Uncredited/AP/Shutterstock
Large crowds gather at the Lincoln Memorial to demonstrate for civil rights in Washington, D.C. (1963)

CORE Insights Persistent racial inequality in the United States

The authors of this Insight are:
Eric Bottorff: Oakton Community College.
Trevon Logan: The Ohio State University.
Suresh Naidu: Columbia University.

1 November 2022

Highlights

  • Contemporary racial inequality in the United States is the product of a long historical process.
  • Persistent racial differences in wealth, wellbeing, and income are prominent features of the U.S. economy.
  • Following the Civil War, racial gaps in wealth and income began to diminish. This convergence stalled, however, starting in the 1970s, even as other measures of wellbeing continued to improve.
  • U.S. racial inequality is an instance of categorical or group inequality and contributes to inequality of opportunity and low economic mobility.
  • Three key mechanisms of persistent categorical inequality are segregation, discrimination, and political inequality.
  • These mechanisms create a positive feedback loop—a vicious circle—that perpetuates inequality.
  • Ending persistent racial inequality requires curbing all of these mechanisms.
  • Reducing the effect of one mechanism without addressing the others is unlikely to permanently eliminate racial inequality.

CORE Insights

Concepts in the insight are related to material in:

1 Introduction

freedmen
A once-enslaved person (of either gender) who is now free, that is, no longer enslaved.

In the late nineteenth century, Robert Smalls was the most successful politician from Beaufort county, South Carolina. Beginning as a state representative in 1867, he moved on to state senator, and then served as a congressman for most of the period between 1874 and 1887. At the same time, he invested in a local store for freedmen, a railway to serve Beaufort county, and a newspaper, the Beaufort Southern Standard.

These accomplishments are especially notable given that Smalls was born enslaved in 1839, and was still enslaved as late as 1861, which marked the beginning of the Civil War fought between the Confederate slave-owning Southern states and the anti-slavery Union states of the North, where slavery had been declared illegal. During the war, he was an enslaved pilot for a Confederate navy boat, the Planter. With his colleagues, he stole the ship and ran it to Union army lines (along with a lot of military intelligence on Confederate troops). His bravery made Smalls a national hero in the North, earned him some prize money, and got him an appointment in the Union Navy, piloting the Planter using his knowledge of the South Carolina coastline.

During the Civil War, Smalls used his money to purchase his family’s freedom. Next up was purchasing some land. As it happens, in Beaufort the Union army auctioned off land that had belonged to former slave owners, and Smalls was able to use his savings to buy his old master’s property. The land remained his, despite a lawsuit from the former owners, unlike much of the land redistributed during the Civil War, which ended up back in White hands. He also spent money on becoming literate but, despite his intelligence and talents, was reportedly never completely comfortable reading.

As a result of Smalls’ wealth and success, his children and grandchildren (and great-grandchildren) were solidly middle class and better off than most Black people. But despite all this advantage, he and his descendants still had to contend with American structures of inequality, with sometimes complicated effects. For example, one of Smalls’ granddaughters, Dolly, got a Master’s degree in physical education from Columbia University in 1953, paid for by the state of Maryland. Why? The state of Maryland was willing to pay for her degree since she was a public school teacher, but the University of Maryland system was still racially segregated, so the degree could only be obtained out of state.

A major question for social scientists, and one relevant to ongoing policy debates around reparations, is what racial inequality would look like today had there been more people like Robert Smalls; that is, if more freedmen had received some initial grant of wealth or land.

Besides Beaufort, there were a few other places where the formerly enslaved received some initial property, most famously the strip of coastal land where freedmen were promised 40 acres by Union General William Tecumseh Sherman’s Special Field Order 15. While exceptional, these provide a good natural experiment for economic historians to study the long-term effects of giving land to formerly enslaved people.

As is common in the U.S. we refer to people of African and European origin respectively as Black and White, terms that may not be appropriate in other societies.

An example studied by economist Melinda Miller is the Cherokee Nation. The Cherokee is a Native American tribe which was forcibly relocated to Oklahoma in the 1830s along the infamous “Trail of Tears,” where approximately 4,000 Cherokee died, as well as thousands from other tribes. At the same time, the Cherokee held enslaved Black workers who subsequently became part of the tribe and by 1860 made up 15% of Cherokees.

After the Civil War, the United States government renegotiated the Cherokee treaty in 1866 and guaranteed formerly enslaved people rights to claim land in the public domain, along with federal farming assistance and protection from having their property taken away by state or federal governments. Within the Cherokee Nation, formerly enslaved Black people were given property and assistance that was largely denied to Black people in the U.S. South. Fifteen years later, in 1880, Black Cherokees had a farm ownership rate five times higher than non-Cherokee Black people and owned farms at about the same rate as the rest of the Cherokee Nation. There were also smaller racial gaps in farm size and value in the Cherokee Nation compared to the rest of the South. In 1880, within the Cherokee Nation, Black farmers had 10% fewer acres and 23% higher farm values than non-Black farmers. However, in the rest of the South Black farmers had 40% fewer acres and 23% lower farm value than White farmers. All of this resulted in noticeably lower racial gaps in wealth and income among the Cherokees compared to the U.S. South.

Remarkably, this difference persisted through generations. Miller shows that in 1900, the gap in literacy and school attendance between Black and non-Black Cherokees was smaller relative to that among non-Cherokees. In other words, the smaller initial racial gap in wealth within the Cherokee Nation meant that, a generation later, gaps in other dimensions of economic opportunity, such as education, were smaller as well.

The experience of the formerly enslaved Black members of the Cherokee Nation remains an outlier in the U.S. In the rest of the South, most of the formerly enslaved started with little to no wealth or capital at all, even as many ex-slaveholders quickly recovered (or retained) much of their former wealth.

Figure 1 shows the White-to-Black ratio of wealth and income since the end of the Civil War.

There are two line charts. In line chart 1, the horizontal axis shows the years between 1860 and 2020. The vertical axis shows the ratio of White to Black wealth, and ranges between 0 and 60. The ratio plummeted from 55 in 1860 and 50 in 1863, the year of emancipation, to 10 between 1900 and 1930. It then steadily decreased to 5 by 2020. In line chart 2, the horizontal axis shows years between 1870 and 2020. The vertical axis shows the ratio of White to Black income and ranges between 1.0 and 4.0. The ratio was 3.5 in 1870 and decreased to 2.25 in 1950. It increased to 2.5 in 1960, it decreased to 2.0 in 1970, and fluctuated between 2.0 and 2.25 until 2020.

Figure 1 The ratio of average White to average Black wealth (left) and income (right) from approximately the end of the Civil War until the present.

Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick. 2021. “Wealth of two nations: the U.S. racial wealth gap, 1860–2020”. NBER Working Paper Series, No. 30101.

One of the most striking features of this figure is the rapid decline in the wealth ratio between 1860 and 1870. Formerly enslaved people started with very little wealth of their own, so even modest increases in their wealth dramatically decreased the wealth ratio. The figure also shows a consistent decline in the wealth and income ratios in the century following the end of the Civil War. However, the figure demonstrates relatively constant ratios since the late twentieth century, which are still far from parity, with White people having around six times as much wealth as Black people and around two times as much income. Finally, the graph on the left also demonstrates a slight increase in the wealth ratio in recent years.

Today much of the Black population is at least middle class with respect to income, whereas through much of the nineteenth and early twentieth century, most of them lived in poverty. However, if the middle class is defined by wealth (or by both income and wealth), then the size of the Black middle class is considerably smaller.

Although social scientists disagree on the relative importance of various explanations for enduring racial inequality in America, the fact that such inequality exists is uncontroversial.

  • As of 2019, the median White household had a net wealth of $189,100, whereas the median Black household had a net wealth of $24,100.
  • Median household income in 2020 was $74,912 for White households, $55,321 for Hispanic households, and $45,870 for Black households.
  • The unemployment rate in July 2022 was 3.1% for White people, 3.9% for Hispanic people, and 6.0% for Black people.
  • Between 1972 and 2021, Black unemployment was on average 2.1 times higher than White unemployment.
  • Before the COVID-19 pandemic, life expectancy for White people was four years higher than that for Black people. The pandemic has added an extra year to that gap. (As you continue reading this Insight, think about why that might be.)
  • Black men are six times more likely to be incarcerated than White men, and eight times more likely to be murdered.

Persistent racial inequality is among the U.S.’s most stubborn and harmful problems. This Insight outlines the mechanisms identified by social scientists that produce and sustain such racial inequality over generations as a way of identifying policies that might address the problem.

Question 1 Choose the correct answer(s)

Based on Figure 1, what can we conclude about the White–Black income ratio?

  • The largest drops occurred in the 1940s and 1960s.
  • The change in the ratio during the first 60 years is approximately equivalent to the change in the ratio during the last 60 years.
  • The ratio was approximately the same from the 1970s onwards.
  • There has been an overall downward trend in the ratio over the entire period shown.
  • One can clearly see that the slope of the line is negative and at its steepest during these two decades, indicating the largest rate of decrease.
  • The decrease in the ratio during the first 60 years was slightly less than 1, whereas in the last 60 years it has been around 0.3 or 0.4 overall.
  • From 1970 to 2010, the ratio fluctuated around the level of 2.1.
  • Although there is a consistent decline in the ratio between 1870 and 1950 (though the limited data likely hides some variability), since 1950 the ratio has alternated between slight increases and decreases, leading to an overall stabilization in the ratio.

2 Understanding persistent racial inequality

structural racism
A societal structure (laws, public policies, social norms, common beliefs) that have the effect of disadvantaging a particular racial group (also termed institutional racism). Also known as: institutional racism.
institutional racism
Also known as: structural racism.

Because of slavery, American ideas about race today still center on the Black–White dichotomy, even though the racial composition of the U.S. has always included other groups, such as Asians, Hispanics, and indigenous populations. For this reason, this Insight mainly focuses on the persistent inequality between Black and White Americans. Also, this Insight primarily concentrates on structural or institutional racism rather than the racial beliefs or prejudices that any individual might hold. Institutional racism is how the durable features of a social system—such as its laws, culture, norms, and organizations—systematically privilege some racial groups over others. We will explore three key mechanisms which create and allow persistent racial inequality: discrimination, segregation, and political inequality.

discrimination
The practice of treating people differently based on their membership, or perceived membership, in a group, such as race, class, gender, religion, or national origin.

Discrimination occurs when people from different groups are treated differently by laws and social norms. Racial discrimination can occur explicitly, when laws or rules are different for people of different groups, or implicitly, as the result of an unequal application of a formally equal rule or norm. One example of implicit discrimination is racial bias of officiating in professional sports. The rules of these sports are racially neutral, but many studies of multiple sports have shown that Black players are more likely to be penalized than White players for the same infraction.

Segregation occurs when different groups are associated with different residential locations, public spaces, and social networks. The racial segregation which characterizes U.S. regions, cities, and towns remains a key mechanism limiting Black economic mobility and opportunity.

political inequality
Restrictions on access of some groups to voting, political office, fair legal proceedings and other violations of the democratic idea of political equality whereby all citizens have an equal voice in decisions affecting everyone.

The final mechanism we analyze is political inequality: the deprivation of political rights and unequal protection under the law for Black individuals and communities. Without political power, it is exceedingly difficult for marginalized groups to influence the institutions needed to secure access to public goods and protect any economic gains, especially if they are starting from an already weak economic position.

Persistent group inequality: A vicious circle

positive feedback (process)
A process whereby some initial change sets in motion a process that magnifies the initial change.

In his 1944 book, An American Dilemma, the Swedish economist, sociologist, and Nobel Laureate Gunnar Myrdal argued that “cumulative causation”—a similar concept to “vicious circles”—was a key explanation for persistent racial inequality. Discrimination, segregation, and political exclusion, alongside other factors, operate as positive feedback processes in generating persistent racial inequality. Myrdal emphasized that addressing one of these without addressing the others would not make a sustained dent in racial inequality.

Figure 2 models the underlying idea as a “vicious circle,” along with a “virtuous circle” that characterizes the position of many White families.

In a vicious circle, negative stereotypes, beliefs, and attitudes about Black people give rise to discrimination, segregation, and relative lack of political power. These, in turn, lead to relatively low levels of income, wealth, and other indicators of wellbeing. As a consequence, negative stereotypes, beliefs and attitudes about Black people are reinforced. The circle repeats itself. In a virtuous circle, positive stereotypes, beliefs, and attitudes about White people give rise to preferential treatment, segregation, and relative abundance of political power. These, in turn, lead to relatively high levels of income, wealth, and other indicators of wellbeing. As a consequence, positive stereotypes, beliefs, and attitudes about White people are reinforced. The circle repeats itself.

Figure 2 Myrdal’s vicious circle of racial inequality.

We return to these positive feedback processes in Section 7, where we build a more detailed model of persistent racial inequality.

Find out more What’s wrong with racial inequality?

substantive judgements of fairness
Judgements based on the characteristics of the allocation itself, not how it was determined. See also: procedural judgements of fairness.
procedural judgements of fairness
An evaluation of an outcome based on how the allocation came about, and not on the characteristics of the outcome itself, (for example, how unequal it is). See also: substantive judgements of fairness.

We are interested in racial inequality not simply out of scientific curiosity, but also out of moral and political concern. But what makes racial inequality wrong? In Unit 5 of The Economy, we explained how to use efficiency and fairness as criteria for evaluating allocations, and learned the difference between substantive and procedural judgments of fairness. We can use those concepts to explore this question.

Racism and racial inequality limit the basic freedoms and assault the dignity of people, making it exceedingly difficult for everyone to interact on a basis of mutual respect.

Seen through an economic lens, racial inequality also can be seen as both inefficient and unfair.

In this Economist in Action video, Lisa Cook analyzes patents of Black and White inventors in the late nineteenth century in the U.S., and explains how different institutions can promote or kill innovation.

  1. Efficiency: By limiting Black people’s access to critical resources, the structure of U.S. society is limiting Black innovation and entrepreneurship (see video to the side) and failing to fully develop the talents and capacities of Black people to contribute to the economy. Racial inequality is thus a Pareto-inefficient outcome: both White people and non-White people could benefit if racial inequality were reduced.
  2. Fairness: Racial inequalities violate the principle of equality of opportunity, which holds that one’s religion, national origin, gender, race, parental wealth or poverty, and sexual preference ought not to matter for a person’s success in life.

