The Decline of African-American and Hispanic Wealth Since the Great Recession

While many studies have documented the wide disparity in income between whites on the one hand and African-Americans and Hispanics on the other, the gap in wealth is even greater. In seminal work on the subject, Oliver and Shapiro (1995) document and analyse the sources of the wealth differences between blacks and whites and discuss some of the deleterious effects of low wealth on the wellbeing of black families – including access to decent housing and education, poor health, lower longevity, and the like.

The racial disparity in standard wealth holdings in the US, after fluctuating over the years 1983 to 2007, was almost exactly the same in 2007 as in 1983 – with a ratio of mean wealth between the two groups of 0.19 (see Wolff 2017 and 2018 for more details). Median net worth among black as well as Hispanic households was close to zero over the whole time period, as were the ratios of median wealth between minority and white households. However, the Great Recession from 2007 to 2010 hit African-American households much harder than whites, and the ratio of mean wealth between the two groups plunged from 0.19 in 2007 to 0.14 in 2010 (see Figure 1). Indeed, the mean wealth of black households suffered a 33% decline in real terms (see Figure 2). White wealth, in contrast, declined by 12%. The relative (and absolute) losses suffered by black households from 2007 to 2010 are to a large extent ascribable to the fact that blacks had a higher share of homes in their portfolio than did whites and a much higher debt-net worth ratio (0.55 versus 0.15). These factors led to a wide disparity in annual real rates of return on their respective portfolios (-9.92 versus -7.07%). Between 2010 and 2016 there was no change in the racial wealth gap.

– Portside

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