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INEQUALITY

Black income is half that of white households in the US—just like it was in the 1950s

Gwynn Guilford
By Gwynn Guilford

Reporter

In 1953, Don Barksdale became the first African-American named to the National Basketball Association All-Star team. That same year, Leontyne Price’s performance of “Summertime” at a Metropolitan Opera gala made her the first African-American to sing with the famed New York company. It was also the year that James Baldwin published Go Tell It on the Mountain.

But while progress was underway, African-Americans’ opportunities for economic and professional mobility were extremely limited. That reality was reflected in the vast wealth disparity between black and white households. In 1953, the net worth of the typical black household was just 20% of that of the typical white household, according to a recent working paper by the Federal Reserve Bank of Minneapolis that offers an unusually long-term look at the evolution of America’s racial gap in household finances.

Today, there are many more high-profile examples of African-Americans receiving widespread acclaim in politics, the arts, business, sports, and beyond. But the success of those individuals isn’t representative of the economic status of African-Americans as a whole. By 2013, the wealth of the median black family in the US had fallen to a mere 10% that of its white counterpart. Put another way, in 1953, four-fifths of white families made more than the typical black household. Now, closer to nine-tenths do.

The trend is similar, though less striking, for income, note the paper’s authors, economists Moritz, Kuhn, Moritz Schularick, and Ulrike I. Steins of the University of Bonn. The typical black household in 1953 was making just more than half of the income earned by the typical white household. As of 2013, that earning gap had barely closed: The median black household still made only 58% of what the median white household did.

What’s behind the vast racial wealth gap? One contributing factor, according to the authors, involves the long-lasting effects of the 2007 housing market collapse.

Of course, the housing market crash and the 2008 financial crisis that followed hit many Americans hard, regardless of their race—and for most, those effects have lingered. The economists found that only the top 10% wealthiest households in the US have more wealth now than they did before the 2008 financial crisis. Poorer people, on the other hand, are far worse off. In 2016, the average household in the bottom 50% had around half the wealth they did in 2007, as Quartz’s Dan Kopf recently wrote in a story about the Minneapolis Fed paper’s broader findings.

This is largely because, unlike rich Americans, families at the lower end of the socioeconomic spectrum tend to hold most their wealth in homes, and not stocks. As a result, the surging US housing market of the early 2000s boosted their wealth, masking stagnating growth in income and savings. But when home prices collapsed starting in 2007, middle-class households not only lost wealth, but continued to have a huge share of their future earnings drained away in mortgage payments.

These class dynamics seem closely to parallel racial ones. The University of Bonn economists found that the financial crisis dealt a disproportionately big blow to black households’ finances, undoing the slight closing of the gap in the preceding years.

Though the paper’s authors are researching why black families were unusually exposed to the housing market compared with whites, they declined to speculate on the reasons why the financial crisis had such a big impact. However, economist Edward Wolff points to two factors in a 2017 paper (pdf) distributed by the National Bureau for Economic Research. First, black families were likelier to have borrowed more, relative to home value, to finance home purchases. Housing also tended to be a bigger share of black families’ wealth, as Quartz’s Eshe Nelson explored in a recent story. So when home prices tanked in 2007, black homeowners suffered larger losses in home equity relative to whites—dragging their net worth down as well.

The goods news from Wolff’s research is that, by 2016, black household wealth had undergone what he calls a “remarkable recovery.” Not enough to close the wealth gap, though. By 2016, the average wealth of white households had blown past its 2007 peak. That’s a milestone ordinary black households are still waiting to hit.