Further, many people think that large inequalities in outcomes are unfair, including those between racial groups. The studies discussed in this Insight suggest that the U.S. fails to produce equality of outcomes in addition to equality of opportunity.

3 A brief history of explicit racial discrimination, segregation, and disenfranchisement in the U.S.

categorical inequality
Inequality between particular social groups (identified, for instance, by a category such as race, nation, caste, gender or religion). Also known as: group inequality.

Figure 1 showed that racial differences in wealth and income have fallen over time but are still a long way from disappearing, and there has been little progress in many respects since the 1970s. However, the U.S. economy has grown by roughly 2% per year on average for the last 200 years. Modern capitalist growth generates perpetual change and innovation, with new goods, services, and jobs every generation. How, then, can a society have both persistent economic growth and persistent categorical inequality? To answer these questions, we need to understand the historical roots of racial inequalities.

Racial inequalities in the U.S. originate from slavery and the colonization of the New World. The U.S. was colonized during the peak of the Atlantic slave trade and enslaved Africans composed roughly one-third of the early American population. While there was a wide variety of regionally specific practices, enslaved people were generally denied access to education and were subject to capricious violence and sexual assault, and slave trading resulted in widespread family separations. Slavery gave rise to a legal structure identifying enslaved people as property and a racial ideology justifying unequal treatment, which long outlasted slavery itself.

The U.S. Civil War lasted from 1861 to 1865 and the abolition of slavery in 1865 marked an end to the starkest form of institutionalized discrimination but left a Black population that, while free from legal bondage, faced considerable discrimination and economic hardship.

Reconstruction

Economists have studied how the abolition of slavery affected slaveholders’ children and grandchildren. Among White people with ancestors of similar wealth, having a slave-owning parent or grandparent in 1860 had few negative effects in 1900. The descendants of slave owners retained access to education, political rights, and social networks that gave them the tools to recover their ancestors’ relative economic standing.

The Reconstruction era, which lasted from approximately 1865 to 1877, was a political effort following the end of the Civil War to address post-slavery inequalities, rebuild the South, and reunite the country. However, the pre-Civil War South was politically and economically dominated by a relatively small group of wealthy plantation and business owners, whose wealth and power were threatened by the prospect of Black economic and political rights. Despite a brief flourishing of Black political and economic power, there was harsh resistance by Southern White people especially and Reconstruction efforts failed to create lasting change or meaningful political protections for recently freed Black people.

Land Acts were a series of laws passed by Congress in the nineteenth century that allowed individuals to either buy land from the federal government or earn it through military service.

The denial of basic civil and political rights ensured that Black people were vulnerable to violence and exploitation and that policies that could address racial inequality were never realized. With no reliable way to press their interests in government or the courts, Black people were systematically excluded from a variety of important government programs and public goods. While White Southerners were able to gain land via Land Acts, public land sales, and lotteries for land taken from Native American tribes, Black people had no share in this wealth redistribution.

vigilante violence
Violence inflicted on others by private individuals who claim to be enforcing local social norms or laws, thereby taking law enforcement into private hands.

Many forms of power were deployed to ensure White dominance and control. Vigilante violence, which, unlike criminal violence, is tacitly supported by (and often involves the participation of) law enforcement, was instrumental in ending Reconstruction, reinforcing White rule, and limiting Black economic growth. As Charles E. Cobb Jr, the historian, writes, “Reconstruction did not fail; it was destroyed, crushed by more than a decade of savage campaigns of violence carried out both by the local governments that had remained intact and by vigilante terrorists. Lynchings and other forms of mob violence were the instruments of Reconstruction’s brutal death.”1

In his monumental study, Black Reconstruction in America, W. E. B. Du Bois, the sociologist, summarized the tragedy of Reconstruction with the famous line, “The slave went free; stood a brief moment in the sun; then moved back again toward slavery.” Employing violence, intimidation, nominally race-neutral legislation, discriminatory enforcement, and exploitation of the economically precarious position of newly freed Black people, White people were able to swiftly regain control of Southern institutions.

Jim Crow laws

The Jim Crow regime was a set of laws and social norms that institutionalized racial discrimination and segregation. Most Jim Crow laws were passed in the South prior to 1900, while outside the South the majority were passed after 1900. These laws lasted from roughly the end of the Civil War until 1968 when the legislative achievements of the Civil Rights Movement brought the Jim Crow era to a close.

Jim Crow laws were the primary means for White people to recreate the pre-Civil War economic and racial hierarchy. Approximately 290 laws were passed by states between 1870 and 1940, imposing segregation in education, voting, and public accommodations.

The segregation and strict hierarchy this created impacted every aspect of life. With segregated schools, hospitals, libraries, buses, restaurants, and other facilities, Black people living in the same cities and towns as White people had access to far fewer resources, opportunities, and consumer choices. According to Adolph Reed Jr, the historian: “The point was not to remove [Black people] from the mainstream economy but to enforce their subordinate position within it.”2

Latimer, Morgan, and Woods were all important Black inventors. Latimer helped develop the telephone and made important contributions to commercial lighting. Morgan made improvements to traffic signals, created an early version of a gas mask, and invented a hair straightening product. Woods held more than 50 patents, was the first Black mechanical and electrical engineer after the Civil War, and did important work on trains and streetcars.

One example of the disruption caused by Jim Crow laws was the segregation of social networks related to invention. Fairs, where information was exchanged and social and financial connections were made, were critical for bringing inventions to market. During this period, Black inventors were not able to fully participate in the fairs and were confined to “Negro days” or “Negro buildings.” This lack of access to networks made it more difficult to build and earn wealth from one’s creations.3 Even Black “great inventors,” such as Lewis Latimer, Garrett Morgan, and Granville T. Woods, were subjected to this lack of access.

Another example is anti-miscegenation laws, which prohibited cross-race marriages, and worked alongside strong, violently enforced social norms against cross-race relationships. These laws and norms helped ensure that marriages and partnerships would be racially segregated, and so racial categorization would be transmitted intergenerationally.

Sharecropping was a practice in which a landlord would allow tenants to use their land in return for a share of the harvest (or crop) they produced. In the U.S. South, sharecroppers’ labor market competition and mobility were severely limited. For example, “anti-enticement” laws, similar to “non-compete” clauses in today’s labor contracts that prohibit employees from quitting and working for any of their employer’s competitors, limited sharecroppers’ options and thus their bargaining power. However, some sharecroppers were able to save enough of their income to buy their own land, contributing to the convergence in the Black–White wealth gap seen in the introduction.

Jim Crow laws also severely limited geographic mobility. This limited mobility, combined with low levels of income and wealth, made it difficult for Black people to move out of the South for many decades. After the Civil War, the economies of the South and North diverged sharply: while the North enjoyed the emergence of a booming manufacturing sector, the South was still largely dependent on agriculture. In 1900, the average income in the South was only half that of the national average. Newly freed Black people largely ended up living in the cotton-growing regions of the South, often as sharecroppers and were thus disproportionately harmed by the relatively weak Southern economy.

Jim Crow laws also affected educational outcomes. Education in the South was segregated and differentially funded, leaving the majority of the Black population attending schools that were underfunded, both relative to the nation as a whole and relative to schools for White students. Black Southerners were thus prevented from developing economically useful skills and knowledge, compared to White people and Black Northerners.

A poll tax (also called a “head tax”) is levied on all adults. In many U.S. states, showing evidence of having paid the poll tax was required for voting, making voting very costly for the poor.

Furthermore, the end of Reconstruction and the rise of Jim Crow restrictions on Black voting signaled the end of Black political participation in the South. Subsequent laws on labor mobility, wages, and workers’ rights were thus crafted in non-democratic processes. Part of what enabled racial discrimination to persist was racially targeted restrictions on the right to vote—most notably poll taxes (taxes to be paid in order to be eligible to vote) and literacy tests—which rendered the U.S. a very limited democracy at best until the 1960s. Despite making up a significant proportion of the South’s population in the early twentieth century, Black communities had no formal political power due to disenfranchisement and voter intimidation. Without the power of the ballot box, Black Southerners remained subjected to overtly racist policies that constrained their economic opportunities.

The Tulsa Race Massacre and other violence

Violence against Black communities continued long after Reconstruction. Lynching was tolerated, and even encouraged, by the culture prevailing in the South, and ideologies encouraging such violence spread throughout the country.

To find out more about what happened during the Tulsa Race Massacre, read this New York Times article.

This violence also extended to mob attacks on economically successful Black communities, the most infamous case being the destruction of the prosperous Black Greenwood community known as America’s “Black Wall Street” during the Tulsa Race Massacre in 1921. White mobs, many of whom had been given weapons by the city, attacked the prosperous Black neighborhood following an alleged attack on a White teenager by a Black teenager. Over 35 square blocks were burned, likely between 100 and 300 people were killed, more than 800 were hospitalized due to injuries, 8,000 to 10,000 were left homeless, and more than 6,000 Greenwood residents were eventually detained in internment camps.

Violence against Black people that resulted in devalued, destroyed, or confiscated property was commonplace and widespread. It was also used to drive Black people entirely out of some towns, leading to many all-White “sundown towns,” where Black people were either formally or informally unwelcome after dark. Similarly, in large cities, violence by White gangs was often used to maintain strict racial boundaries between neighborhoods.

The New Deal and postwar policies

Between 1916 and 1970, opportunities to move out of the South opened up. Approximately six million Black Southerners moved to the North, usually to large urban areas, in what is now known as the Great Migration. This massive departure from the South, unfortunately, did not protect Black people from discrimination or segregation, which persisted across the country.

White politicians committed to segregation thwarted efforts designed to mitigate racial segregation and inequality, such as the building of the model city Soul City, NC, which attempted to attract Black people from poor and segregated urban areas in the North. Black people were also mostly excluded from New Deal and World War II public policies, which were largely responsible for creating a White American middle class. Since President Roosevelt needed support from Southern Senators to pass New Deal legislation, the compromise was to ensure that New Deal programs did not seriously threaten Jim Crow institutions. Ira Katznelson, the historian, has thus described these New Deal and postwar policies as “affirmative action for Whites.”4

The Servicemen’s Readjustment Act of 1944 (also known as the G.I. Bill) was one example of a federal policy that helped the growth of a White middle class while mostly excluding Black people. The G.I. Bill provided benefits to many veterans returning from World War II, including healthcare, affordable access to skills training and higher education, and loans to help in the purchasing of a house. While the G.I. Bill did result in some educational advances for Black people, most American colleges and universities were closed to them or open only to a few Black students. This limited the ability of historically Black colleges and universities (HBCUs) to accommodate the education and housing needs of Black veterans.

The creation of the Federal Housing Administration (FHA) in 1934 was another example. During the Great Depression, the FHA aimed to bolster the economy through increased homeownership by providing government insurance for mortgages, ushering in the modern mortgage system of low-interest rates and small down payments.

The policies that determined eligibility for FHA loans disadvantaged Black people because they drew heavily on the racial prejudices which were prevalent in the real estate industry at the time. For example, properties within a given neighborhood had to be occupied by the same social and racial classes to avoid instability and a reduction in housing values. Existing creditworthy (mostly White) neighborhoods that wanted financial assistance from the FHA were thus encouraged to erect restrictive barriers to prevent Black people from entering and/or limit their proximity to Black neighborhoods. Meanwhile, current or prospective residents of Black neighborhoods could rarely get such loans, which meant higher interest rates, higher down payments, and thus high debt levels for Black homeowners.

In contrast to aspiring Black homebuyers, these New Deal programs were a huge opportunity for White households to build wealth through homeownership. Like the G.I. Bill in education, FHA-backed mortgages and loans allowed many White families to move from urban areas into new single-family homes in the suburbs, a phenomenon now known as “White flight.”

redlining
The practice of denying housing loans, or only offering unduly expensive loans, for houses in certain neighborhoods, regardless of how creditworthy the borrowers are.

Figure 3 shows the racial disparities in creditworthiness and access to FHA-backed mortgages, based on maps drawn by the FHA and the Home Owners’ Loan Corporation (HOLC), another New Deal agency. Aside from average income, unemployment rates, and the condition of houses, race was an important factor determining creditworthiness. Neighborhoods which were majority Black (or trending in that direction) were given the lowest rating, the color red. This process of excluding whole neighborhoods from affordable home financing options due to their racial composition is thus known as redlining.

There are two maps of Chicago. One map shows residential security of Chicago neighborhoods in 1940, with four levels of neighborhood desirability: best, still desirable, definitely declining, hazardous. The other map shows racial distribution in Chicago in 1940.

Figure 3 Two maps of Chicago. On the left, we have the HOLC appraisal map, and on the right, we have a map showing where the Black population of Chicago lived in 1940.

University of Richmond’s Digital Scholarship Lab. 2022. “Mapping Inequality”.. Updated 15 June 2022; Radical Cartography. 2022. “Racial Distribution, 1940. City of Chicago”. Updated 15 June 2022.

The process of redlining followed Black families and communities wherever they went. Their mere presence in a neighborhood downgraded the credit rating in the eyes of realtors, White neighbors, banks, and government agencies. It also indirectly led to widespread discriminatory practices by White realtors, such as contract buying, where realtors would not give ownership rights to Black buyers until the entire mortgage was paid off. These Black homeowners thus could not use their housing wealth to secure credit and, worse, were far more vulnerable to eviction.

It was not until 1968, with the passage of the Fair Housing Act, that racial discrimination in the rental or sale of housing was prohibited. Mortgage discrimination, however, was legal until 1974, and redlining was not barred until 1977. Exercise 4 (Section 4) invites you to compare the map of historical redlining and contemporary racial composition for a city of your choice.

The Civil Rights Movement

The Civil Rights Movement was a mass social movement in America during the 1950s and 1960s that fought against institutional racial discrimination, disenfranchisement, and segregation.

