IDEAS home Printed from https://ideas.repec.org/p/hka/wpaper/2022-044.html
   My bibliography  Save this paper

The Dynamics of the Racial Wealth Gap

Author

Listed:
  • Dionissi Aliprantis

    (Federal Reserve Bank of Cleveland)

  • Daniel Carroll

    (Federal Reserve Bank of Cleveland)

  • Eric Young

    (University of Virginia and Federal Reserve Bank of Cleveland)

Abstract

What drives the dynamics of the racial wealth gap? We answer this question using a dynamic stochastic general equilibrium heterogeneous-agents model. Our calibrated model endogenously produces a racial wealth gap matching that observed in recent decades along with key features of the current cross-sectional distribution of wealth, earnings, intergenerational transfers, and race. Our model predicts that equalizing earnings is by far the most important mechanism for permanently closing the racial wealth gap. One-time wealth transfers have only transitory effects unless they address the racial earnings gap, and return gaps only matter when earnings inequality is reduced.

Suggested Citation

  • Dionissi Aliprantis & Daniel Carroll & Eric Young, 2022. "The Dynamics of the Racial Wealth Gap," Working Papers 2022-044, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2022-044
    Note: MIP
    as

    Download full text from publisher

    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Aliprantis_Carroll_Young_2022_dynamics-racial-wealth-gap.pdf
    File Function: First version, November 23, 2022
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lutz Hendricks, 2007. "Retirement Wealth And Lifetime Earnings," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 421-456, May.
    2. Bruce Sacerdote, 2005. "Slavery and the Intergenerational Transmission of Human Capital," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 217-234, May.
    3. Edward Wolff & Maury Gittleman, 2014. "Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 439-468, December.
    4. Hero Ashman & Seth Neumuller, 2020. "Can Income Differences Explain the Racial Wealth Gap: A Quantitative Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 220-239, January.
    5. Galenson, Marjorie, 1972. "Do Blacks Save More?," American Economic Review, American Economic Association, vol. 62(1), pages 211-216, March.
    6. Hoyt Bleakley & Joseph Ferrie, 2016. "Shocking Behavior: Random Wealth in Antebellum Georgia and Human Capital Across Generations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1455-1495.
    7. Kerwin Kofi Charles & Erik Hurst & Nikolai Roussanov, 2009. "Conspicuous Consumption and Race," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 425-467.
    8. Moritz Kuhn & Moritz Schularick & Ulrike I. Steins, 2020. "Income and Wealth Inequality in America, 1949–2016," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3469-3519.
    9. Maury Gittleman & Edward N. Wolff, 2004. "Racial Differences in Patterns of Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 39(1).
    10. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2008. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1150-1196, December.
    11. Ralph Stinebrickner & Todd Stinebrickner, 2008. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," American Economic Review, American Economic Association, vol. 98(5), pages 2163-2184, December.
    12. Jeffrey T. Denning & Benjamin M. Marx & Lesley J. Turner, 2019. "ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare," American Economic Journal: Applied Economics, American Economic Association, vol. 11(3), pages 193-224, July.
    13. Francine D. Blau & John W. Graham, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 321-339.
    14. Flávio Cunha & James Heckman, 2016. "Decomposing Trends in Inequality in Earnings into Forecastable and Uncertain Components," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 31-65.
    15. Karina Doorley & Nico Pestel, 2020. "Labour Supply after Inheritances and the Role of Expectations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 843-863, August.
    16. Mehmet Soytas & Limor Golan & George-Levi Gayle, 2014. "What Accounts for the Racial Gap in Time Allocation and Intergenerational Transmission of Human Capital?," 2014 Meeting Papers 83, Society for Economic Dynamics.
    17. Greg Kaplan, 2012. "Moving Back Home: Insurance against Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 120(3), pages 446-512.
    18. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    19. Owen Thompson, 2021. "Human Capital and Black-White Earnings Gaps, 1966-2017," NBER Working Papers 28586, National Bureau of Economic Research, Inc.
    20. James P. Smith, 1995. "Racial and Ethnic Differences in Wealth in the Health and Retirement Study," Journal of Human Resources, University of Wisconsin Press, vol. 30, pages 158-183.
    21. Bloemen, Hans G & Stancanelli, Elena G F, 2001. "Individual Wealth, Reservation Wages, and Transitions into Employment," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 400-439, April.
