Race and Wealth Inequality: The Impact of Racial Differences in Asset Ownership on the Distribution of Household Wealth

Abstract

What accounts for persistent racial differences in wealth ownership? Previous research has debated the role that differences in asset ownership play in creating and maintaining wealth inequality. I use survey data to model the ownership of seven assets and find that whites are indeed more likely than blacks to buy high-risk, high-return assets. I then use a simulation model to explore the effect that these differences have on the distribution of wealth. I separate the effects of asset ownership from the effects of racial differences in family wealth history, earnings, education, marital behavior, fertility, and other influences on wealth inequality. I find that removing racial differences in asset ownership reduced wealth inequality drastically, but not completely, and that racial differences in educational attainment account for much of the remaining difference. I estimate how changes in historical patterns of portfolio behavior and educational attainment would have reduced inequality, and I explore the implications of these findings for reducing wealth inequality in the future.