Chicago Fed Insights

Economics and Policy Professionals Explore the Racial Wealth Gap

August 19, 2022

Our second Economic Mobility Project virtual event brought economics and policy professionals together to discuss the racial wealth gap in America — and how discriminatory twentieth century housing policies have compounded over generations to affect the wealth of individuals and families today.

Watch the full event

2:04 - Economic Facts about the U.S. Wealth Gap

Kristen Broady opened the event with data on racial disparities in income, employment, homeownership, education, access to credit, and retirement savings — all factors that contribute to a persistent gap in net worth between Black and White households in particular. These findings are showcased in a recent working paper, Seven Economic Facts About the U.S. Racial Wealth Gap.

The seven facts:

  1. Racial disparities in income are significant and persistent.
  2. In 2019, the average White household had 5.2 times greater wealth than the average Hispanic household and 7.8 times greater wealth than the average Black household.
  3. Higher unemployment rates and lower household incomes for Black Americans reflect a history of structural barriers to economic mobility.
  4. White Americans have higher rates of homeownership than Black and Hispanic Americans.
  5. Black and Hispanic Americans have significantly less saved for retirement than their White and Asian American counterparts.
  6. Black and Hispanic Americans are less likely to be fully banked and more likely to pay higher banking fees than White Americans.
  7. While White students are more likely to earn a baccalaureate degree, Black and Hispanic graduates shoulder a higher financial burden.
Kristen Broady
“Homeownership is part of the American Dream… [The data] shows annual homeownership rates by race or ethnicity from 1983 to 2021, clearly illustrating a significant gap in homeownership between White, Black, and Hispanic households.”

Kristen Broady, Senior Economist, Economic Advisor and Director of the Economic Mobility Project, Chicago Fed

11:42 - The Effects of Redlining Maps on the Long-Run Trajectories of Neighborhoods

Next, Daniel Aaronson examined recently discovered lending maps created by the Home Owners’ Loan Corporation (HOLC) in the 1930s, using them to establish the practice of redlining as a contributing factor to the racial wealth gap today, generations later.

Key takeaways from the presentation:

  • Redlining has long been suspected to have led to financial disinvestment in neighborhoods, but until recently, there has been little quantitative evidence of long-run effects.
  • Research finds strongly suggestive evidence that reduced access to capital had causal effects over subsequent decades on neighborhood segregation and housing markets.
  • Redlining resulted in lowered human capital investment and lifetime earnings of children growing up on the lower-graded side of redlining maps.
“This new research fits nicely into a growing literature and economic history that stresses the highly persistent effects that policy can have.”

Daniel Aaronson, Senior Vice President and Associate Director of Research, Chicago Fed

Daniel Aaronson

25:21 - Blockbusting and the Challenges Faced by Black Families in Building Wealth Through Housing in the Postwar United States

Then, Daniel Hartley introduced the postwar practice of blockbusting as another contributing factor to the racial wealth gap, tracking the economic outcomes of neighborhoods targeted for racial turnover in comparison to neighboring areas.

Key takeaways from the presentation:

  • Tract-level analysis indicates blockbusting caused extreme racial turnover and relative declines in housing prices.
  • An example neighborhood in Baltimore, Edmondson Village, had high rates of foreclosure as a result of blockbusting, which likely put downward pressure on prices over time.
  • Previous blockbusting studies estimate positive returns on investment (ROI) for White households, negative ROI for Black households, and sizeable house price markups in neighborhoods targeted for blockbusting.
Daniel Hartley
“Black households that bought from blockbusters, while finally gaining access to neighborhoods that had been denied to them before, wound up paying a high price for homes that declined in value.”

Daniel Hartley, Senior Economist, Chicago Fed

37:05 - Panel Discussion: Factors Contributing to the Racial Wealth Gap

Finally, a panel of economics and policy experts discussed the intersection of redlining, blockbusting, and other factors that led to decreased homeownership and wealth-building in the twentieth century among Black and Hispanic Americans — and the compounding effects of generational wealth that perpetuate the wealth gap today.

Panelists discussed:

  • Past and current factors contributing to and perpetuating the racial wealth gap, from the twentieth century practices of redlining and blockbusting to the disproportionate effects of the Covid-19 pandemic on Black families.
  • The intergenerational transmission of wealth and resources as a compounding factor behind wealth disparity between groups.
  • Steps toward closing the racial wealth gap, including changes to employment, credit, and housing policies, as well as diversified methods of measuring the impact of the wealth gap that synthesize different drivers of inequity.
“In a circular way, existing wealth gaps feed into future wealth gaps.”

Damon Jones, Associate Professor, University of Chicago Harris School of Public Policy

Damon Jones
William Darity
“I think the decisive factor shaping the racial wealth gap is the intergenerational transmission of resources.”

William Darity, Samuel DuBois Cook Distinguished Professor of Public Policy, Duke University

“Our work today may not bear fruit tomorrow, but it may bear fruit 30 years from now.”

Andre M. Perry, Senior Fellow at Brookings Metro and scholar-in-residence at American University

Andre M. Perry
Nicole Elam
“How do we maximize this moment to create systemic change?”

Nicole Elam, President and CEO, National Bankers Association

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.


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