Wealth Gap Widens Along Race Lines

New Study Shows Increasing Inequality

The Great Recession took quite a toll on the average American's net worth. A combined fiscal crisis and plummeting home values chopped off almost 40 percent of the median net worth of U.S. households, from $135,700 in 2007 to $82,300 in 2010 (expressed in 2013 dollars). Since that time, a slow economic recovery has failed to rebuild net worth values. The median net worth in 2013 was $81,400, showing an even further decline from 2010. However, that decline is disproportionately falling among minorities.

A study from the Pew Research Study took a closer look at the racial and ethnic components of wealth inequality and how their nature has changed over the last thirty years. Using data from the Survey of Consumer Finances conducted by the Federal Reserve, the researchers have shown that the median net worth of white households has risen slightly while those of black and Hispanic households have fallen dramatically.

The size of the gap in median incomes is startling even before the recent effects are considered. Since 1983, the smallest multiple in the median wealth of white households versus black or Hispanic households is six. In 2007, prior to the Great Recession, the median white net worth was $192,500 -- approximately 8 times the median Hispanic household net worth of $23,600 and a bit over 10 times the $19,200 median net worth of black households.

In 2010, the Great Recession lowered the median net worth of white households to $138,600, a 28 percent drop from 2007 levels. During the same period, the median net worth of black households fell by approximately 13.5 percent from $19,200 to $16,600 and the net worth of Hispanic households fell by 32.2 percent from $23,600 to $16,000. The multiplier for white households' wealth over minorities dropped to 8 over black households but rose to 9 over Hispanic households. The overall dollar drop was much larger within white households, but a double-digit percentage drop in net worth for minority households was particularly damaging to economic safety nets.

The recovery period of 2010-2013 only exacerbated the racial and ethnic wealth gap. White households gained around 2.3 percent in median wealth to $141,900, while that of black households fell 33.7 percent to $11,000 and that of Hispanic households fell 14.3 percent to $13,700. The multiplier for white households' wealth rose to 10 over Hispanics and 13 over blacks. Those are the largest multiples since the 1980s.

Taken as one period from 2007 to 2013, white household median net worth dropped by 26.3 percent while Hispanic household median net worth dropped by 41.9 percent, and black household median net worth dropped by 42.7 percent.

Why is the gap increasing during the recovery period? Income disparity is one reason. The median income of all minority households fell 9 percent during 2010-2013, compared to a 1 percent drop for non-Hispanic white households. With lower incomes and less room to spare, minority households are far more likely to have committed their existing incomes and even their savings accounts to paying monthly bills -- and that's before taking into account a disproportionate income drop.

Asset appreciation also works against minorities, as white households disproportionately hold stocks and own homes. Homeownership rates fell across the board but minorities were most affected. Homeownership for white households dropped by 1.4 percentage points from 2010 to 2013 (75.3 percent to 73.9 percent), but fell by 3.2 percentage points among minority households (50.6 percent to 47.4 percent).

Unfortunately, these trends are unlikely to change without significant wage increases among minorities. Wealth and income inequality can only be properly addressed by a rise in prosperity among minority households.