Public Policy Widens Wealth Gap, Reports Heller Study

Tom Shapiro
Mike Lovett
Tom Shapiro

The existing dramatic gap in U.S. household wealth along racial lines cannot be attributed to personal ambition or behavioral choices but rather reflects government policies and institutional practices that create different opportunities for whites and African-Americans.

So says “The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide,” a research study conducted by the Institute on Assets and Social Policy (IASP) at the Heller School for Social Policy and Management.

“Public policies play a major role in widening the already massive racial wealth gap, and they must play a role in closing it,” says Thomas Shapiro, IASP director and a principal author of the study. “We should be investing in prosperity and equity; instead, we are advancing toxic inequality.”

Over the course of their 25-year study, the IASP researchers found that a $1 increase in average income generated just $0.69 in additional wealth for an African-American household, compared with $5.19 for a white household. Part of this equation resulted from black households’ having fewer opportunities to grow their savings beyond what’s needed for emergencies.

Researchers also discovered that the difference in median wealth between America’s white and African-American households has grown stunningly large. The wealth gap almost tripled from 1984 to 2009, increasing from $85,000 to $236,500. The median net worth of white households in the study grew to $265,000 over the 25-year period, compared with just $28,500 for black households.

According to the report, five fundamental factors are helping to drive this wealth gap: number of years of homeownership; average family income; employment stability, particularly through the Great Recession; college education; and family financial support and inheritance.

Says Shapiro, “What these particular factors provide is compelling evidence that various government and institutional policies that shape where we live, where we learn and where we work propel the large majority of the widening racial wealth gap.”

The report recommends that policymakers take steps such as strengthening and enforcing fair housing, mortgage and lending policies; raising the minimum wage and enforcing equal-pay provisions; investing in high-quality child care and early-childhood development; and overhauling preferential tax treatments for dividend and interest income and the home mortgage deduction. 

“All families need a financial cushion to be economically secure and create opportunities for the next generation,” says Shapiro. “Wealth — what we own minus what we owe — allows families to move forward by moving to better and safer neighborhoods, investing in businesses, saving for retirement and supporting their children’s college aspirations. Our economy cannot sustain its growth in the face of this type of extreme wealth inequality.”