A few key milestones of the movement are:

disparate impact
Occurs when policies, practices, or other institutions that appear to be broadly neutral nonetheless have a disproportionate impact on a group or groups, specifically groups that have historically been oppressed, marginalized, or heavily discriminated against.
  • The Supreme Court Decision in Brown v Board of Education in 1954, which found imposed racial segregation in schooling to be unconstitutional, and the follow-up decision in 1955 which ordered states to desegregate schools “with all deliberate speed.”
  • The Civil Rights Act of 1964, which outlawed discrimination based on race, religion, sex, and national origin across society, with specific sections of the bill targeting racial discrimination and segregation in voter registration, public accommodations, public schools, and employment.
  • The Voting Rights Act of 1965, which prohibited racial discrimination in voting and contained numerous provisions to enforce the voting rights contained in the constitution.
  • The Civil Rights Act of 1968, which extended many constitutional protections to Native Americans, and also contained what is commonly known as the Fair Housing Act, which barred discrimination in the housing and rental markets.
  • Loving v Virginia, a Supreme Court decision of 1967 that found laws banning cross-race marriage unconstitutional.
  • Griggs v Duke Power Company, a Supreme Court decision of 1971 that found disparate impact discrimination by employers to be illegal under the provisions of the Civil Rights Act of 1964.

Although these Supreme Court decisions and acts of Congress applied to the entire nation, progress was most dramatically felt in the South, which finally saw the end of the Jim Crow regime and a surge in Black voter registration and formal political participation. Figure 4 shows how these changes resulted in broad gains in wellbeing, particularly for Black Southerners, who were initially much poorer than Black people in other U.S. regions.

There are two line charts. In line chart 1, the horizontal axis shows years between 1900 and 2020. The vertical axis shows life expectancy at birth, in years, and ranges between 30 and 85. Life expectancy for White people increased from 47 years in 1900 to 70 in 1964, the year of the Civil Rights Act, and to 80 by 2020. Life expectancy for Black people increased from 33 years in 1900 to 64 in 1964, and to 75 by 2020. In line chart 2, the horizontal axis shows years between 1950 and 2025. The vertical axis shows the median Black male income in 2020 dollars, and ranges between 5,000 and 40,000. In the Northeastern U.S., income oscillated between 25,000 dollars and 35,000 dollars throughout. In the Midwestern U.S., it oscillated between 25,000 dollars and 32,000 dollars throughout, with a peak at 37,000 dollars in the late 1960s/early 1970s, and a trough at 20,000 dollars in the late 1980s.

Figure 4 On the left is the life expectancy at birth in the U.S. by race. On the right is the median Black male income by geographic region, showing a convergence between the South and other parts of the country starting in 1960.

Centers for Disease Control and Prevention. 2019. “National Center for Health Statistics”; Gavin Wright. 2013. Sharing the Prize. Harvard University Press.

Other notable improvements due at least in part to the efforts of the Civil Rights Movement include:

  • Rising approval rates for Black–White marriages, as recorded by polls. Whereas in 1969, only 17% of White people and 56% of Black people approved of Black–White marriage, by 2021, 94% of the U.S. population approved of Black–White marriages.5
  • A sharp decline in the Black infant mortality rate from 1965 to 1975, especially in the rural South, which saw a fall of infant mortality from about 4.5 infant deaths per 100 births to about 2.5 per 100.6
  • Poverty rates in the South fell from 35.6% in 1960 to 16.4% in 2010, which was the largest regional decrease in the nation over that time period.7
  • In 1960, high school graduation rates were 21.5 percentage points higher for White people compared to Black people. In 2021, the difference was only 4.3 percentage points.8
  • Increased Black representation in government. For example, in 1965, there were five Black members of the House of Representatives, no Black senators, and no Black governors. By 2021, there were 57 Black members in the House (roughly on par with the percentage of Americans that are Black), three Black senators, and no Black governors.9

The Civil Rights Movement undoubtedly led to substantial improvements for the Black community. However, we saw in Figure 1 that although the wealth gap declined during the 1960s, it subsequently flattened out and has even risen in recent decades. Various forces which have led to increases in inequality generally over the past 50 years have also served to increase between-group inequality (for example, Black–White income gaps and wealth gaps).

Having discussed the ways that past policies and behavior explicitly stymied Black economic mobility, we now examine how current policies and norms explicitly or inadvertently do the same. This will provide a basis both for modeling these persistent inequalities and for understanding how to craft policies to reduce them.

4 Racial discrimination today

Discrimination remains pervasive in the U.S. today, affecting everything from policing to online dating to healthcare to media coverage to how much a server gets tipped. We focus on three markets which are especially important in limiting Black economic mobility: labor, credit, and housing.

Labor market discrimination

Figure 5 shows persistent and large racial gaps in income and unemployment.

The extent of racial inequality in outcomes is understated in labor market data because of the large number of Black people who are in prison. As detailed in this article, since these individuals are not counted in labor market surveys, the extent of Black joblessness is understated in the statistics.

There are two line charts. In line chart 1, the horizontal axis shows years between 1965 and 2020. The vertical axis shows the real median household income in 2018 U.S. dollars, and ranges from 0 to 100,000. Income for White, non-Hispanic people rose from 60,000 dollars in the early 1970s, to 75,000 dollars in 2020. Income for Black people increased from 30,000 dollars in the late 1960s to almost 50,000 dollars in 2020. Income for Hispanic people of any race increased from 41,000 dollars in the early 1970s to 55,000 dollars in 2020. Income for Asian people increased from 70,000 dollars in the late 1980s, to almost 100,000 dollars in 2020. Overall, the income of all races increased from 50,000 dollars in the late 1960s to 70,000 dollars in 2020.
There are two line charts. In line chart 1, the horizontal axis shows years between 1965 and 2020. The vertical axis shows the real median household income in 2018 U.S. dollars, and ranges from 0 to 100,000. Income for White, non-Hispanic people rose from 60,000 dollars in the early 1970s, to 75,000 dollars in 2020. Income for Black people increased from 30,000 dollars in the late 1960s to almost 50,000 dollars in 2020. Income for Hispanic people of any race increased from 41,000 dollars in the early 1970s to 55,000 dollars in 2020. Income for Asian people increased from 70,000 dollars in the late 1980s, to almost 100,000 dollars in 2020. Overall, the income of all races increased from 50,000 dollars in the late 1960s to 70,000 dollars in 2020.

Figure 5 The top panel shows the real median income for each racial group counted by the U.S. Census Bureau. The data is presented in 2018 dollars. The bottom panel shows the ratio of Black to White unemployment.

Top: U.S. Census Bureau. 2022. Current Population Survey, 1968 to 2019 Annual Social and Economic Supplements. Bottom: Authors’ calculations from U.S. Bureau of Labor Statistics and Federal Reserve Bank of St. Louis. 2022. FRED.

Racial discrimination in the labor market helps produce and perpetuate these income and employment gaps. We define labor market discrimination as a situation where people are denied jobs, denied promotions, paid less, or treated unfairly based on factors unrelated to their productivity, such as race, gender, sexuality, age, and religion.

The racial gaps are not only the result of discrimination. Significant racial gaps in social networks, education, and skills could partly explain these racial gaps, but racial discrimination is an important and distinctively inefficient contributor to racial inequality: it prevents people who could do a job as well or better than others from being hired.

To understand the extent of discrimination, Figure 6 examines Black–White gaps between workers with similar levels of education. There are significant differences in unemployment and wage levels between Black and White workers with the same level of education. The unemployment rate for White workers with no more than a high school degree is only slightly higher than that for Black workers with a college degree. Apart from those who did not graduate high school, the wage gap for workers of the same education level has actually increased since 1979!

There are two bar charts. Bar chart 1 shows the annual average unemployment rate for Black people and White people with five different education backgrounds. Unemployment rate is, respectively: 10% and 20% for White and Black people with less than high school education; 5% and 10% for White and Black people with high school education; 4% and 6% for White and Black people with some college education; 3% and 4.5% for White and Black people with college education; 3% and 3.5% for White and Black people with advanced education. Bar chart 2 shows the Black–White wage ratio in 1979 and in 2017 for people with five different education backgrounds. The wage ratio in 1979 and 2017 is, respectively: 88% and 87% with less than high school education; 88% and 80% with high school education; 90% and 80% with some college education; 85% and 79% with college education; 88% and 80% with advanced education.
There are two bar charts. Bar chart 1 shows the annual average unemployment rate for Black people and White people with five different education backgrounds. Unemployment rate is, respectively: 10% and 20% for White and Black people with less than high school education; 5% and 10% for White and Black people with high school education; 4% and 6% for White and Black people with some college education; 3% and 4.5% for White and Black people with college education; 3% and 3.5% for White and Black people with advanced education. Bar chart 2 shows the Black–White wage ratio in 1979 and in 2017 for people with five different education backgrounds. The wage ratio in 1979 and 2017 is, respectively: 88% and 87% with less than high school education; 88% and 80% with high school education; 90% and 80% with some college education; 85% and 79% with college education; 88% and 80% with advanced education.

Figure 6 Wages by education and race. The top panel shows the annual average unemployment by race and education in 2017. The bottom panel shows the Black–White wage ratio by different education levels, for the years 1979 and 2017.

Figure 6 suggests the presence of labor market discrimination. Black workers will on average have more difficulty finding employment than similarly educated White workers, and those with at least some college education will also likely have a tougher time finding work than slightly less-educated White workers. Also, the inequality between similarly educated Black and White workers means that policies directed only at equalizing educational levels are insufficient to eliminate racial wage and employment gaps.

In the box below, you can learn more about how social scientists have used field experiments to show the existence and extent of racial discrimination in the labor market. One recent study found that the extent of anti-Black discrimination has not changed at all since 1989. While it is impossible for individuals to randomize their own racial identity while seeking jobs, these experiments try to approximate, using trained testers and fake resumes, what might happen if we could. By holding other relevant factors constant, such as education, work history, and ability, researchers can better narrow in on the specific effect of race in a given market or interaction.

How economists learn from facts Using field experiments to detect discrimination

audit study
A type of field experiment in which trained individuals called auditors pretend to apply for a service or enter a marketplace to test for discrimination. To do this they pretend to have matching characteristics, except for the one being tested. Audit studies can also be done without trained auditors by using fictitious applications submitted online or via the mail.

An audit study in the labor market is a study where an experimenter sends out equally qualified candidates, who differ only in their category or group membership, to look for a job and record the results. Similar studies have been used to examine discrimination in a variety of contexts, including housing markets, credit markets, and eBay auctions.

One example of this approach is a study published in 2004 by the economists Marianne Bertrand and Sendhil Mullainathan.10 They sent out 5,000 fake resumes to 1,300 job postings in Chicago and Boston. The resumes were either “high-quality” (more job experience and education) or “low-quality,” with all the resumes in each group being otherwise the same. Each resume was randomly assigned either a “White-sounding” name, such as Brad or Laurie, or a “Black-sounding” name, such as Keisha or Tremayne. The authors found that a “low-quality” resume with a White-sounding name was more likely to get a callback from the employer than a “high-quality” resume with a Black-sounding name. Furthermore, raising the education level on the resume generated more callbacks for White-sounding names, but not for Black-sounding names.

The sociologist Devah Pager and her colleagues ran a similar set of studies. She and her team trained auditors to go out on the streets of Milwaukee and New York City to hand out resumes and fill out applications. In this case, everyone had the same resume, and the only differences were the race of the person physically handing in the application and whether or not they had a criminal record. Figure 7 shows the results of the experiment in each city. A White man with a criminal record is more likely to get called back or offered a job than a Latino or Black man without one, despite their resumes being otherwise identical.

There are two bar charts. Bar chart 1 shows the percentage of Black and White people with and without criminal records that were called back. Of the Black people, 5% with a criminal record and almost 15% without a criminal record were called back. Of the White people, 16% with a criminal record and 34% without a criminal record were called back. Bar chart 2 shows the proportion of positive responses for three different groups of people. The positive response is 17% for White felons, 15% for Latino people with a clean record, and 13% for Black people with a clean record.

Figure 7 Audit study results from Milwaukee (left) and New York City (right) showing notable discrimination against Black applicants with a criminal record. (Note: “positive response” means that the applicant was either offered the job or called back for a second interview, depending on the hiring process for that job).

Left: Devah Pager. 2008. Marked: Race, crime, and finding work in an era of mass incarceration. Chicago, IL: University of Chicago Press. Right: Devah Pager, Bart Bonikowski, and Bruce Western. 2009. “Discrimination in a low-wage labor market: A field experiment”. American Sociological Review, 74 (5): pp. 777–799.

Economics Nobel Laureate James Heckman provides a critical assessment of audit studies and other measures of discrimination.

More recently, Patrick Kline, Evan Rose, and Chris Walters ran an audit study on a very large scale, sending out over 80,000 applications to more than 100 of the largest American companies, before, during, and after the Black Lives Matter (BLM) protests of 2020. The large set of applications means that the researchers obtained precise estimates of firm-specific discrimination. While the BLM protests led to slightly less racial discrimination while the protests were happening, there was little persistent impact on differences in callback rates by race. The authors also found that there is considerable variation in discrimination across firms and industries. These findings can help anti-discrimination efforts, including legal prosecution to better target firms and practices.

Exercise 1 Analyzing audit studies

Read pages 114–117 of this paper by the sociologist Devah Pager, in which she responds to some of James Heckman’s criticisms of audit studies. (You may find it helpful to read Heckman’s assessment of audit studies.)

  1. Briefly summarize her response. Do you find her response persuasive? Why or why not?
  2. Can you think of any other limitations or problems with audit studies that are not mentioned but that you think are important?

Exercise 2 Creating an audit study

Design a hypothetical audit study to measure racial discrimination in a particular market that’s interesting to you. In your description, make sure to address the following points:

  • How would you make sure that the information people receive about race is randomized in the study?
  • How would you ensure that the information about race was not communicating some other important information?
  • What would you measure as outcomes?

Labor market discrimination is not just about whether a person does or does not get a job, but also about what kind of job they are offered, how much they are paid, and how they are treated once they are employed. An important finding from audit studies is that Black workers are more likely to be recruited into lower-paying work than they applied for, whereas the opposite is the case for White workers.11 Similarly, Black workers are more likely than their White counterparts to be fired or demoted for the same mistake and are generally more surveilled than their White counterparts. Discrimination in promotions also tends to get stronger as one moves up the firm hierarchy, so Black–White disparities are higher in the front office than the shop floor.