    22. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-895, October.
    23. Patrick Bayer & Kerwin Kofi Charles, 2018. "Divergent Paths: A New Perspective on Earnings Differences Between Black and White Men Since 1940," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(3), pages 1459-1501.
    24. Marianne Bertrand & Sendhil Mullainathan, 2004. "Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination," American Economic Review, American Economic Association, vol. 94(4), pages 991-1013, September.
    25. De Nardi, Mariacristina & Yang, Fang, 2014. "Bequests and heterogeneity in retirement wealth," European Economic Review, Elsevier, vol. 72(C), pages 182-196.
    26. John M. Nunley & Adam Pugh & Nicholas Romero & Richard Alan Seals, Jr., 2014. "An Examination of Racial Discrimination in the Labor Market for Recent College Graduates: Estimates from the Field," Auburn Economics Working Paper Series auwp2014-06, Department of Economics, Auburn University.
    27. Terrell, Henry S, 1971. "Wealth Accumulation of Black and White Families: The Empirical Evidence," Journal of Finance, American Finance Association, vol. 26(2), pages 363-377, May.
    28. repec:hal:spmain:info:hdl:2441/9704 is not listed on IDEAS
    29. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    30. Joseph A Ritter & Lowell J Taylor, 2011. "Racial Disparity in Unemployment," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 30-42, February.
    31. Edward N. Wolff, 2018. "The Decline of African-American and Hispanic Wealth since the Great Recession," NBER Working Papers 25198, National Bureau of Economic Research, Inc.
    32. Liana E. Fox, 2016. "Parental Wealth and the Black–White Mobility Gap in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 706-723, December.
    33. James X. Sullivan, 2020. "A Cautionary Tale of Using Data From the Tail," Demography, Springer;Population Association of America (PAA), vol. 57(6), pages 2361-2368, December.
    34. Philipp Ager & Leah Boustan & Katherine Eriksson, 2021. "The Intergenerational Effects of a Large Wealth Shock: White Southerners after the Civil War," American Economic Review, American Economic Association, vol. 111(11), pages 3767-3794, November.
    35. Nunley John M. & Pugh Adam & Romero Nicholas & Seals R. Alan, 2015. "Racial Discrimination in the Labor Market for Recent College Graduates: Evidence from a Field Experiment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 1093-1125, July.
    36. Aliprantis, Dionissi & Carroll, Daniel R. & Young, Eric R., 2024. "What explains neighborhood sorting by income and race?," Journal of Urban Economics, Elsevier, vol. 141(C).
    37. Brian Duncan & Stephen J. Trejo, 2007. "Ethnic Identification, Intermarriage, and Unmeasured Progress by Mexican Americans," NBER Chapters, in: Mexican Immigration to the United States, pages 229-268, National Bureau of Economic Research, Inc.
    38. Raj Chetty & Nathaniel Hendren & Lawrence F. Katz, 2016. "The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment," American Economic Review, American Economic Association, vol. 106(4), pages 855-902, April.
    39. Laura Feiveson, 2018. "How Does Intergenerational Wealth Transmission Affect Wealth Concentration?," FEDS Notes 2018-06-01, Board of Governors of the Federal Reserve System (U.S.).
    40. Derek Neal & Armin Rick, 2014. "The Prison Boom and the Lack of Black Progress after Smith and Welch," NBER Working Papers 20283, National Bureau of Economic Research, Inc.
    41. William J. Collins & Marianne H. Wanamaker, 2017. "African American Intergenerational Economic Mobility Since 1880," NBER Working Papers 23395, National Bureau of Economic Research, Inc.
    42. Ricardo Dahis & Emily Nix & Nancy Qian, 2019. "Choosing Racial Identity in the United States, 1880-1940," NBER Working Papers 26465, National Bureau of Economic Research, Inc.
    43. Debopam Bhattacharya & Bhashkar Mazumder, 2011. "A nonparametric analysis of black–white differences in intergenerational income mobility in the United States," Quantitative Economics, Econometric Society, vol. 2(3), pages 335-379, November.
    44. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
    45. Bruce D. Meyer & Derek Wu & Victoria Mooers & Carla Medalia, 2021. "The Use and Misuse of Income Data and Extreme Poverty in the United States," Journal of Labor Economics, University of Chicago Press, vol. 39(S1), pages 5-58.
    46. Menchik, Paul L & Jianakoplos, Nancy Ammon, 1997. "Black-White Wealth Inequality: Is Inheritance the Reason?," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 428-442, April.
    47. repec:hal:wpspec:info:hdl:2441/9704 is not listed on IDEAS
    48. White, T. Kirk, 2007. "Initial conditions at Emancipation: The long-run effect on black-white wealth and earnings inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3370-3395, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Dynamics of the Racial Wealth Gap
      by Christian Zimmermann in NEP-DGE blog on 2023-01-17 16:46:36

