to obtain resources from previous generations. It’s not primarily a result of you having a job and generating income.”

And that’s not just inheritance, by the way. That wealth transfer includes things like borrowing from an older, more-established relative— and paying back slowly if at all—when crisis comes rather than, for example, taking on a high-interest payday loan that rapidly and deeply increases debt.

Darity and Addo have done work previously making the point that middle-class is better defined by wealth than by income. “The critical reason for using wealth instead of income is because wealth can actually function as a substitute for income if there are unexpected losses,” Darity says. You lose a job, you can spend down savings, take a loan out on your house, sell a car—but only if you have savings, home, car. That wealth can be transformative in the security it provides.

Their paper represents findings unsurprising in a nation with a racial wealth gap the paper calls “massive, persistent, and well-documented.” According to Addo: “We found the labor force of Black workers improved like everyone but still lagged behind white and Latinx households. It took [Black households] a decade out from the recession to recoup the wealth that they had lost during the recession. Whereas we really started to see gains in white households three and five years out post-recession.”

“Black households fare the worst,” Addo says simply, “because they have less resources to draw upon.”

And that gap echoes through the economy. “We actually have some evidence to suggest,” says Darity, “that Blacks who are in the professional/managerial class have lower levels of wealth than whites who are in the working class.” Being a manager, attaining professional status, doesn’t help much if you’re Black; you’re still likely to be wealth-poor, which Darity and Addo define as having “less [in wealth] than three months of the income poverty threshold (50 percent of median income).”

The conclusions are stark, though, as Addo says, “I don’t think our findings are too shocking.”

The paper puts it simply: “If you belong to a historically marginalized racial or ethnic group, your racial status is the stronger predictor of your economic position than your education, income, and in this case, employment state and position.” And though “the unemployment rate differential between Blacks and whites is quite persistent,” employment doesn’t solve problems created by centuries of lost wealth and lost opportunities.

That is, says Darity, “there are folks who think if you could close the unemployment gap, you could close the wealth differential.” Darity doesn’t think the data support that belief.

“Employment,” he says, “is a source of income. It’s not a direct or significant source of wealth.”

And until Black households start being able to build wealth, the next recession—and the next, and the next—will hit them just as hard.

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Steve Brotman, A.B.'90's picture
Clearly, being black in America has been no picnic over the last several centuries. Blacks suffer from poverty and a host of social issues that are substantial, and have suffered from racism in many forms. However, Prof. Darity is making the substantial leap from sociological surveys that "[t]he primary factor that determines how wealthy a household will be is their capacity to obtain resources from previous generations... [i]t's not primarily the result of having a job and generating income." The data from the U.S. Bureaus of Labor Statistics suggests otherwise (https://www.bls.gov/osmr/research-papers/2011/pdf/ec110030.pdf) Wealth is transferred about 21% of the time between generations, accounting for 23% of their wealth–meaning that the wealth transfer was pretty minor, amounting to 4% of wealth (21% of 23%). That means that 96% of the time wealth is not transfered and that wealth is self-made. Surveys of millionaires have been done as well, and that percentage is 21%. For billionaires, the percentage is about 10% of wealth is inherited, and 90% is self-made. (See https://www.ramseysolutions.com/retirement/how-many-millionaires-actually-inherited-their-wealth) Darity further states that "[e]mployment is a source of income... not a direct or significant source of wealth", and thus having employment doesn't help equalize the wealth gap. What most Americans know is that is actually not true. A middle class family like my grandparents and my parents can save their income over many years and accumulate substantial wealth. They did indeed get wealthy from earning and saving and not spending on things that were unimportant. Studies have shown that most millionaires get wealthy by saving and investing, not through inheritances. "The Millionaire Next Door" by Thomas J. Stanley and William D. Dankois is a great study of millionaires on this point (https://en.wikipedia.org/wiki/The_Millionaire_Next_Door). In this book, there are many examples of families with large incomes yet spend far more than they earn, and thus end up with no wealth. The broke Wall Streeter is almost cliche despite earning millions as they save nothing. Wealth generation is not about the income, it's about the savings and investing. Perhaps, one could conclude from these studies, if blacks haven't generated wealth, even if they are professionals with high income, it is because blacks have not saved and invested akin to other peer groups that have generated wealth. Indeed, the story of NBA/NFL player that come from difficult backgrounds, then have substantial income during their playing years, and often end up bankrupt is accepted wisdom. (https://www.abi.org/feed-item/how-athletes-go-bankrupt-at-an-alarming-rate). Blacks are not the only group that suffer from a lack of wealth; any individual or group that spends more than they earn will not accumulate wealth over time. The laws of economics and saving and investing are not racist. What disappoints me about this Duke Magazine piece is not just that the assertions made are inaccurate about the sources of wealth in America, but the undercurrent of Darity's scholarship is his open advocacy for massive reparations to blacks for injustices over the centuries per his book "From Here to Equality" (https://uncpress.org/book/9781469654973/from-here-to-equality/) and should have been mention. This assertion then that wealth is inherited– and not self made– is critical in making this reparations argument. While I agree with the ends, helping blacks succeed in our society and generate true wealth, reparations aren't the solution. As many other immigrant groups have discovered, financial education might be a better form of aid, as noted in the Million Next Door study. Give a man a fish and he can eat for a day. Teach a man to fish, and he can eat for his whole life. Further, teaching a man to save his fish up then he can one day own a boat, a house, and perhaps a fishing cannery operation. Proclaiming that wealth is primarily inherited is false and is the exact opposite learning that any individual or group should be taught; indeed making them believe that the system is fixed against them and the only way to wealth is inherited wealth vs hard work and saving is a sure fire way to make sure they stay poor. We all want to stamp out racism in our society. But suggesting that the primary way to wealth is through inheritance, is not only not true, but destructive of the very people one is trying to help. And reparations, while a great way to buy votes, would end in tears, not just for the taxpayer but those that get them, as in the end, true wealth can only be generated by saving more than one earns and investing and compounding that money over many years. Let’s not educate our children that the only way to wealth is to get an inheritance or get a massive handout from the government. It’s very clear that’s not true. Instead, let’s educate our children that they all can be wealthy if they work hard and save money and invest in the long term.