Another form of discrimination which occurs in labor markets is disparate impact, which occurs when policies, practices, rules, or other institutions that appear to be racially neutral result in a disproportionate impact on some racial groups. It was first recognized as a form of discrimination in the 1971 Supreme Court decision Griggs v Duke Power Company. Duke Power Company required that applicants to certain positions—ones reserved for White employees prior to the Civil Rights Movement—must have a high school diploma or pass certain exams. These requirements did not mention race, but nonetheless affected Black workers disproportionately given the unequal educational opportunities in that region. The Supreme Court found this requirement to be discriminatory in intent and illegal because it had little relationship to an applicant’s ability to do the job.

Exercise 3 Labor discipline model and discrimination

  1. Using the labor discipline model from Unit 6 of The Economy, show how you think the existence of racial discrimination affects the best response curve for Black workers as compared to White workers. How does it affect their reservation wages and their levels of effort?
  2. How might firm owners benefit from engaging in discrimination? How might they benefit from racial divisions or animus among workers, or even benefit from encouraging these divisions?

Credit market discrimination

collateral
An asset that a borrower pledges to a lender as a security for a loan. If the borrower is not able to make the loan payments as promised, the lender becomes the owner of the asset.

Imagine that a White and a Black entrepreneur with similar skills, education levels, and wealth had similar ideas for a small business. Both were able to secure a loan to start their businesses, but the Black entrepreneur had to pay a higher interest rate on the loan than the White one. Despite the added financial burden, the loan was manageable for a while. However, when a recession hit, both businesses needed a new round of loans to stay afloat. The White business got their loans, survived, and was able to expand after the recession passed. The Black business was unable to secure a loan and consequently failed, the owner going bankrupt. The White business continued to succeed, and the owner was able to pass on some of that wealth to their equally entrepreneurial child. With this wealth, their child was easily able to secure a loan for their own business and become even more successful than their parents. The Black owner, however, was left with little to no wealth to pass on to their child, who, despite also being entrepreneurial, lacked the collateral to secure the necessary loan. (See Unit 10 of The Economy for the role of collateral in a person’s ability to borrow to fund a risky project.)

Stories like this play out on a regular basis in the credit market and highlight how the consequences of credit market discrimination, in the form of accumulated wealth and the ability to take on risky projects, can endure well past one’s lifetime, thus becoming an intergenerational process.

Racial discrimination is pervasive in the credit market.

  • Black people are less likely to be approved for a credit card and more likely to have a lower limit on their cards compared to similar White borrowers.12
  • A 2017 audit study of car loans found that 62.5% of the time non-White consumers with above-average loan qualifications were nonetheless offered more costly loans.13
  • Black-owned firms are more likely to be denied loans, given insufficient loans, or given higher interest rates than equivalent White firms.14 For example, Black-owned firms received loans that were 50% smaller on average than similar White-owned firms in the allocation of funds from the Paycheck Protection Program, which was created to aid businesses suffering from the economic consequences of the COVID-19 pandemic.15
  • Black people are less likely than White people to be approved for bankruptcy and thus find it harder to escape debts. A study of bankruptcy filings nationwide found that “for people residing in majority Black zip codes who file for bankruptcy, the odds of having their cases dismissed … were more than twice as high as those of debtors living in mostly White zip codes,” even after controlling for income and assets.16
If White borrowers enjoy low levels of income and wealth, it means that they are going to be credit constrained or excluded. In turn, this causes them to have low levels of income and wealth. The circle reiterates itself. If Black borrowers face racist stereotypes, this causes racial discrimination in the credit market, which leads to credit constraints or exclusion. In turn, this relegates them to low levels of income and wealth, which reinforces both the racist stereotypes, and the credit constraints and exclusions. The circles reiterate themselves.

Figure 8 Vicious circles of credit constraint and exclusion.

Figure 8 shows how racial gaps in income and wealth are both cause and consequence of credit market discrimination and cumulate across generations. It shows that eliminating discrimination in the credit market alone would not have lasting long-term effects. As long as racism continues to characterize other institutions, the relatively lower levels of income and wealth for Black people would hamper access to credit and reinforce racial stereotypes, resulting in the re-emergence of racial discrimination in the credit market.

Housing market discrimination

In the first quarter of 2021, Black homeownership was around 45%, compared to 74% for White homeownership. Since homeownership is the most important source of wealth-building for most Americans, differences in the level of homeownership and the racially unequal manner in which homes are valued are important components of racial wealth gaps today, particularly among the middle class.

The end of legal discrimination in the mortgage and housing markets did not mean the end of discrimination or exclusionary policies. One recent study found that racial gaps in lending costs and mortgage loan denials have remained virtually unchanged over the past 40 years.17 In place of racially restrictive covenants, zoning laws (for example restrictions on the kinds of houses that can be built in particular areas) are often used to maintain current patterns of segregation.

Non-Black homebuyers are still reluctant to purchase (or stay in) a home in a predominantly Black neighborhood, which has a depressing effect on prices. A study by the Brookings Institute found that the average home in a majority Black neighborhood is undervalued by $48,000, which is equal to about 33% of the average net wealth for Black households.18 Black homebuyers are also sometimes understandably resistant to buying or searching for a home in a wealthier White neighborhood out of fear of how they will be treated by its residents or the realtor, highlighting the way that expectations of discrimination can be as important as discrimination itself in sustaining housing segregation.

Discrimination is also widespread in the rental market, with one recent study finding that managers of rental properties were on average more than 30% less likely to respond to inquiries from Black renters compared to White renters. That average, however, masks a lot of variation, as anti-Black discrimination is a more serious problem in cities with higher levels of racial segregation.19

Exercise 4 Redlining and contemporary integration

As explained in the previous section the process of excluding whole neighborhoods from affordable home financing options due to their racial composition is known as redlining.

The website Mapping Inequality has made available all the HOLC redlining maps from around the country. Pick a major American city and click on it. You will be able to examine a detailed HOLC map. (For the curious, you can click on individual neighborhoods to see why they were given the color they were.) In another tab on your browser, open up the Racial Dot Map for that same city.

  1. Do a side-by-side comparison between the redlining map and the current racial composition of the city. Are areas that were redlined on the HOLC map still largely inhabited by Black or other non-White groups? Are the areas that received high (green or blue) ratings still mostly White?
  2. Using the website Rich Blocks Poor Blocks in conjunction with the other maps, how are home-buying loans, income, education, and owner-occupancy correlated with race and a history of redlining?
  3. What do your answers above suggest about the lingering or long-term effects of discriminatory lending policies?

Question 2 Choose the correct answer(s)

Using the information in Figure 6, read the following statements about Black and White differences in wages and unemployment and select the correct one(s).

  • The ratio between White and Black unemployment in 2017 varied substantially depending on level of education.
  • Within each race, those with higher education are more likely to find employment.
  • Across most educational categories, the Black–White wage ratio decreased between 1979 and 2017.
  • A Black college graduate seeking work in 2017 was on average more likely to be unemployed than a White worker with a high school degree and no college experience.
  • If you determine the Black–White unemployment ratio for each level of income, they are all relatively close to two.
  • For both Black and White workers, unemployment rates decrease as they gain more education.
  • The small increase in the ratio for those with no high degrees is outweighed by the substantial decrease in every other category.
  • The unemployment rate for Black college graduates was 4.1% whereas the unemployment rate for White people with no more than a high school degree was 4.5%.

Question 3 Choose the correct answer(s)

Read the following statements about housing and the housing market in America and select the correct one(s).

  • Homes in predominantly Black areas are undervalued compared to those in White areas.
  • Racial segregation did not exist prior to the redlining practices of the Federal Housing Administration.
  • Black borrowers are more likely to be given high-interest mortgages than White borrowers with similar income and credit scores.
  • Racial segregation in housing is largely due to a widely shared preference to live close to people of one’s own race.
  • As stated in this section, Black homes are undervalued on average by around $50,000.
  • The redlining practiced by the FHA did not create racial segregation, but rather ensured its continuation, especially with respect to the new housing being created in the suburbs.
  • There was much racial discrimination toward both Black and Hispanic borrowers in the booming market for high-interest mortgages (subprime market) prior to the 2008 crash.
  • Although it is true that many White families do have a relatively strong preference for living close to other White people, a similar preference for racial homogeneity is not shared by other races. And as we’ve seen, segregation is largely due to the effects of discriminatory policies both in the housing markets and elsewhere.

5 The effects of segregation

Although the era of Jim Crow segregation ended in the 1960s, the racial segregation which continues to characterize U.S. regions, cities, and towns remains an important mechanism suppressing Black economic mobility and opportunity. Although explicitly race-based laws are banned, spatially segregating a group makes it relatively easy to use policies based on geography instead of race to implement discrimination.

For example, nominally race-neutral voter ID laws are aimed at disenfranchising Black voters. Since Black neighborhoods are less likely to have easy access to government buildings where such IDs can be obtained, these laws disproportionately disenfranchise Black voters. Such laws would not have the same effect if racial segregation was less pronounced.

Access to jobs

Segregation inhibits Black access to employment in broadly two ways: spatial and social isolation.

spatial mismatch hypothesis
The hypothesis that minorities living in segregated neighborhoods—especially in urban areas—experience poor labor market outcomes not simply due to labor market discrimination, but also because they are physically distant from good job opportunities.

According to the spatial mismatch hypothesis, restricted residential options for Black people and the relocation of many firms to White suburbs contribute to the high unemployment and low incomes of Black workers, especially those in urban areas.

There are several mechanisms at work:

  1. If a person lives far from areas with high job growth and opportunities, they are less likely to know about job openings there.
  2. Even if a Black worker knows about a job opening in the suburbs or a different part of the city, they may not be able to get there easily, either because they don’t have a car or because the public transit infrastructure is inadequate or overly time-consuming. (This issue is heightened by the racially unequal access to public transit within most cities.)
  3. Employers located far from Black neighborhoods are more likely to discriminate against Black workers.
  4. Black workers may fear venturing into overly White areas.

Compounding the effects of spatial mismatch is the social isolation which results from segregation. When job-seeking, workers frequently use their personal networks—friends, family, friends of friends—to learn about job openings and get hired. Given that racial segregation entails largely unconnected Black and White social networks, Black workers have a limited capacity to benefit from such practices because Black unemployment rates are higher and White people are more likely to own businesses or be in a strong position to affect hiring decisions.

As with labor market discrimination, the consequences of social and spatial isolation in the labor market accumulate and get passed on: a Black worker with less access to lucrative social networks will be likely to have children who also lack such access.

Exercise 5 Measuring segregation

Using a new measure of segregation called the “divergence index,” researchers at the University of California, Berkeley created a ranking of cities and metro areas by how segregated they are.

  1. Find the city or metro area closest to you (or choose one you are interested in or know of from books or movies). Where on this list does it rank?
  2. Now, look at the list of metro regions with the greatest change in the level of segregation. Has your chosen city/region seen increased or decreased segregation over the last 30 years? What do you think has caused these changes?

Exercise 6 Social networks and employment

  1. Looking at your own employment history, how important would you say social connections have been? If you have a limited employment history, ask someone you know with more experience.
  2. Could we design policies to reduce the importance of our social connections in hiring? Would such a goal further a given normative objective such as efficiency or fairness?

Education

Although the U.S. Supreme Court’s decision in Brown v Board of Education ended formal segregation in education and led to widespread desegregation, the last few decades have seen slowly rising levels of school segregation nationwide (Figure 9). In 2015, around 40% of Black students attended an “intensely segregated” school, defined as fewer than 1 in 10 of the students being White. There have been numerous reasons for this reversal of desegregation efforts, including:

  • A series of Supreme Court rulings, which weakened or eliminated mandates for school integration
  • Lax enforcement and defunding of integration mandates and programs
  • Ongoing White migration to the suburbs and other prosperous non-urban areas
  • Using school vouchers to increase enrollment in private schools (some of which were created with the explicit purpose of evading integration mandates)
  • Redrawing school districts (or creating new ones) with the intention of making districts more racially segregated
In this line chart, the horizontal axis shows years between 1965 and 2015. The vertical axis shows the percent of Black students intensely segregated, and ranges from 20% to 80%. At the border of the U.S., 60% of Black students in the late 1960s were intensely segregated, around 35% in the late 1980s, and just over 40% in 2015. In the Midwest U.S., almost 60% of Black students in the late 1960s were intensely segregated, just over 40% in the late 1980s, and between 40% and 48% throughout the 1990s, 2000s, and 2010s. In the Northeast U.S., roughly 42% of Black students in the late 1960s were intensely segregated, which increased to just over 50% by 2015. In the South U.S., almost 80% of Black students in the late 1960s were intensely segregated, 25% in the late 1980s, and 36% by 2015. In the West U.S., 50% of Black students in the late 1960s were intensely segregated, 30% from the late 1980s to the early 200s, and almost 40% by 2015.

Figure 9 Intense segregation of Black students across time and region. To be intensely segregated means attending a school whose student body is at least 90% minority.

Segregation results in educational inequality: even when comparing poor White districts to poor Black districts, the latter receive about $1,300 less per pupil in funding. Some of this difference in school quality is due to the differences in government spending and tax revenue. U.S. schools are often funded out of local taxes on property values in the school district. The structure of local taxes for schooling means that racial segregation and racial gaps in housing values (and thus wealth) between White and Black districts result in schools with different amounts of funding. The decentralized structure of school funding thus amplifies the effect of segregation on educational inequality. But even in parts of the U.S. where government funding is somewhat equalized across schools, differences in parental income result in differences in school resources, as richer parent associations are able to secure more funding.

For both reasons, schools with large shares of poor and minority (both Black and Hispanic) students receive less funding, and so offer fewer courses, have fewer textbooks, fewer arts and science resources, less well-trained and experienced teachers, and lower teacher morale. Such schools also see higher rates of teacher turnover.

