The Origins and Persistence of the Black-White Racial Wealth Gap

The Origins and Persistence of the Black-White Racial Wealth Gap  

Ernie Jefferson, Master of Public Policy 

Published August 22, 2025  

Introduction

Racial inequality is an enduring theme of U.S. economic history. For a nation that romanticizes achieving prosperity through hard work, dissonance arises when reflecting on its structures of “profound human exploitation,” to borrow a phrase from The Injustice of Place (Edin et al., 2023, p. 8). A key legacy of this exploitation, and of the racialized economic sabotage that followed, is the Black-White wealth gap. From an initial baseline of severe disadvantage due to slavery, to the denial of homeownership through redlining, Black families have never experienced the same opportunity as White families to accumulate wealth, nor, crucially, to pass it on to their descendants. The factors that perpetuate the wealth gap also include more than past injustices. Research has shown that ongoing racially disparate outcomes in both the labor and capital markets reinforce a pre-existing imbalance. Overall, current policy literature provides two broad explanations for why the Black-White racial wealth gap persists: highly uneven scales of wealth transmission from one generation to the next, and unequal contemporary gains from labor and capital assets. 

The sheer size of the wealth gap makes this a salient issue from an equity standpoint. According to the 2016 Survey of Consumer Finances data, a median Black household possesses just one-tenth of the net worth of a median White household ($17,600 compared to $171,000) (Darity & Mullen, 2020). Per capita, the Black-White wealth ratio stands at one-to-six (Derenoncourt et al., 2022). Moreover, the Brookings Institution finds that the gap has widened since the year 2000 (McIntosh et al., 2020). To understand what drives these statistics, it is necessary to situate them within a wider context.

Wealth Disadvantage From the Outset

Despite substantial gains in wealth among Black Americans since emancipation, it is entirely justifiable to argue that slavery set the stage for the current racial gap. Derenoncourt et al. (2022) developed a simulation based on 160 years of economic data to track changes in the per capita ratio of Black wealth to White wealth and investigated how this ratio would differ under alternative conditions. They determined that even if rates of savings and capital gains were equalized for Black and White Americans post-slavery, the latter group would still possess three times as much wealth per capita in 2020, from a starting point of 56 times as much wealth in 1860. The initial chasm, a product of the fact that 89% of Black Americans were enslaved and had no wealth to their names in 1860, is too large to close after well over a century of otherwise parallel circumstances.

Of course, historical rates of wealth accumulation have, in reality, been far from equal, and much of the difference traces back to policies that obstructed Black economic progress. While there are numerous such examples, one of the most widespread and systematized was redlining. This refers to the federally sanctioned practice of denying insured mortgage loans, on the basis of race, to prospective homebuyers in Black neighborhoods (NASEM, 2024). The Federal Housing Administration initiated redlining during the Great Depression, and it remained legal until the Fair Housing Act of 1968 (Coates, 2014). As Small and Pager (2020) note, this decades-long policy widened the gap, not only because it prevented Black families from gaining wealth through real estate appreciation, but also because White families, who obviously faced no racialized restrictions, attained a large housing wealth advantage by comparison. Moreover, their homes “could be used as collateral for educational loans or else passed onto children, further contributing to the racial wealth gap” (p. 34). Alternative attempts to achieve homeownership on the part of Black families exposed them to predatory “contract buying” arrangements, in which they held no property deed, acquired no equity, paid inflated prices, and faced eviction for a single missed payment (Coates, 2014). In this regard, redlining both directly blocked the growth of Black wealth and indirectly drained it.

Given the low ceiling for wealth accumulation long imposed on Black families, they have subsequently had fewer resources to pass along intergenerationally relative to White families. Therein lies a core reason for the persistence of the gap. Economists Darrick Hamilton and William Darity maintain that intergenerational transfers explain more of the gap than any other indicator, as cited in a Brookings Institution report (McIntosh et al., 2020). Three studies, summarized in From Here to Equality: Reparations for Black Americans in the Twenty-First Century, support this claim. Based on a Panel Study of Income Dynamics data, Pfeffer and Killewald found that the net worth of a family’s previous two generations significantly influences wealth outcomes for the third generation. A 2018 Federal Reserve study determined that, at minimum, 26% of adult wealth is attributable to intergenerational transfers. Lastly, Jennifer Mueller, conducting a study based in the southwestern part of the country, observed that the typical White family reported over six times as many intergenerational asset transfers as the typical Black family (Darity & Mullen, 2020). Since so much of current wealth is based on what one generation has provided to the next in a chain of transmission, the racial gap is a quantitative reflection of the historical constraints described above.

