5.4.6: The Racial Wealth Gap

The wealth gap between African American and white families in the United States has been a persistent problem, with little progress since the civil rights movement of the 1960s. Over fifty-five years after landmark civil rights legislation intended to equalize access to housing, education, and employment, the assets of African American families are less than 15 percent of the assets of white families (Bhutta et al. 2020). One research article considers how the income tax benefits for homeownership contribute to the racial wealth gap (Thomas 2022). As the researchers point out, the tax advantages in terms of wealth building associated with home ownership are significant, but the rate of home ownership for white families far exceeds that of African American families Bhutta et al. 2020). In other words, far more white families can benefit from these wealth-building tax breaks whereas African American families cannot.

Economists have traditionally used household income as a measure of financial well-being. However, recently economists have begun to focus on household wealth, the amount by which a family’s assets exceed their debt and other liabilities, as a better measure. Although household income is associated with household wealth, it does not consider the resources that wealth represents, such as savings, home equity, and investments. Wealth is a measure of the resources available to improve the quality of life of the family and to provide stability and access to opportunities for well-being (Oliver and Shapiro 2013). Household wealth also accounts for how well a family would be able to survive unexpected events such as unemployment.

Data on household wealth for the study was provided by calculations from the Urban Institute, which used data from studies such as the Survey of Financial Characteristics of Consumers, Survey of Changes in Family Finances, Survey of Consumer Finances, and the Current Population Survey. All the surveys are administered by the Federal Government of the United States. The data collected from these surveys is based on family wealth, measured in dollars, which is measured on a ratio scale. That is, ratios can be taken with income data. For example, it makes sense to conclude that if one individual has wealth equal to $1000 and another has wealth equal to $500 then the first individual has twice as much wealth as the other because 1000÷500=21000÷500=2. This means that nearly any mathematical operation is permissible with this type of data. In the research paper the median wealth is compared between African American, Hispanic, and non-white populations. If you are not familiar with the concept of a median, it is the point which divides the largest half of the data from the smallest half of the data. Therefore, to compute a median we need only be able to sort the data from smallest to largest which is permissible for data measured on a ratio scale. More about computing and interpreting the median appears later in this book.

Because the research article is considering the association between wealth and home ownership, rates at which families owned homes were also computed within each racial category. These data have a nominal measurement scale, as in each case a family either owns a home or not. Calculating the percentage of families in each category that own homes is permissible for nominal data.