The combination of high levels of segregation and poverty compound the educational disadvantages experienced by Black students. A report from 2017 found that Black children are more than twice as likely as White children to attend a school where at least half the students were eligible for free or reduced-price lunch.20 The composition of the teacher workforce in K-12 education is also a problem. Research shows that especially for non-White students, having teachers who resemble them is important for their educational outcomes. However, current K-12 teachers are overwhelmingly White and female, a fact that especially disadvantages Black boys, as they are then least likely to have teachers who look like them.21 Due to lower expectations of teachers and guidance counselors, as well as fewer social and material resources of parents and school districts, Black and poor minority students are also more likely to be tracked into non-college or vocational pathways from an early age.22

These differences in education become barriers to college attendance. Figure 10 shows one consequence of these phenomena.

In this line chart, the horizontal axis shows years from 1940 to 2020. The vertical axis shows the percent of individuals 25 years or older with 4-plus years of college education, and ranges from 0 to 50%. Between 1940 and 2020, the proportion increased as follows: from 6% to 37% for White men; from 4% to 40% for White women; from 2% to 25% for Black men; from 2% to 30% for Black women.

Figure 10 College education by race and gender from 1940 to 2020.

Authors’ tabulations of American Community Survey data (2001–2020) and decennial Census data (1940–2000) using IPUMS.

In an economy where a college degree is increasingly required for access to well-paying work, the poor educational resources available to many Black communities keeps Black workers disproportionately in lower-paying and menial jobs. The persistence of segregation in education means that even the children of Black middle- and upper-class families are more likely than their White counterparts to suffer from poor school resources. This makes it harder for educated Black parents to pass the benefits of their education on to their children and produces downward mobility.

Effects of spatially concentrated poverty

Possibly the most important consequence of racial segregation is the way it concentrates poverty in neighborhoods.

Figure 11 shows the average neighborhood poverty levels for White and Black children born between 1985 and 2000. Black children are far more likely to have grown up in areas where at least 20% of residents were living at poverty levels. Upper- and middle-class Black families are more exposed to poverty compared to their White peers: a middle- or upper-class Black family is about 50 times more likely to live in a neighborhood with at least a 20% poverty rate compared to similar White families.

This bar chart shows the percentage of children born from 1985 to 2000 who grew up in different types of neighborhood. Data is displayed for Black and White people. The percentage of children for Black people is: 10% in a neighborhood less than 10% poor; 25% in a neighborhood between 10% and 19.99% poor; 35% in a neighborhood between 20% and 29.99% poor; and 30% in a neighborhood 30% or more poor. The percentage of children for White people is: 60% in a neighborhood less than 10% poor; 32% in a neighborhood between 10% and 19.99% poor; 7% in a neighborhood between 20% and 29.99% poor; 1% in a neighborhood 30% or more poor.

Figure 11 Average neighborhood poverty levels during childhood among Black and White children in different generations.

Patrick Sharkey. 2009. “Neighborhoods and the black-white mobility gap”. Economic Mobility Project.

Neighborhood poverty levels are a critical determinant of a child’s economic future and help explain why children of middle-class Black parents are far more likely to be poorer than their parents than are the children of middle-class White parents. The sociologist Patrick Sharkey sums up why neighborhood poverty is so important in explaining the racial gap in economic mobility:

Even if a white and a black child are raised by parents who have similar jobs, similar levels of education, and similar aspirations for their children, the rigid segregation of urban neighborhoods means that the black child will be raised in a residential environment with higher poverty, fewer resources, poorer schools, and more violence than that of the white child. … While the black child’s parents may have the same amount of income and the same education as the parents of the white child, neighborhood inequality means that the black child is likely to be surrounded by peers who have been raised by parents with less education and fewer resources to devote to their children, less cultural capital and social connections to draw upon. While the white child is likely to be surrounded by peers who aspire to go to college, the black child is more likely to be surrounded by peers who fear going to prison.23

Sharkey’s model can help us understand how the segregation of neighborhoods contributes to disadvantages persisting and accumulating across generations (Figure 12).

Parent’s neighborhood affects child’s neighborhood, which impacts a child’s development, which affects an adult’s neighborhood. If this adult is a parent, the circle reiterates itself. In addition, a parent’s neighborhood also impacts a child’s development.

Figure 12 Positive feedback cycle of segregation and neighborhood poverty.

The economist Thomas Schelling studied another model of how segregation could emerge and persist despite an absence of deliberately segregationist policies. In this model, clearly illustrated in the animation “The Parable of the Polygons,” it takes only a slight preference for same-race neighbors to generate complete segregation.

Question 4 Choose the correct answer(s)

Read the following statements regarding racial inequality in education and select the correct one(s).

  • Racial segregation in schools has steadily decreased since the Supreme Court ruled racial segregation in schools unconstitutional.
  • Making school funding equal for all students will eliminate racial inequality.
  • Black women in 2005 had a college graduation rate about equal to that of White women in 1990.
  • The Northeastern part of the United States never had a substantial decline in racial segregation in its schools after 1965.
  • Racial segregation in schools has not steadily decreased since Brown v Board of Education, as you can see in Figure 9.
  • Though making school funding equal might help reduce inequalities somewhat, it will not solve the underlying systemic inequalities that have resulted in such divergent economic outcomes, since the causes of these gaps are numerous.
  • This statistic can be observed in Figure 10.
  • As shown in Figure 9, the intense segregation of Black students increased from 1965 to around 2000, at which point it stabilized.

Question 5 Choose the correct answer(s)

Which of the following helps explain why it’s harder for Black people to get the same or similar employment opportunities as White people?

  • Unequal access to quality education
  • Racial differences in motivation and work ethic
  • Racially segregated social networks
  • Differences in the ability to easily travel to new jobs
  • There are stark differences in the resources available to primarily White and primarily Black/minority schools, affecting the quality of their education and opportunities available to them.
  • There is no evidence to suggest that Black workers lack motivation or have a poor work ethic.
  • Segregated social networks in a world that is already unequal means those in primarily White social networks will likely have more access to employers.
  • Differences in the ability to travel to new jobs is one of the possible explanations for the spatial mismatch hypothesis.

6 Political rights and civil liberties

The final mechanism we analyze is political inequality: the deprivation of political rights and unequal protection under the law for Black individuals and communities. Without political power, it is exceedingly difficult for marginalized groups to influence the institutions needed to secure access to public goods and protect any economic gains, especially if they are starting from an already weak economic position.

This section examines two major consequences of racial political inequality that contribute to intergenerational economic inequality: civil liberties and health. We end this section by exploring some of the key barriers to the political empowerment of Black people that still exist today.

Civil liberties, protection from violence, and criminal justice

One of the primary functions of any modern democratic government is to protect the lives of its citizens without violating other basic democratic rights. On this count, the U.S. government at all levels has failed its Black citizens.

Although large-scale vigilante violence is largely a thing of the past, patterns of racially motivated violence continue to this day in both the North (e.g. Buffalo, New York in 2022) and the South (Charleston, South Carolina in 2015). In 2012, the Black Lives Matter hashtag was first widely circulated in response to the vigilante killing of Trayvon Martin by George Zimmerman.

Black people are the biggest victims of violence in America. On average, a Black person is about seven times more likely to be murdered than a White person. In 2019, Black people made up 13.4% of the overall population but accounted for approximately 54.7% of the 16,425 homicide victims. Young Black men are also the most likely group to be robbed or be the victim of a violent offense, and are unlikely to have the resources they need to deal with the physical, psychological, and financial aftermath of these crimes.

The segregation and concentrated poverty discussed in Section 5, combined with weak protection under the law, lack of political power, and limited employment opportunities, create vulnerable communities and an environment that promotes criminal activity.

To learn more about the racial discrimination of the criminal justice system, read this helpful list of relevant studies.

civil liberties
Those rights and freedoms a government’s constitution and legal system have promised to protect. In the United States, these include such things as freedom of speech, freedom of religion, the right to a fair trial, and equal protection under the law.

Civil liberties include equal treatment by the state’s security forces and justice system. As in other countries with stark racial inequalities, the criminal justice system treats citizens (as well as non-citizens) of different races extremely unequally. Today the U.S. has a criminal justice system which discriminates against Black people at every step.

Comparing a White and Black person who committed the same crime, the Black person is:

  • More likely to be arrested. For example, one study found that the “Black arrest rate is at least twice as high as the White arrest rate for disorderly conduct, drug possession, simple assault, theft, vagrancy, and vandalism.”24
  • More likely to be charged with a crime which carries a heavier sentence. Federal prosecutors are about twice as likely to charge a Black defendant with an offense that carries a mandatory minimum sentence than a similar White defendant.25
  • More likely to experience pretrial detention. A 2014 study looking at hundreds of thousands of cases in New York found that controlling for factors such as the nature of the charge and prior record, Black defendants were 10% more likely than White defendants to be detained pretrial.26
  • More likely to be offered a plea with prison time. That same study also found that Black defendants were 19% more likely to be offered a plea deal with prison time than similar White defendants.
  • Likely to be given a longer sentence for the same charge. A 2018 study by the U.S. Sentencing Commission found that Black men receive on average a 20 percent longer sentence than White men for the same crime, even after controlling for variables such as age and prior convictions.27
  • More likely to be wrongly convicted. A report for the National Registry of Exonerations estimates that innocent Black people are about seven times as likely to be falsely convicted of murder than innocent White people.28
  • More likely to endure periods of solitary confinement, which has long been recognized as a form of torture. In 2017, Black men made up 43% of the male prison population but were 46% of those who experienced solitary confinement. During the same year, Black women were 23% of the female prison population but were 40% of those who experienced solitary confinement. 29
  • More likely to be given the death penalty. A 2014 study looking at 33 years of data from Washington found that, after adjusting for variables such as number of victims and brutality of the crime, Black defendants were 4.5 times more likely to be given the death penalty for murder than White defendants.30
  • Less likely to be released on parole,31 and more likely to be arrested and resentenced for committing the same parole violation. One study found that Black New Yorkers were 12 times more likely to be detained for parole violations than White New Yorkers, and five times more likely to be detained for technical violations.32

Black jurors are more likely to be dropped from the jury pool than similar White candidates, helping to ensure the conviction of Black defendants. Within the Black population, Black people with darker skin tones are more heavily discriminated against than those with lighter skin.33

As shown in Figure 13, starting in the early 1970s, the United States saw an explosion of incarceration and now has the highest incarceration rate worldwide. At its peak in 2008, there were around 2.3 million people incarcerated, about 40% of whom were Black men. As of 2020, the incarceration rate for Black people was 938 per 100,000 residents and 1,890 for Black men, as compared to 183 per 100,000 for White people overall and 332 for White men.

There are two line charts. In line chart 1, the horizontal axis shows years between 1910 and 2010. The vertical axis shows millions of Americans, and ranges from 0 to 1.6. Between 1910 and 2010, the millions of Americans that went to prison increased from 0.1 to almost 1.6; that went to jail, from 0.1 to almost 0.8; that were committed to juvenile detention, from almost 0 to around 0.3. In line chart 2, the horizontal axis shows years from 2000 to 2020. The vertical axis shows sentenced prisoners per 100,000 residents.

Figure 13 Total number of incarcerated Americans from 1910 to 2014. Incarceration is broken down by: prison, where those convicted go to serve out their terms; jail, where people are held awaiting trials or for minor crimes; and juvenile detention, which is prison for minors.

Wikimedia Commons. 2022. Updated 22 June 2022.

The future income and wealth of individuals who experience incarceration are likely to be severely reduced. Given the combination of segregation and high Black incarceration rates, these effects disproportionately affect Black families and neighborhoods. By disrupting social networks, breaking up families, and generally destabilizing communities, mass incarceration has made it much more difficult to reduce Black poverty levels.

Mass incarceration is thus another substantial barrier to Black economic mobility:34

  • Incarceration depresses the total earnings of White males by two percent, of Hispanic males by six percent, and of Black males by nine percent.
  • A total of one in nine Black children, 1 in 28 Hispanic children, and 1 in 57 White children have an incarcerated parent, and children whose fathers have been incarcerated are significantly more likely than other children to be expelled or suspended from school (23 percent compared with 4 percent).

Beyond incarceration, there are systematic differences in the treatment White and Black people receive from all levels of the criminal justice system, most visibly by the police, which has been the focus of the BLM movement. Black people, especially Black boys and young men, are far more likely to be stopped, surveilled, harassed, and killed by police officers than almost all other racial groups.

Policing in Black communities is part of the problem. While Black citizens are surveilled and mistreated by the police, homicides involving Black victims are also significantly less likely to be solved or lead to a conviction than if the victim is White.35 Thus, paradoxically, Black communities are simultaneously over- and under-policed, experiencing mistreatment on the one hand and neglect on the other.36

The rule of law the racial wealth gap

While Black people did make gains in wealth acquisition after the Civil War (Figure 1), the pace was slow and started from a near-zero base. The observed gains took place in a politically rigged environment, where the threat of violence could destroy Black wealth.

What wealth Black people formally owned was tenuous without the rule of law to prevent unlawful seizures and destruction. Since wealth compounds over time, communities that were either violently prevented from accumulating wealth or had their wealth destroyed or seized still suffer those consequences today. In 1965, a century after emancipation, Black people were more than 10% of the population but held less than 2% of U.S. wealth and less than 0.1% of the wealth in stocks.

Black wealth remains fundamentally unchanged and structurally unreachable for most Black people. One study found that very little of the wealth gap can be explained by differences in savings rates: the initial inequality in wealth was so large that even if Black people saved at the same rate as White people (a challenge given that they are poorer) the racial wealth gap would take hundreds of years to converge.37

Health

Political exclusion has also resulted in the under-provision of many public goods to Black people. In addition to schools, Black hospitals, especially in the South, were legally segregated and systematically underfunded throughout the nineteenth and twentieth centuries. In the North, neighborhood segregation by race increased considerably with the Great Migration, resulting in school and hospital segregation that lowered Black people’s access to education and health. Since the 1970s, Black mortality (especially that of Black men) has improved in both absolute terms and relative to White mortality, although large gaps remain (Figure 4). In 2019, life expectancy for White people was 78.8 years, compared to 74.7 years for Black people.

