Why Can’t We Close the Racial Wealth Gap?

If the college cheating scandal has reinforced anything, it’s that one of the primary advantages of being wealthy is that the wealthy can buy more advantages. This helps explain why African Americans, who’ve historically been denied wealth, lag in almost every category of society behind whites, who have long benefited from capital extracted from black labor and culture. It also helps explain why—despite a “booming” U.S. economy that is nearing full employment—a gigantic racial wealth gap remains. On average, white households have nearly 6.5 times the wealth of black households.

That gap can be ameliorated, though, by closing the earnings gulf between black and white workers, according to new research from two economists at the Federal Reserve Bank of Cleveland. In a commentary recently published on the Cleveland Fed website, economists Dionissi Aliprantis and Daniel Carroll argue that racial differences in income drive the wealth gap more than any other factor, including differences in financial savings practices, rates of return on investments, or even intergenerational transfers of wealth.