Ongoing Inequalities: Wages, Unemployment, and Capital Gains

Compounding the impact of policies that inhibited Black wealth in previous generations, research indicates the contemporary labor market remains racially tilted against Black workers. Wilson and Darity (2022), for instance, found that wage differences between Black and White workers are stark and growing. Whereas a median Black worker earned 16.4% less than a median White worker in 1979, the disparity had risen to 24.4% by 2019. Decomposition analysis further revealed that differences in educational attainment, work experience, and region of employment explain less than half of the racial differential in average hourly wages. Similarly, Daly, Hobijn, and Pedtke (2017) determined that over the period 1979-2016, the Black-White earnings gap grew among high school as well as college graduates. In fact, the gap became larger among college-educated men than high school-educated men.  Taken as a whole, the evidence suggests that, even after controlling for observed variables that impact wages, Black labor is under-compensated across the board compared to White labor. This threatens to fuel a long-term widening of the racial wealth gap, particularly if median worker earnings continue to diverge.

Differences in educational attainment and work experience also fail to adequately explain racially disparate outcomes with respect to unemployment. Building on their wage gap findings, Wilson and Darity (2022) established that the Black unemployment rate consistently stands at about twice the White unemployment rate across almost every level of education, though rates are somewhat closer among advanced degree holders. The same two-to-one ratio is present in each worker age cohort as well, from less experienced to more experienced workers. This underpins their conclusion that “racial discrimination–and not inadequate education or lack of skills on the part of Black workers–is the most plausible explanation for persistent racial disparities in unemployment.” By way of adding nuance, Small and Pager (2020) note that employment discrimination does not inherently require conscious prejudice on the part of employers. Institutional policies that are seemingly race-neutral may result in disproportionately negative outcomes for Black workers. For example, a company that downsizes its managerial workforce on the basis of employment tenure may ultimately lay off a larger share of Black staff than White staff because they have worked in management for comparatively less time. Regardless of discriminatory intent, the data show that the labor market offers not only lower wages but also diminished job access for qualified Black workers relative to White workers, an additional barrier to equal opportunity for wealth-building.

Derenoncourt et al. (2022) demonstrate that a similarly inequitable pattern has unfolded in the capital market. Especially from the 1980s onward, White households have netted substantial wealth benefits from the appreciation of stock equity that Black households have largely missed. As a percentage of composite wealth, stock equity is over three times larger for White households (16%) than Black households (5%).  Darity and Mullen (2020) offer valuable context for this statistic, stating that, “The capacity to even enter markets for remunerative financial assets is contingent on having a significant endowment of wealth in the first place” (p. 33). In other words, owing to the cumulative disadvantages detailed up to this point, Black households have far less access than White households to the crucial wealth-building resource of stock equity, which has appreciated in value five times more than housing wealth since 1950 (Derenoncourt et al., 2022). From labor to capital gains, there is no dimension of the current national economy wherein aggregate Black and White wealth growth can achieve parity.

Conclusion

The Black-White wealth gap is not static, and without timely intervention, it will only become more conspicuous. Derenoncourt et al. (2022) predict that, under current rates of accumulation, White Americans will possess over eight times as much wealth per capita as Black Americans by the year 2200. However, this widening of inequality need not come to pass if policymakers recognize where the trend is headed and commit to a reversal. A simulation by the Center for American Progress shows that a combined suite of universal proposals – including stronger enforcement of laws against predatory lending and housing discrimination, eliminating student loan debt, instituting a nationwide retirement savings plan, and establishing a national baby bonds program – would lower the Black-White household wealth ratio to roughly one-to-two by the year 2060. Among these proposals, the baby bonds program, wherein all children would receive annual savings account contributions to pay for future expenses, scaled according to parental wealth, displays the largest singular effect on narrowing the gap (Weller et al., 2019). 