The racial gap in health, measured by life expectancy at birth, has shrunk but persisted. At the beginning of the twentieth century the gap in life expectancy was driven more by infant mortality;38 by the end of the twentieth century, the gap was driven by chronic disease at older ages, due in large part to worse environmental conditions in Black neighborhoods, lower income, and the stress caused by racist treatment.39

Political inequality today

There are a number of ways the U.S. political system reduces or denies Black citizens political power, some blatant and some subtle. For example:

  • Racial gerrymandering, which means either concentrating Black voters in a small number of districts or drawing districts to divide the Black vote, diluting Black communities’ electoral influence.40
  • No day off for voting and lack of early voting. Since most Black people work for hourly wages, taking time off may not be an option. In a 2018 poll, it was found that 16 percent of Black people reported that they couldn’t get time off from work in order to vote, as compared to 8 percent of White people who had the same complaint.41
  • Felony disenfranchisement. As of November 2020, 1 in 16 Black people nationwide have lost their right to vote due to a felony conviction, compared to only 1 in 59 non-Black people.42
  • The overall importance of money in American politics which disadvantages groups with less of it: Black and Hispanic populations with low incomes cannot contribute as much to campaigns as those with high incomes, and this means cash-strapped politicians will listen more to the policy priorities of the latter.

Even if barriers to voting were entirely eliminated, the structure of the national political system heavily favors rural White regions over more diverse urban areas. In the Senate, for example, Wyoming, which is 92% White and has a population of less than 600,000, has the same level of representation as California, with its far more racially diverse population of nearly 40 million people. This imbalance leads to policies and appointments (such as Supreme Court justices) that disproportionately represent the views and interests of rural White people.

The Electoral College can also work to the advantage of White voters in states which suppress Black voter turnout because the number of Electoral College delegates is dependent on the number of seats (both congressional and Senate seats), not the number of voters. This fact also helps to explain why efforts to abolish the Electoral College have always been vehemently resisted by White politicians from Southern states.

Exercise 7 Education and incarceration

In a recent paper, sociologists found racial differences in how education level affects one’s likelihood of incarceration: there is a proportionately steeper decline in incarceration rates for White people once they have had some college education compared to Black people. They also found that this ratio increased substantially for both racial groups starting in the early 1990s.

Offer an explanation for why obtaining some college education seems to have a bigger effect on White people’s chances of incarceration compared to Black people. Why do you think the effect of education has been increasing for both groups over time?

Question 6 Choose the correct answer(s)

Which of the following is not a common way of disenfranchising or diluting the political power of Black people in America?

  • Felony disenfranchisement
  • Voter ID laws
  • Gerrymandering
  • Early voting
  • Since incarceration disproportionately affects the Black population, not allowing those currently or previously incarcerated to vote will disproportionately reduce the Black vote.
  • Many voter ID laws are targeted at Democrats and/or Black voters.
  • Although in theory gerrymandering could be used to increase Black political power, it historically has been used primarily to limit it.
  • Expanding access to the polls would have either a beneficial or neutral impact on Black voter turnout.

7 Modelling persistent racial inequality

intergenerational inequality
The extent to which differences in parental generations are passed on to the next generation, as measured by the intergenerational elasticity or the intergenerational correlation.

To understand how racial economic inequality persists over time, we need to examine intergenerational inequality in America.

(To review the basics of categorical inequality and/or intergenerational inequality, see Unit 19.2 of The Economy.)

American racial inequality is an instance of categorical inequality (also known as group inequality). Intergenerational inequality and categorical inequality are linked. Racial identities are transmitted from parents to their children, even as cross-race marriage and partnerships are steadily increasing, so a high degree of categorical inequality results in a high degree of intergenerational inequality.

Economists and sociologists measure intergenerational inequality by comparing parents’ economic outcomes with those of their adult children. We estimate a person’s likely economic situation based on their parents’ economic situation, taken at similar points in their lives (for example, incomes at age 30).

Intergenerational mobility can be measured by a statistic called the intergenerational correlation (IGC), which can take values between 0 and 1. It is important to note that the IGC is not a correlation coefficient—it cannot take on negative values. The IGC indicates how similar parents and their adult children are in a particular indicator of economic success, such as income. If the economic situations of parents and their adult children are very similar—rich adult children tend to have rich parents; poor adult children tend to have poor parents—then the IGC will be close to 1 and we say that there is a significant amount of intergenerational inequality.

We measure each generation’s income on a 1 to 100 scale, where numbers indicate an individual’s rank in their generation’s income distribution. For example, the richest parents/adult children have a rank of 100, and the poorest parents/adult children have a rank of 1. By focusing on rankings rather than differences in absolute income among people within a generation, this measure of mobility can be compared across periods and societies with different levels of inequality within generations.

Figure 14a shows the IGC for the U.S. as a whole (top panel), and for different racial groups within the U.S. (bottom panel), with parents’ income ranks on the horizontal axis and their adult children’s income ranks on the vertical axis. The height of the lines gives us a summary of the advantages (or disadvantages) of a group. The slope of the line is the IGC; it shows how strongly connected a subjects’ income is to the income of their parents. The U.S. overall has an IGC of 0.37, so if a parent’s income increases by ten ranks, their adult child’s income will increase by 3.7 ranks (out of 100).

According to this measure, the U.S. has one of the highest IGC’s out of all high-income countries, which means that the future income of a person is more dependent on how well-off their parents are. Compared to the U.S.’s IGC of 0.37, in Canada and Denmark, the IGC is closer to 0.20, meaning the same ten-rank increase in parents’ income would only increase their adult child’s income by two ranks.

There are two charts. In chart 1, the horizontal axis shows the income of parents on a 1 to 100 scale, and ranges from 0 to 100. The vertical axis shows the income of children on a 1 to 100 scale, and ranges from 0 to 100. An upward-sloping, straight line shows that there is a positive association between these two variables. This is the IGC line. It has got a slope of 0.37 and an intercept of 31. In chart 2, the horizontal axis shows the family income of parents on a 1 to 100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1 to 100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25.
There are two charts. In chart 1, the horizontal axis shows the income of parents on a 1 to 100 scale, and ranges from 0 to 100. The vertical axis shows the income of children on a 1 to 100 scale, and ranges from 0 to 100. An upward-sloping, straight line shows that there is a positive association between these two variables. This is the IGC line. It has got a slope of 0.37 and an intercept of 31. In chart 2, the horizontal axis shows the family income of parents on a 1 to 100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1 to 100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25.

Figure 14a The top figure shows the intergenerational correlation for the United States as a whole. The bottom shows the same for different racial groups.

Author calculations from data in Raj Chetty, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter. 2020. “Race and economic opportunity in the United States: An intergenerational perspective”. The Quarterly Journal of Economics 1352).: pp. 711–783

Follow the steps in Figure 14b to understand how to interpret the intergenerational coefficient graph.

In this chart, the horizontal axis shows the family income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1-100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25. A White family with an income of 42, will have offspring with family income of 50. A Black family with an income of 90, will have offspring with an income level of 50.

Figure 14b Understanding the IGC.


: In this chart, the horizontal axis shows the income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the income of child on a scale 1-100 and ranges from 30 to 70. An upward-sloping, straight line shows a positive association between the two variables. This is the IGC line, has a slope of 0.37 and an intercept of 31.

This graph shows how we determine the IGC for the United States as a whole. The horizontal axis shows the parents’ income rank, and the vertical axis shows the income rank of their adult children. The slope of the red “best fit” line is 0.37, which is the IGC for the United States.


: In this chart, the horizontal axis shows the income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the income of child on a scale 1-100 and ranges from 30 to 70. An upward-sloping, straight line shows a positive association between the two variables. This is the IGC line, has a slope of 0.37 and an intercept of 31. Parents with an income level of 29 will have offspring with an income level of 39.

Let’s look at a few examples to help understand this data. If a parent is ranked 20th, we can expect their children to be ranked 39th (= 31 + 0.37 x 20). That is, we can expect their children also to be poor but not as poor as their parents.


: In this chart, the horizontal axis shows the income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the income of child on a scale 1-100 and ranges from 30 to 70. An upward-sloping, straight line shows a positive association between the two variables. This is the IGC line, has a slope of 0.37 and an intercept of 31. Parents with an income level of 29, 50 and 80 will have offspring with an income level of 39, 50 and 61 respectively.

At the other end of the income spectrum, parents ranked 80th can expect their adult children to be ranked 61st. The adult children would be richer than average, but not as rich as their parents. Notice also that a parent ranked 50th will expect to have an adult child ranked 50th as well. This will always be true of the society as a whole.


: In this chart, the horizontal axis shows the family income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1-100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25. A White family with an income of 50, will have offspring with family income of 53. A Black family with an income of 50, will have offspring with family income of 39. An Asian family with an income of 50, will have offspring with family income of 60. A Native American family with an income of 50, will have offspring with family income of 41.

This graph shows the IGC broken down by race. Each of these lines tells us where a child born in a particular income rank and of a particular race is likely to end up on the income distribution for the United States as a whole. As you can see, there are noticeable differences across racial groups: unlike the population as a whole, when broken down by group, parents ranked 50th do not necessarily expect their adult child to be ranked 50th.


: In this chart, the horizontal axis shows the family income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1-100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25.

Here are the IGC lines for White and Black parents. For any given income rank, a child of Black parents will have a lower expected income rank compared to their Black counterparts.


: In this chart, the horizontal axis shows the family income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1-100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25. A White family with an income of 50, will have offspring with family income of 53. A Black family with an income of 50, will have offspring with family income of 39.

For example, while White parents ranked 50th (in the middle of the income distribution) can expect their children to be ranked slightly higher (53rd), Black parents ranked 50th are likely to have adult children who are in the 39th percentile, representing downward mobility.


: In this chart, the horizontal axis shows the family income of parents on a 1-100 scale, and ranges from 0 to 100. The vertical axis shows the family income of child on a 1-100 scale, and ranges from 0 to 100. Four upward-sloping, straight lines show that there is a positive association between these two variables. These are the IGC lines. The IGC line for White people has a slope of 0.32 and an intercept of 37. The IGC line for Black people has a slope of 0.28 and an intercept of 25. The IGC line for Asian people has a slope of 0.18 and an intercept of 51. The IGC line for Native American people has a slope of 0.31 and an intercept of 25. A White family with an income of 42, will have offspring with family income of 50. A Black family with an income of 90, will have offspring with an income level of 50.

White parents ranked 42nd or higher will likely have children in the top half of the income distribution. But for Black parents, only those ranked 90th or higher can expect their children to be in the top half. In other words, only the richest 10% of Black parents can expect their children to be in the top 50%, compared to the richest 58% of White parents.

The bottom panel of Figure 14a also reveals stark racial disparities in economic opportunities that persist across time and generations:

  • Unequal opportunities for economic success across racial groups. A White child whose parents are in the middle of the income distribution is likely to have a similar income rank, whereas a Black child born into a family with the same income is likely to be noticeably poorer than their parents. There is downward economic mobility for the children of Black middle-class families: holding parental income constant, opportunities for Black people to succeed economically are lower.
  • Inequality across groups can partly explain the overall high IGC of the U.S. Although cross-race marriage has been increasing over time, occurrence has been historically quite low. So, group membership (race), and thus group inequality, is also intergenerationally transmitted.
  • Exceptionally high mobility among Asians and Asian Americans. This trend is partly due to historically high levels of education (even for low-income parents) in this group and U.S. immigration laws and programs which favor potential migrants with labor market connections and high levels of education. Immigrant parents, therefore, have educational and job characteristics that give their children advantages independent of parental income.

Exercise 8 The IGC in the U.S.

In this chart the horizontal axis shows family income of parents on a 1 to100 scale, and ranges from 0 to 100. The vertical axis shows family income of child on a 1 to100 scale, and ranges from 20 to 80. There are two horizontal lines. One is at family income of child 30 and it is for Group A. The other is at family income of child 70 and it is for Group B.

The figure above shows a hypothetical society with two groups, Group A and Group B. The IGC line for each group is perfectly flat. Group A’s income is at 70, Group B’s is at 30. Assume that the IGC lines have always been the same for the entirety of this society’s history.

  1. What is the IGC for each group?
  2. How would the IGC for this society as a whole compare to those for the individual groups? Why?
  3. Would the IGC be larger if group membership was rigid (all children in the same group as their parents) or fluid (some children in a different group than their parents)? Why?
  4. How do your answers above help us understand why the IGC for the United States is higher than that for any individual racial group?

As a thought experiment, suppose you made a Black family much richer (e.g. through a lottery win), but didn’t eliminate discrimination, segregation, and political inequality. Despite being richer, that Black family would have less access to good schools for their children, good investments for their money, good jobs, and would be less safe. Compared to a similarly rich White family, they would be more likely to end up saving less and investing less, and their kids would likely not be nearly as successful as their White counterparts.

A model of persistent racial inequality

This section builds a simplified representation of U.S. history. In our model, each generation of Black and White people, even those with the same parental income, have different opportunities, due to segregation, discrimination, and political inequality. Over generations, these inequalities reinforce each other, creating a persistent racial income gap.

Figure 15 presents a model of intergenerational mobility for White and Black children on the same axes as in Figures 14a and 14b. The 45-degree line shows where the income rank (measured on a 1 to 100 scale) of adult children and their parents is equal, with no intergenerational mobility at all and an IGC of 1. The blue line shows an example of the IGC for White people, with an intercept at 35 and a slope of 0.3. The red line shows one for Black people, with an intercept at 25 and a slope of 0.25.

equilibrium
A model outcome that is self-perpetuating. In this case, something of interest does not change unless an outside or external force is introduced that alters the model’s description of the situation.

The points where each IGC line crosses the 45-degree line (B and C) are equilibria. Given the income and race of the parents and the process by which income-earning advantages or disadvantages (including race) are passed onto the next generation, the future income rank of the children will be the same as their parents’. The slopes of the red and blue lines show the IGCs for Black and White families respectively. The points B (50, 50) and C (35, 35) show the equilibrium incomes of White and Black households if this dynamic occurs repeatedly over a long period of time.

The income dynamics in this intergenerational mobility model are similar to those of the price dynamics in the asset price bubble model of The Economy, Unit 11. To understand the intuition in more detail, work through the slideline in Figure 11.17.

To understand how incomes return to equilibrium, suppose there is an unexpected increase in a Black household’s income rank from 35 (point C) to 50. In this model, their adult children’s predicted income rank will be 25 + (.25 × 50) = 37.5, their grandchildren’s predicted income rank will be 25 + (.25 × 37.5) = 34.37, and after a few generations the predicted income rank will be back down to 35 (point C).

