Commentary | Wages, Incomes, and Wealth

How Good Jobs Policies Can Reduce the Black-White Wealth Divide

This commentary originally appeared on the Huffington Post.

Wealth — what we own minus what we owe — matters a great deal for families’ economic success. Children from wealthier families can more easily attend college, purchase a home, and start a business. Wealthier families can better bear the costs brought on by a spell of unemployment or an illness. The large and growing black-white wealth gap means that not only is this generation of blacks worse off, but the next generation too will face greater challenges.

A new report from the Institute of Assets and Social Policy (IASP) tracks the growing black-white wealth divide and the reasons for its increase. In 1984, the researchers find, the median black household had a net worth of about $85,000 less than the net worth of the median white household. By 2009, the black wealth disparity had grown to $237,000.

The most important factor behind this growing gap is homeownership. Blacks own homes at a much lower rate than whites, but even among homeowners, whites have an advantage. The IASP authors note that whites come from wealthier backgrounds which allow them to purchase a home and start building equity on average eight years earlier than black homeowners. Because whites are more likely to receive financial assistance from a family member and a larger amount of financial assistance, they can obtain mortgages with lower interest rates and build more equity faster. Residential segregation also means that homes in predominantly black neighborhoods are worth less than similar homes in predominantly white neighborhoods. The IASP authors make clear that the history of “redlining, discriminatory mortgage-lending practices, lack of access to credit, and lower incomes,” have created conditions that put whites at a wealth advantage which they are able to pass on to their descendants.

Although homeownership is the largest single factor, the two factors related to jobs when combined are just as important. Homeownership explained 27 percent of the wealth gap, while household income explained 20 percent, and unemployment explained 8 percent. Since for most people, nearly all of their income comes from work, work-related issues — income from work and unemployment — rival homeownership in explaining the black-white wealth gap.

A national good jobs agenda is essential for reducing the black-white unemployment gap and the black-white income gap. If we reduce these two gaps, we will also reduce the black-white wealth gap. To reduce the unemployment gap, we need to implement public-sector job creation targeted to communities that experience high unemployment during good times and bad. These communities are disproportionately black communities. (More details about job-creation policies and the rationale for them can be found in the report, “A Jobs-Centered Approach to African American Community Development.”) This policy will help to move black America toward full employment.

A complete good jobs agenda for blacks requires not only full employment for blacks, but higher wages, good benefits, and a strong national union movement. (For a full discussion of a good jobs agenda see, “Getting Good Jobs to People of Color.”) The first step in lifting wages is to have a more reasonable federal minimum wage. The current minimum wage is two dollars less than it was in 1968 after adjusting for inflation. This represents a 22 percent decline in its value, yet workers are more productive and the economy much richer today than in 1968.

The problem of workers not being able to share the profits created from their work is the reason why a strong national union movement is essential. In the 1960s, when unions were near their peak strength, CEOs made about 20 times the typical worker; today CEOs make more than 200 times the typical worker. Higher rates of unionization are correlated with lower levels of income inequality. The lower the wage a worker earns, the greater they benefit from unionization. Unions lift white wages by 11 percent on average, but they lift black wages by 17 percent. A strong union movement reduces income inequality in the society as a whole, and shrinks the black-white income gap.

A large share of the black-white wealth gap is due to the fact that at every education level, blacks are more likely to be unemployed than whites, and, if they are employed, blacks earn less than similar whites. A good jobs agenda that provides full employment for blacks, higher wages, and better benefits will significantly reduce the black-white wealth gap.

See related work on Income and wages | Race and Ethnicity | Wealth

See more work by Algernon Austin