Universal policies that disproportionately elevate Black wealth, while promising, represent but one potential pathway toward greater equity. Moreover, a universal approach does not meaningfully acknowledge the systemic injustices that produced the racial wealth gap in the first place. By contrast, Darity and Mullen (2020) propose a targeted strategy of federally-funded reparations for Black Americans, based on explicit recognition of the economic harm that institutional racism has inflicted. In their words, “The work of national memory and national consciousness is an essential component of an effective program of black reparations” (p. 269). This program would entail a diverse “portfolio of reparations,” structured around both direct payments and dedicated grant funds that eligible applicants could utilize to pursue wealth sources that were historically denied to Black communities, namely homeownership, higher education, and capital assets (pp. 264-265). 

Whether universal, targeted, or a combination of the two, a sustained infusion of resources is essential to counterbalancing the exploitation and sabotage that placed Black Americans in a position of relative wealth disadvantage. Even after implementing such a policy, however, the ongoing racial divergence with respect to wages, unemployment, and stocks would merit additional intervention so as to forestall a reopening of the gap. From its inception through to the present day, the U.S. has maintained a racialized economic hierarchy that tears at its social fabric and undermines the higher ambitions of the nation as a whole. Tools and strategies to restructure this state of affairs already exist, but the most vital component is the courage to envision an equitable future. Through policy insights and honest reflection on history, it is possible to shape a new wealth paradigm. The Black-White wealth gap is persistent, but persistence does not have to mean permanence.

Note: The views expressed in this publication are those of the student authors and do not necessarily reflect the policies or positions of the Humphrey Public Affairs Review (HPAR) or the Humphrey School of Public Affairs.

References:

Coates, T. (2014). The Case for Reparations. The Atlantic, https://www.theatlantic.com/magazine/archive/2014/06/the-case-for-reparations/361631/ 

Daly, M., Hobjin, B., & Pedtke, J. (2017). Disappointing Facts About the Black-White Wage Gap. Federal Reserve Bank of San Francisco, https://www.frbsf.org/research-and-insights/publications/economic-letter/2017/09/disappointing-facts-about-black-white-wage-gap/ 

Darity, W. & Mullen, A. K. (2020). From Here to Equality: Reparations for Black Americans in the Twenty-First Century. The University of North Carolina Press.

Derenoncourt, E., Kim, C.H., Kuhn, M., & Schularick, M. (2022). Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860-2020. National Bureau of Economic Research, Working Paper No. 30101, http://www.nber.org/papers/w30101 

Edin, K.J., Shaefer, H.L., & Nelson, T.J. (2023). The Injustice of Place: Uncovering the Legacy of Poverty in America. Mariner Books.

McIntosh, K., Moss, E., Nunn, R., & Shambaugh, J. (2020). Examining the Black-White Wealth Gap. Brookings Institution, https://www.brookings.edu/articles/examining-the-black-white-wealth-gap/ 

NASEM - National Academy of Sciences, Engineering, and Medicine (2024). Reducing Intergenerational Poverty. The National Academies Press.

Small, M. L., & Pager, D. (2020). Sociological Perspectives on Racial Discrimination. Journal of Economic Perspectives, 34(2), 49-67. https://doi.org/10.1257/jep.34.2.49

Weller, C. E., Maxwell, C., & Solomon, D. (2019). Simulating How Progressive Proposals Affect the Racial Wealth Gap. Center for American Progress, https://www.americanprogress.org/article/simulating-progressive-proposals-affect-racial-wealth-gap/. 

Wilson, V., & Darity, W. (2022). Understanding Black-White Disparities in Labor Market Outcomes Requires Models That Account for Persistent Discrimination and Unequal Bargaining Power. Economic Policy Institute, https://www.epi.org/unequalpower/publications/understanding-black-white-disparities-in-labor-market-outcomes/#:~:text=Another%20defining%20feature%20of%20racial,average%20gap%20of%2017.3%25