In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. There are two upward-sloping, straight lines labelled White IGC line and Black IGC line. The White IGC line has a vertical intercept of 35 and a slope of 0.3, and intersects the 45-degrees line at point B (50, 50). The Black IGC line has a vertical intercept of 25 and a slope of 0.25 and intersects the 45-degrees line at point C (35, 35).

Figure 15 A model of intergenerational mobility by race.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank.

The horizontal axis shows the parent’s income rank, and the vertical axis shows the income rank of their adult children. Along the 45-degree line, the parent’s income rank is equal to their adult children’s income rank. There is no intergenerational mobility and the IGC is 1.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. There are two upward-sloping, straight lines labelled White IGC line and Black IGC line. The White IGC line has a vertical intercept of 35 and a slope of 0.3. The Black IGC line has a vertical intercept of 25 and a slope of 0.25.

The blue line shows an example of the IGC for Whites, with a vertical intercept at 35 and a slope of 0.3. The red line shows one for Blacks, with a vertical intercept at 25 and a slope of 0.25. The slopes of the red and blue lines show the intergenerational correlations for Black and White families, respectively. A steeper line represents a stronger intergenerational correlation, meaning that a parent’s income rank plays a bigger role in determining their children’s income rank.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. There are two upward-sloping, straight lines labelled White IGC line and Black IGC line. The White IGC line has a vertical intercept of 35 and a slope of 0.3, and intersects the 45-degrees line at point B (50, 50). The Black IGC line has a vertical intercept of 25 and a slope of 0.25 and intersects the 45-degrees line at point C (35, 35).

The points B (50, 50) and C (35, 35), where each IGC line crosses the 45-degree line are equilibria because the income rank in one generation is the same as that of the next generation. Points B and C show the equilibrium incomes of White and Black households if this dynamic occurs repeatedly over a long period of time.

Question 7 Choose the correct answer(s)

In the intergenerational mobility model presented in Figure 15, a child from a family at the 40th percentile of the income scale:

  • Will have income 35 if Black and 47 if White.
  • Will have income 25 if Black and 35 if White.
  • Will have the same income regardless of race.
  • Will have income 10 if Black and 12 if White.
  • The income of a Black child will be 25 + (0.25 x 40) = 35, and the income of a White child will be 35 + (0.3 x 40) = 47.
  • The income of a Black child will be 25 + (0.25 x 40) = 35, and the income of a White child will be 35 + (0.3 x 40) = 47.
  • The White and Black IGC lines do not coincide. Therefore it must be the case that a Black child born to a family at the 40th position of the income scale will have a different income than a White one.
  • The income of a Black child will be 25 + (0.25 x 40) = 35, and the income of a White child will be 35 + (0.3 x 40) = 47.

We use this model to tell the stories of two hypothetical families, one White and one Black. We use gray lines to show transitions that happen within a generation. Horizontal arrows denote income changes for parents, while vertical arrows denote income changes for children. Let’s start with a multigenerational story that begins with Louis, a Black sharecropper in the South, and Moe, an Irish immigrant working in Chicago circa 1935.

Work through the steps in Figure 16 to follow the situation of Louis, his son Clyde, his granddaughter Jo, and his great-grandson Calvin. Work through the steps in Figure 17 to contrast Louis’ family fortunes with that of Moe, his son Al, his granddaughter Ellen, and his great-grandson Michael.

In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76. Point F (76, 44) lies on the Black IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (44, 36) which lies on the Black IGC line. A series of arrows show that from point G, by using the 45-degrees line, we can obtain point H (36, 37.6), which lies on the Black IGC line. A series of arrows show that from point H, by using the 45-degrees line, we can obtain point J, which lies on the Black IGC line between point C and point H.

Figure 16 A model of intergenerational mobility for a Black family.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35).

Point C shows Louis’ income rank when he was a sharecropper in the South, which is 35. If nothing happened, this would be the income rank of his adult children too.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76.

Louis is evicted from the plot he cultivates. Desperate for work, he spends the last of his savings on a train ticket to Detroit, where his uncle moved 15 years ago. Louis works odd jobs around Detroit until the Second World War, when the auto industry is reconverted to produce tanks and military equipment. Louis then gets a job at General Motors. His wage has increased five-fold compared to when he was a sharecropper, which is shown by the rightwards arrow pointing towards point E.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76. Point F (76, 44) lies on the Black IGC line.

Louis has a son, Clyde. To find out Clyde’s predicted income rank when he will be an adult, we should use the Black IGC line, which shows the children’s income rank for a given parent’s income rank. Point F shows that for Louis’ income range (parent) of 76, Clyde’s predicted income rank (when an adult) will be 44. Notice that Clyde will earn less relative to his peers than his father earned relative to his.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76. Point F (76, 44) lies on the Black IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (44, 36) which lies on the Black IGC line.

Point G shows Clyde’s income rank as an adult. Notice that it is lower than that of his father as an adult. That’s because Clyde grew up in Detroit and only attended a public high school. Without a college degree, he could not secure a stable and well-paid job. He works at the GM auto plant until he is fired during the 1973 oil shock.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76. Point F (76, 44) lies on the Black IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (44, 36) which lies on the Black IGC line.

Clyde has a daughter, Jo. Clyde and his wife have divorced as a result of Clyde’s losing his job. Jo’s mother can’t therefore rely on Clyde’s income to raise their daughter. She moves to a low-income, primarily Black neighborhood. The vertical axis value of point G shows Jo’s predicted adult income rank when she is a child, which is 36. Her income rank is lower than her father’s as an adult because of the even more limited opportunities Jo can access.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76. Point F (76, 44) lies on the Black IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (44, 36) which lies on the Black IGC line. A series of arrows show that from point G, by using the 45-degrees line, we can obtain point H (36, 37.6), which lies on the Black IGC line.

During high school, Jo gets pregnant. She decides to keep the baby and drop out of school. For this reason, she can’t find a remunerative job. Point H shows Jo’s income rank as an adult, which is 36 and lower than her father’s income rank. It also shows that her son, Calvin, will have a lower income rank than her.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled Black IGC line, has a vertical intercept of 25 and intersects the 45-degrees line at point C (35, 35). Point E corresponds to a children income level of 35, and a parent income level of 76. Point F (76, 44) lies on the Black IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (44, 36) which lies on the Black IGC line. A series of arrows show that from point G, by using the 45-degrees line, we can obtain point H (36, 37.6), which lies on the Black IGC line. A series of arrows show that from point H, by using the 45-degrees line, we can obtain point J, which lies on the Black IGC line between point C and point H.

Calvin drops out of school at grade 11. Maybe he gets a job as a gig worker, but equally likely he tries his hand at petty crime or drug-dealing to make ends meet. Point J shows that Calvin’s income is even lower than Jo’s, and not so far away from his great-grandfather Louis’.

In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50). Point F has coordinates (7, 37) and lies on the White IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (37, 45) which lies on the White IGC line. A series of arrows show that from point G, by using the 45-degree line, we can obtain point H (45, 48.5) which lies on the White IGC line. A series of arrows show that from point H, by using the 45-degree line, we can obtain point J, which lies on the White IGC line between points H and B.

Figure 17 A model of intergenerational mobility for a White family.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50).

Point B shows Moe’s income rank (50) when he’s a manager at a successful meatpacking plant in Chicago. If nothing happened, this would be the income rank of his children too.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50).

Moe loses his job during the Great Depression. His income rank is now notably lower, which is shown by the leftward arrow pointing towards point E.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50). Point F has coordinates (7, 37) and lies on the White IGC line.

Moe has a son, Al. To find out Al’s predicted adult income rank when he is a child, we should use the White IGC line, which shows a child’s income rank for a given parent’s income rank. Point F shows that if Moe’s income rank (parent) is 7, then Al’s predicted adult income rank when he is a child will be 37. Notice that Al will have a higher rank than his father.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50). Point F has coordinates (7, 37) and lies on the White IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (37, 45) which lies on the White IGC line.

Thanks to the GI Bill, Al could go to any college he wanted. He decided to pursue a degree in engineering and landed a job which let him live in the prosperous Chicago suburb of Wilmette. Point G shows Al’s income rank as an adult.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50). Point F has coordinates (7, 37) and lies on the White IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (37, 45) which lies on the White IGC line.

Al has a daughter, Ellen. The vertical axis value of point G shows her predicted adult income rank when she is a child, which is 45. Notice that she will have a higher rank than her father. That’s because she has access to more opportunities given where she lives and her parental background.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50). Point F has coordinates (7, 37) and lies on the White IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (37, 45) which lies on the White IGC line. A series of arrows show that from point G, by using the 45-degree line, we can obtain point H (45, 48.5) which lies on the White IGC line.

Ellen could graduate with a good GPA from a top-rated high school in Chicago. This allowed her to study psychology at Princeton and eventually pursue a career in psychology. This was made easier by living close to her parents. Point H shows her income rank as an adult, which is 45 and higher than her father’s income rank when he was an adult. It also shows that her son, Michael, will have a higher income rank than her.


: In this diagram, the horizontal axis shows parent income rank on a scale 1-100. The vertical axis shows children income rank on a scale 1-100. Coordinates are (parent income rank, children income rank). Along a 45-degree line, parent’s income rank is equal to children’s income rank. An upward-sloping, straight line is labelled White IGC line, has a vertical intercept of 35 and intersects the 45-degrees line at point B (50, 50). Point E has coordinates (7, 50). Point F has coordinates (7, 37) and lies on the White IGC line. A series of arrows show that from point F, by using the 45-degrees line, we can obtain point G (37, 45) which lies on the White IGC line. A series of arrows show that from point G, by using the 45-degree line, we can obtain point H (45, 48.5) which lies on the White IGC line. A series of arrows show that from point H, by using the 45-degree line, we can obtain point J, which lies on the White IGC line between points H and B.

Michael attended the same top-rated high school as his mother. Thanks to connections made through his family, he landed an internship at Google while still an undergraduate at Amherst College, which helped him kick-start his career.

These two intergenerational trajectories illustrate how historical differences between White and Black people persist over time. Positive shocks to Black households are eventually undone by the cumulative effects of discrimination, segregation, and political inequality. Negative shocks to White households, on the other hand, are eventually undone by the many privileges embodied in U.S. policies.

Exercise 9 The IGC and policy

Compare this model to the data in Figure 1. How well does the model explain what we observe in the data?

Exercise 10 Visualizing inequality

Go to this New York Times article. At the top of the article is a visualization following 10,000 White and Black boys who grew up in rich families in order to see where in the income rankings they end up as adults.

  1. Looking at the visualization at the top, describe how the adult outcomes differ between White and Black boys from rich households. Is this consistent with our models and data?
  2. Read through the remainder of the article.
  3. How do racial gaps in economic mobility differ by gender? What mechanisms are proposed in the article to explain these gender differences?
  4. Are the explanations offered in the article contradictory or complementary to the analysis in this Insight?
  5. In this article, scroll down to the bottom, to the graph titled “Create Your Own Mobility Animations.” Run a version of this graph you have not yet seen, describe your results and compare it to the others you’ve seen. Offer an explanation for what you find.

8 Conclusion

The summer of 2020 saw the largest mobilization for racial justice in U.S. history.43 Although it was most visibly driven by outrage against police violence, the movement broadly demanded that the levers of public policy be used to create a racially just and equitable society.

This demand comes from the understanding that, while racial inequality remains a stubbornly persistent problem in the U.S., it can still be changed. The first three-quarters of the twentieth century saw a large decrease in racial inequality. One study found that about 50% of the increased intergenerational mobility for individuals born between 1910 and 1950 can be attributed to increased Black access to education, health, and higher-paying jobs—all of which helped narrow the income gap. Indeed, Black women, the lowest income subgroup in the early twentieth century, have since overtaken Black men in expected earnings and even caught up with White women of the same parental income. However, overall racial convergence has largely stalled since the 1980s. What might be required to start making progress on racial equality?

Myrdal argued that given the reinforcing effects of low wealth, poor schools, and the prejudice of White people that faced the descendants of slavery in the U.S., a “big push” was needed to turn the “vicious circle” of racial inequality into a virtuous one. One such policy was to encourage migration out of the South. At the time Myrdal wrote his ideas in the 1940s, the second wave of the Great Migration was picking up, and millions of Black people did move out in the subsequent 30 years.

Myrdal, however, underestimated the racial prejudices and political power of White people in Northern cities, which re-created the conditions for persistent poverty in Northern cities as documented in Section 4.

However, an important part of his plan, which was not implemented alongside the Great Migration, was a national jobs program in the Northern and Western cities to facilitate Black employment. Together, Myrdal reasoned, a critical mass of high-wage Black employment in cities relatively free from the legacy of racial slavery would end the vicious circle of American inequality. Perhaps with such a jobs program, Black workers could have afforded houses in places with good schools, and White people in the North would not have believed so strongly that Black people would be likely to engage in crime.

The three mechanisms of racial inequality discussed in this Insight are intertwined, as modeled in Figure 18.

Political inequality, segregation, and discrimination all affect themselves and one another.

Figure 18 The feedback cycle between the three key mechanisms.

This model is, of course, a simplification of a more complex set of processes, but it allows us to highlight the way each of these mechanisms of inequality feedback on themselves and each other. Throughout the Insight, we explained how discrimination contributed to segregation via government policies and racism in the housing and banking industries, but a segregated society is also one where negative stereotypes are more likely to develop and flourish. This fact is particularly true when one group is economically and politically dominant, because the economically weaker group is likely to suffer multiple negative effects from their segregation, which in turn affirms the negative stereotypes of that group. Thus, segregation is not simply caused by discrimination, but also helps cause it. The connection between political inequality and discrimination similarly goes both ways, with discrimination in the political system both causing the political inequality and being caused by it, as low political power prevents policies that reduce segregation, which feeds the stereotypes and attitudes connected to discrimination.

universal policy
A policy which applies equally to all citizens, regardless of their demographic characteristics.
targeted policy
A policy aimed at some specific group or groups.

