By: Justine Brooks
6 Sep, 2023
The racial wealth gap: How it started and how we can fix it
September 6, 2023
The racial wealth gap in the United States hasn’t changed in 70 years. CIFAR Azrieli Global Scholar Ellora Derenoncourt discusses how the gap came to be and what can be learned from history to eliminate it.
In 1860 before the abolition of slavery in the United States, the wealth gap between Black and white Americans was 60 to one. Following emancipation, that ratio dramatically fell — but has stagnated since 1950 at six to one.
“I call this a hockey stick shape of convergence, where it falls really rapidly first, and then levels out,” says Ellora Derenoncourt, a CIFAR Azrieli Global Scholar in the Boundaries, Membership & Belonging program. “We’re in that flat part of the hockey stick, where we can project forward and it’s not looking good. If anything, it’s actually increasing right now.”
As a labour economist and economic historian, Derenoncourt’s work focuses on inequality, understanding the history, convergence and future of the racial wealth gap. Her recent studies have examined the Great Migration’s effects on Black upward mobility and the role of federal minimum wage policy in closing the racial earnings gap during the Civil Rights Movement. She recently spoke to CIFAR to share her expert insights on what can be done to close the racial wealth gap in the U.S. and around the world.
For starters, Derenoncourt notes that while the gap has remained the same for 70 years, there are lessons to be learned from history. From the limited examples of reparations payments to Black Americans in U.S. history, economists have found that these payments not only closed gaps in one generation, but benefits spilled over to the next. The lessons from the evolution of racial wealth inequality in the U.S. and the role of history can be applied elsewhere across the globe, particularly in other post-slavery and post-colonial societies where racial and ethnic divisions were legally enforced and caused an unequal distribution of resources and opportunity early on.
Derenoncourt notes that interactions with other Global Scholars and Boundaries, Membership & Belonging members brought these similarities to light, for example, highlighting the relationship between caste discrimination and wealth accumulation in India, and racial gaps or divides between Indigenous and non-Indigenous communities in the Americas.
In contrast with wealth divides, when it comes to racial income gaps in the U.S., she argues, there have been more examples of policies that have been implemented and helped with reducing inequality. She points to the example of the expansion of minimum wage in 1967 to industries like restaurants and retail service. Within 10 years, the racial income gap fell to half its former size.
“In terms of the economics side of things, there was a clear way to answer the question of what the impact of that reform was,” she explains. “It turns out that it really did help close the Black-white earnings gap, because Black workers tended to earn less in those industries that were now covered by minimum wage law.”
There is a lesson to be learned from this, she says. “We know, at least historically, this was an important policy for closing this kind of disparity, and it should be on the table today.”
Insights like these from the past are why Derenoncourt likes to combine both economics and history in her research. “I feel like that’s where I can contribute, because then people who are trying to make decisions about a specific issue, whether it’s racial equity, or something else, can draw on this body of research and say, ‘alright, we have clear evidence that this can work and has worked in the past.’”
Currently, Derenoncourt is using this approach to better understand the determinants of racial inequality in the US, more specifically, to shed light on how that land of opportunity for Black Americans was lost and what policy choices were made that could have contributed to it. Looking ahead, she is joining Stanford’s Institute for Economic Policy Research to pursue this project among other pursuits.
“This is really one of the most pressing problems in our society to solve, this issue of inequality, and growing economies in a way that people aren’t left behind,” she says. That’s why she founded the Program for Research on Inequality at Princeton, which seeks to support the next generation by sponsoring graduate projects and introducing undergraduate students with an interest in social justice to economics.
“Hopefully, bit by bit, we bring more people into economics who care about this topic, so that we kind of shift the focus of economics a little bit, but also just make sure there’s a future stream of scholars working on the topic.”
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