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Wealth Privilege and the Racial Wealth Gap: A Case Study in Economic Stratification

  • Published:
The Review of Black Political Economy

Abstract

The emerging subfield of stratification economics is a response to the orthodoxy’s resistance to recognizing the role of racial and ethnic disparities and its penchant for adopting cultural explanations for intergroup differences. With this view, the literature on the racial wealth gap and its particular embrace of the Life Cycle Hypothesis (LCH) offers a clear example of this critique at work. Not only is the LCH incapable of explaining why the racial wealth gap is so much larger than the income gap, but its limitations restrict the range of explanations explored. As an alternative, this paper introduces the Wealth Privilege (WP) model. Unlike the LCH, the WP model can incorporate the effects of contemporary racism as well as the systemic sources that are a legacy of several centuries of racialized policies. Using evidence from the 2013 Survey of Consumer Finances (SCF), this article offers empirical corroboration as well. Since the SCF queries households on their attitudes toward saving and investment, this article investigates the extent that cultural differences explain the wealth gap. To limit the problem of skewness, which is inherent in wealth studies, the analysis uses an inverse hyperbolic-sine transformation of household net worth. The OLS regression results show scant support for key features of the LCH while demonstrating the importance of asset ownership and family support, both crucial facets of the WP model. Two different decomposition methods, Blinder - Oaxaca and DiNardo - Fortin - Lemieux, corroborate these conclusions. As wealth is easily transferable across generations, the evidence supports the contention that household wealth serves as a source of economic stratification as it functions to preserve and even widen the racial wealth gap.

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Notes

  1. Unfortunately, she lumps these three covariates with a measure of inheritance.

  2. The reader can find a fuller explanation of this model in Williams (2017).

  3. In 2017, estates below $5.490 million escape estate taxation. Tax loopholes allow larger estates to avoid taxation as well.

  4. The SCF does not measure future claims to Social Security.

  5. Although this measure of normal income does not fully capture the permanent income concept, it likely represents the best driver of savings behavior..

  6. As wealth is slightly more concentrated in the black and Latino communities, the wealth gap at the mean is smaller than that at the medians.

  7. Among black households, the size of this number is partially, but not wholly, explained by their younger age.

  8. Although the income coefficients are high, they are within the range found by Thompson and Suarez (2015).

  9. The p-value on long run financial planning narrowly misses the standard for statistical significance among White households.

  10. Among this group, measuring each asset category by its share of total assets may offer a more insightful method.

  11. Evidence for this point is not provided in the paper.

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  1. Guilford College, 5800 W. Friendly Avenue, Greensboro, NC, 27410, USA

    Robert B. Williams

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Williams, R.B. Wealth Privilege and the Racial Wealth Gap: A Case Study in Economic Stratification. Rev Black Polit Econ 44, 303–325 (2017). https://doi.org/10.1007/s12114-017-9259-8

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