Making progress on disrupting and eliminating these vicious cycles will require political changes, cultural changes, and good policy. Policies which affect racial inequality can be loosely divided into two categories: universal and targeted. Universal policies are those which apply to all citizens regardless of race. Targeted policies, on the other hand, are policies which, in this context, are specifically aimed at reducing racial inequalities. Some examples of universal policies which would likely reduce racial inequalities are:

  • Affordable universal healthcare
  • More equitable educational funding
  • Enhanced voting rights
  • Policies aimed at reducing wealth inequality such as taxing inheritances
  • Supporting poor families with income transfers
  • Policies which promote full employment, such as a job guarantee

For example, consider a policy that increases overall employment rates in the U.S. economy. Since Black workers are more likely to be unemployed, such a policy would disproportionately benefit Black workers. Similarly, making it easier for everyone to vote will have the biggest effect on Black voters, since they are currently much more likely to face barriers to voting.

Exercise 11 Student debt and other universal policies

  1. Black students have much higher student debt (at more unfavorable interest rates) than comparable White students. Eliminating student debt and making higher education free has also been suggested as a policy which would reduce the level of persistent racial inequality. Some critics, however, disagree, and believe it would have little to no effect on racial inequality, with some even suggesting it would make it worse. Based on what we have learned in this Insight, what effect do you believe eliminating student debt and making higher education free would have on racial inequality? Explain your reasoning.
  2. Can you think of other universal policies which would help reduce or eliminate persistent racial inequalities?

Given the depth of existing inequalities, universal policies alone might not eliminate persistent racial inequality, and need to be supplemented with targeted policies. The downside of targeted policies, however, is that they may be perceived as unfair by those excluded from any resulting benefits. For example, preferential admissions for underrepresented racial groups to colleges has been the subject of lawsuits filed by White and Asian students. Although these perceptions of unfairness may be unjustified, they remain an important practical and political obstacle to implementing targeted policies.

Below are some examples of policies targeted at reducing persistent racial inequality:

  • Desegregating housing and schools to improve access to education. America remains starkly segregated despite the progress of the Civil Rights Movement. Much of this segregation occurs via private markets in housing and schooling, where richer, White families move into high-priced neighborhoods with good schools.
  • Anti-discrimination policies. There is an important role for cultural representation and other policies to combat racial stereotypes, including a need to transform organizational cultures and institutions that reproduce White supremacy such as in police departments and policing practices.
  • Reparations. There has been a longstanding debate about reparations and race-specific redistribution. There are many other examples of countries paying some form of restitution for past injustices, including in the U.S., which paid reparations to Japanese citizens who had been interned during World War II. The rationale for reparations is that since our past and current policies and institutions created today’s racial inequality, we collectively owe it to Black people to rectify that injustice. The economists William A. Darity, A. Kirsten Mullen, and Marvin Slaughter estimate the bill to be at least 14.3 trillion dollars, though this number is disputed. A redistribution of this amount of wealth from White to Black people would almost completely erase the Black–White wealth gap. But it could be that a one-time redistribution of wealth does not alter the long-run wealth gap, particularly if other needed changes are not made. This issue highlights the case for some large and targeted redistribution of wealth if racial inequality in wealth is ever to be eliminated.

Suppose that three policies were passed at the same time: (1) expanded voting rights, (2) more funding to enforce anti-discrimination laws, and (3) extended down payment assistance for Black borrowers looking to buy a home. Expanded voting rights would make it easier for Black voters to protect any gains resulting from the other two policies. Having the resources to better enforce existing anti-discrimination laws would boost Black income and wealth by giving them better access to lucrative jobs and good credit, and would help ensure that Black mortgage borrowers could use the expanded down payment assistance to move into more-integrated neighborhoods. More-integrated neighborhoods would likely result in weaker discriminatory attitudes and more equal access to educational resources, further boosting Black economic prospects. Decreasing discriminatory sentiment and higher Black income and wealth would also likely further increase Black political power, making it easier to implement more policies that further reduce racial disparities. The reality is more complicated, but this thought exercise shows how multiple policies can be used to reverse the vicious circle of racial inequality.

Many of these proposals are not new. Following the last large mobilization against racial injustice in the 1960s, U.S. president Lyndon Johnson formed the Kerner commission to investigate the causes, which issued a report recommending many of the policies listed above. However, the report was ignored, prompting the great Black psychologist Kenneth Clark to remark:

“I read that report … of the 1919 riot in Chicago, and it is as if I were reading the report of the investigating committee on the Harlem riot of ’35, the report of the investigating committee on the Harlem riot of ’43, the report of the McCone Commission on the Watts riot.

I must again in candor say to you members of this Commission—it is a kind of Alice in Wonderland—with the same moving picture re-shown over and over again, the same analysis, the same recommendations, and the same inaction.”

This Insight shows that racial inequality has fallen over the last 150 years but still persists. Progress on these issues is possible, but requires political will, sustained attention, and activism from a large set of Americans, both Black and non-Black.

9 Acknowledgments

The authors would like to thank everyone at the CORE Editorial Board for their encouragement, comments, suggestions, and for the opportunity to publish this. We recognize the contribution of Lisa Cook for sharing her research insights before her appointment to the Federal Reserve Board. Thanks to Simran Krishna-Rogers for his comments and assistance. A special thanks to Noah Simon for his invaluable assistance and hard work in preparing this Insight for production, as well as for his many comments and suggestions.

We are grateful for the research and comments from Ellora Derenoncourt and Brendan O’Flaherty.

Eric would also like to thank Rajiv Sethi, Belinda Archibong, and Elaine McCrate for their help and encouragement during earlier stages of this work.

Header image credit: Uncredited/AP/Shutterstock

10 References

Notes

  1. Charles E. Cobb. 2014. This Nonviolent Stuff’ll Get You Killed: How Guns Made the Civil Rights Movement Possible. New York, NY: Basic Books. 

  2. Adolph L. Reed Jr. 2022. The South: Jim Crow and Its Afterlives. New York, NY: Verso Books. 

  3. Lisa D. Cook. 2014. Violence and economic activity: evidence from African American patents, 1870–1940. Journal of Economic Growth 19 (2): pp. 221–257. 

  4. Ira Katznelson. 2005. When affirmative action was white: An untold history of racial inequality in twentieth-century America. New York, NY: WW Norton & Company. 

  5. Justin McCarthy. 2021. “U.S. Approval of Interracial Marriage at New High of 94%”. Gallup, 10 September. 

  6. Kenneth Y. Chay and Michael Greenstone. 2000. “The convergence in black-white infant mortality rates during the 1960’s”. American Economic Review 90(2): pp. 326–332. 

  7. Jens Manual Krogstad. 2015. “How the geography of U.S. poverty has shifted since 1960”. 10 September. 

  8. National Center for Education Statistics. 2022. ‘Rates of high school completion and bachelor’s degree attainment among persons age 25 and over, by race/ethnicity and sex: Selected years, 1910 through 2021’. Updated 5 October 2022. 

  9. Anna Brown and Sara Atske, 2021. ‘Black Americans Have Made Gains in U.S. Political Leadership, but Gaps Remain’. Pew Research Center. Updated 27 January 2021. 

  10. Marianne Bertrand and Sendhil Mullainathan. 2004. “Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination”. American Economic Review 94(4): pp. 991–1013. 

  11. Devah Pager, Bart Bonikowski, and Bruce Western. 2009. “Discrimination in a low-wage labor market: A field experiment”. American Sociological Review 74(5): pp. 777–799. 

  12. Ethan Cohen-Cole. 2011. “Credit card redlining”. Review of Economics and Statistics 93(2): pp. 700–713.

    Andrea Freeman. 2016. “Racism in the credit card industry”. North Carolina Law Review. 95: p. 1071. 

  13. Lisa Rice and Erich Schwartz Jr. 2018. “Discrimination when buying a car”. National Fair Housing Association. 

  14. Henderson, Loren, Cedric Herring, Hayward Derrick Horton, and Melvin Thomas. 2015. “Credit where credit is due?: Race, gender, and discrimination in the credit scores of business startups”. The Review of Black Political Economy 42(4): pp. 459–479.

    David G. Blanchflower, Phillip B. Levine, and David J. Zimmerman. 2003. “Discrimination in the small-business credit market”. Review of Economics and Statistics 85(4): pp. 930–943. 

  15. Rachel Atkins, Lisa D. Cook, and Robert Seamans. 2022. “Discrimination in Lending? Evidence from the Paycheck Protection Program”. Small Business Economics 58: pp. 843–865. 

  16. Paul Kiel and Annie Waldman. 2015. “The Color of Debt: How Collection Suits Squeeze Black Neighborhoods”. ProPublica. Updated 8 October 2015. 

  17. Lincoln Quillian, John J. Lee, and Brandon Honoré. 2020. “Racial discrimination in the US housing and mortgage lending markets: a quantitative review of trends, 1976–2016”. Race and Social Problems 12 (1): pp. 13–28. 

  18. Andre M. Perry, Jonathan Rothwell, and David Harshbarger. 2018. “The devaluation of assets in black neighborhoods”. Brookings. Updated 27 November 2018. 

  19. Peter Christensen, Ignacio Sarmiento-Barbieri, and Christopher Timmins. 2021. “Racial discrimination and housing outcomes in the United States rental market”. NBER Working Paper No. w29516. 

  20. Emma García. 2020. “Schools Are Still Segregated, and Black Children Are Paying a Price”. Economic Policy Institute

  21. Seth Gershenson, et al. 2018. The long-run impacts of same-race teachers. No. w25254. National Bureau of Economic Research. 

  22. Amanda E. Lewis, and John B. Diamond. 2015. Despite the best intentions: How racial inequality thrives in good schools. Oxford University Press.

    Jonathan Kozol. 2005. The shame of the nation: The restoration of apartheid schooling in America. Crown. 

  23. Patrick Sharkey. 2013. Stuck in place: Urban neighborhoods and the end of progress toward racial equality. Chicago, IL: University of Chicago Press. 

  24. Megan Stevenson and Sandra Gabriel Mayson. 2018. “The Scale of Misdemeanor Justice”. Boston University Law Review 98(3): pp. 731–777. 

  25. Sonja B. Starr and M. Marit Rehavi. 2013. “Mandatory Sentencing and Racial Disparity: Assessing the Role of Prosecutors and the Effects of Booker. The Yale Law Journal 123(2): pp. 2–80. 

  26. Besiki Luka Kutateladze and Nancy R. Andiloro. 2014. Prosecution and racial justice in New York County—Technical report. New York, NY: Vera Institute of Justice. 

  27. United States Sentencing Commission. 2018. “Demographic differences in sentencing: An update to the 2012 Booker report”. Federal Sentencing Reporter 30(3): pp. 212–229. 

  28. Samuel R. Gross, Maurice Possley, and Klara Stephens. 2017. Race and wrongful convictions in the United States. Irvine, CA: National Registry of Exonerations.

    Death Penalty Information Center. 2021. “A Death Penalty Information Center Analysis of 185 Death-Row Exonerations Shows Most Wrongful Convictions Are Not Merely Accidental”. Washington, D.C.: Death Penalty Information Center. 

  29. Judith Resnik, Anna VanCleave, Kristen Bell, Alexandra Harrington, Gregory Conyers, Catherine McCarthy, Jenny Tumas, and Annie Wang. 2018. “Time-in-cell: Isolation and incarceration”. Yale Law School, Public Law Research Paper 656. 

  30. Katherine Beckett and Heather Evans. 2014. The role of race in Washington state capital sentencing. (Commissioned report.) Washington, D.C.: Law, Societies, and Justice Program and the Department of Sociology, University of Washington. 

  31. Michael Winerip, Michael Schwirtz, and Robert Gebeloff. 2016. “For Blacks Facing Parole, Signs of Broken System in New York”. The New York Times. Updated 4 December 2016. 

  32. Kendra Bradner and Vincent N. Schiraldi. 2020. “Racial inequities in New York parole supervision”. Columbia Justice Lab. Updated 12 March 2020. 

  33. Ellis P. Monk. 2018. “The color of punishment: African Americans, skin tone, and the criminal justice system”. Ethnic and Racial Studies 42(10): pp. 1593–1612. 

  34. Bruce Western and Becky Pettit. 2010. Collateral Costs: Incarceration’s Effect on Economic Mobility. Washington, DC: The Pew Charitable Trusts. 

  35. Wesley Lowery, Kimbriell Kelly, Ted Mellnik, and Steven Rich. 2018. “Where Killings Go Unsolved”. The Washington Post. Updated 6 June 2018. 

  36. David Kennedy. 2015. “Reading Los Angeles: Black communities: overpoliced for petty crimes, ignored for major ones”. Los Angeles Times. Updated 10 April 2015. 

  37. Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick. 2021. “Wealth of two nations: the U.S. racial wealth gap, 1860–2020”. NBER Working Paper Series, No. 30101. 

  38. David M. Cutler, and Ellen Meara. 2004. “Changes in the age distribution of mortality over the twentieth century”. Perspectives on the Economics of Aging. University of Chicago Press. Pp. 333–366. 

  39. Mary R. Jackman and Kimberlee A. Shauman. 2019. “The toll of inequality: Excess African American deaths in the United States over the twentieth century”. Du Bois Review: Social Science Research on Race 16(2): pp. 291–340. 

  40. Robert Vargas, Christina Cano, Paola Del Toro, and Brian Fenaughty. 2021. “The Racial and Economic Foundations of Municipal Redistricting”. Social Problems: pp. 1–26.

    Kim Soffen. 2016. “How racial gerrymandering deprives black people of political power”. The Washington Post. Updated 9 June 2016. 

  41. Alex Vandermaas-Peeler, Daniel Cox, Molly Fisch-Friedman, Rob Griffin, and Robert P. Jones. 2018. American Democracy in crisis: the challenges of voter knowledge, participation, and polarization. Washington, D.C.: Public Religion Research Institute. 

  42. Christopher Uggen, Ryan Larson, Sarah KS Shannon, and Arleth Pulido-Nava. 2020. Locked Out 2020: Estimates of People Denied Voting Rights Due to a Felony Conviction. Washington, D.C.: The Sentencing Project. 

  43. Lara Putnam, Erica Chenoweth, and Jeremy Pressman. 2020. “The Floyd protests are the broadest in U.S. history – and are spreading to white, small-town America”. The Washington Post. Updated 6 June 2020.