This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the July/August 2013 issue of Dollars & Sense magazine.
at a 30% discount.
Black-White Income Differences: What’s Happened?
Dear Dr. Dollar:
There is a great deal of awareness of the general increase of income inequality in the United States. But what’s happened to the income inequality between African Americans and European Americans (“Black-White” inequality)?
—Andy Druding, Richmond, Calif.
With a president who is African-American and talk of a “post-racial” society, one might think that the economic position of African Americans relative to European Americans had improved significantly over the last 40 or so years. One would be wrong.
In 2011, the median income of Black households was about $32,000; that is, half of Black households had income above this figure, and half had incomes below this figure. This was 61.7% of the 2011 median income of White households. In 1970, before the general increase of income inequality, the figure was 60.9%, just a smidgen lower. Not much change. Also, there has been virtually no change if mean incomes are used for the Black-White comparison. (The “mean” is the average—the total income all households in the group divided by the number of households.)
This lack of change over the last 40 years might come as a surprise, contrary to visible indicators of improvement in the position of Black people. We see, for example, many Black professionals in fields where 40 years ago there were few. There are also more Black executives—even a few CEOs of major corporations. And there is Barack Obama. How do these visible changes square with the lack of change in the relative income positions of Blacks and Whites?
The answer to this question is largely that the distribution of income among Black households is very unequal, even more unequal than the distribution of income among White households. So many of the prominent Black people who appear to be doing so well are indeed doing well. At the other end are the Black households that are doing worse. Between 1970 and 2011, the upper 5% of Black households saw their average (mean) incomes rise from about $114,000 to about $215,000 (measured in 2011 dollars), while the incomes of Black households in the bottom 20% saw their average income fall from $6,465 to $6,379.
Among White households, the pattern of change was similar but not quite so extreme. The average income of the top 5% of White households rose by 83% in this period, as compared to the 88% increase for the top Black households—though that elite White group was still taking in 50% per household more than their Black counterparts. The bottom 20% of White households saw a 13% increase per household in their inflation-adjusted incomes between 1970 and 2011.
So high-income Blacks have done pretty well—even slightly improved relative to the top White households. They have to a degree benefited from the social changes of recent decades. But for a very large segment of the Black population, not only that bottom 20%, their relative position has gotten somewhat worse, and for many their absolute incomes have actually fallen. The long-term reduction of the minimum wage (in real terms) has had an especially harsh impact on low-income Blacks, and the weakening of labor unions has also harmed a broad swath of the Black community. Add the mass incarceration of young Black men and their consequent exclusion from the economic mainstream, and it is not hard to understand continuing Black-White inequality.
Two other points should be kept in mind: First, the changes between 1970 and 2011 have not been smooth. Measured by either the mean or the median, the income position of Black households relative to White households was fairly stable in the 1970s, fell off sharply in the early 1980s, and rose again to a peak in the late 1990s before falling off to its current level.
Second, income distribution is only one measure of economic inequality. The Great Recession had a devastating impact on the wealth of Black households, largely explained by the impact of the housing crisis (see Jeannette Wicks-Lim, “The Great Recession in Black Wealth,” D&S, Jan/Feb 2012). In 2004, the net worth of White households was about eleven times that of Black households (bad enough), about the same as it had been since the early 1980s (with a slight improvement in the mid-1990s). But by 2009, though both Black and White net worth fell from 2004, White net worth was 19 times Black net worth.
The more things change, the more they stay the same—or get worse!