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hero Ashman & Seth Neumuller, 2020. "Can Income Differences Explain the Racial Wealth Gap: A Quantitative Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 220-239, January.
    2. Job Boerma & Loukas Karabarbounis, 2023. "Reparations and Persistent Racial Wealth Gaps," NBER Macroeconomics Annual, University of Chicago Press, vol. 37(1), pages 171-221.
    3. Dionissi Aliprantis & Daniel R. Carroll, 2019. "What Is Behind the Persistence of the Racial Wealth Gap?," Economic Commentary, Federal Reserve Bank of Cleveland, issue February.
    4. Peter Ganong & Damon Jones & Pascal J. Noel & Fiona E. Greig & Diana Farrell & Chris Wheat, 2020. "Wealth, Race, and Consumption Smoothing of Typical Income Shocks," NBER Working Papers 27552, National Bureau of Economic Research, Inc.
    5. Wong, Francis & Kermani, Amir, 2022. "Racial Disparities in Housing Returns," VfS Annual Conference 2022 (Basel): Big Data in Economics 264099, Verein für Socialpolitik / German Economic Association.
    6. Daniel R. Carroll & Ross Cohen-Kristiansen, 2021. "Evaluating Homeownership as the Solution to Wealth Inequality," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2021(22), pages 1-7, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hero Ashman & Seth Neumuller, 2020. "Can Income Differences Explain the Racial Wealth Gap: A Quantitative Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 220-239, January.
    2. Christopher Rauh & Aranu Valladares-Esteban, 2023. "On the black-white gaps in labor supply and earnings over the lifecycle in the US," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 424-449, December.
    3. Mariela Dal Borgo, 2019. "Ethnic and racial disparities in saving behavior," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(2), pages 253-283, June.
    4. Rendon, Silvio, 2007. "Does Wealth Explain BlackWhite Differences in Early Employment Careers?," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 484-500, October.
    5. Job Boerma & Loukas Karabarbounis, 2023. "Reparations and Persistent Racial Wealth Gaps," NBER Macroeconomics Annual, University of Chicago Press, vol. 37(1), pages 171-221.
    6. Wong, Francis & Kermani, Amir, 2022. "Racial Disparities in Housing Returns," VfS Annual Conference 2022 (Basel): Big Data in Economics 264099, Verein für Socialpolitik / German Economic Association.
    7. , 2021. "Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance," Working Papers 22-3, Federal Reserve Bank of Boston.
    8. Florent Dubois & Christophe Muller, 2020. "The Contribution of Residential Segregation to Racial Income Gaps: Evidence from South Africa," AMSE Working Papers 2029, Aix-Marseille School of Economics, France.
    9. George Bulman & Robert Fairlie & Sarena Goodman & Adam Isen, 2021. "Parental Resources and College Attendance: Evidence from Lottery Wins," American Economic Review, American Economic Association, vol. 111(4), pages 1201-1240, April.
    10. Rathelot, Roland, 2014. "Ethnic differentials on the labor market in the presence of asymmetric spatial sorting: Set identification and estimation," Regional Science and Urban Economics, Elsevier, vol. 48(C), pages 154-167.
    11. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    12. Mehmet Soytas & Limor Golan & George-Levi Gayle, 2014. "What Accounts for the Racial Gap in Time Allocation and Intergenerational Transmission of Human Capital?," 2014 Meeting Papers 83, Society for Economic Dynamics.
    13. Kevin Lang & Michael Manove, 2011. "Education and Labor Market Discrimination," American Economic Review, American Economic Association, vol. 101(4), pages 1467-1496, June.
    14. Dionissi Aliprantis & Daniel R. Carroll, 2019. "What Is Behind the Persistence of the Racial Wealth Gap?," Economic Commentary, Federal Reserve Bank of Cleveland, issue February.
    15. Salvador Navarro & Jin Zhou, 2017. "Identifying Agent's Information Sets: an Application to a Lifecycle Model of Schooling, Consumption, and Labor Supply," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 58-92, April.
    16. Canaday, Neil, 2008. "The accumulation of property by southern blacks and whites: Individual-level evidence from a South Carolina cotton county, 1910-1919," Explorations in Economic History, Elsevier, vol. 45(1), pages 51-75, January.
    17. Matsuda, Kazushige, 2020. "Optimal timing of college subsidies: Enrollment, graduation, and the skill premium," European Economic Review, Elsevier, vol. 129(C).
    18. Salvador Navarro & Jin Zhou, 2017. "Identifying Agent's Information Sets: an Application to a Lifecycle Model of Schooling, Consumption, and Labor Supply," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 58-92, April.
    19. Aliprantis, Dionissi & Martin, Hal & Tauber, Kristen, 2024. "What determines the success of housing mobility programs?," Journal of Housing Economics, Elsevier, vol. 65(C).
    20. Hasan, Iftekhar & Horvath, Roman & Mares, Jan, 2020. "Finance and wealth inequality," Journal of International Money and Finance, Elsevier, vol. 108(C).

    More about this item

    Keywords

    racial inequality; wealth dynamics;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hka:wpaper:2022-044. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jennifer Pachon (email available below). General contact details of provider: https://edirc.repec.org/data/mfichus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.