Wealth disparities by race grew during the pandemic, despite income gains, report shows
NEW YORK — Strong performance in financial markets, particularly outsized gains for the stock market in 2021, helped anchor existing wealth inequality trends during the pandemic, new data released this week shows.
According to a report from the New York Federal Reserve Bank, the real net worth of white individuals increased by 30 percentage points and 9 percentage points, respectively, than that of Black and Hispanic individuals between the first quarter of 2019 and the second quarter of 2023.
The period was marked by a remarkable level of government financial support and, after the initial shock of the pandemic, a surprisingly strong labor market. The unemployment rate for black Americans in particular is now 5.3%, near a record low, compared to an overall unemployment rate of 3.7%. Earnings for the typical Black full-time worker have increased 7.1% since before the pandemic.
Closing the wealth gap is more difficult because a significantly larger share of white households traditionally have money in stocks and mutual funds. A separate Fed survey found that about 65.6% of white households had investments in stocks in 2022, compared to 28.3% for Hispanic households and 39.2% for Black households.
“The research really shows the difference between making gains when it comes to income, and closing that gap, versus when it comes to wealth,” said Janelle Jones, vice president of Policy and Advocacy at the Washington Center for Equitable Growth.
While government support such as higher unemployment benefits and stimulus checks helped prevent a COVID-induced recession, financial asset prices rose so significantly with the reopening of the economy through 2021 that racial wealth gaps widened. And while these market-related assets did indeed fall in 2022 as the Federal Reserve quickly raised rates, “these declines could not fully offset previous increases,” the New York Fed said.
“Much of the disparity in net worth by race and ethnicity since 2019 can be attributed to differences in the real values of financial assets,” the report authors wrote — including the fact that Black households have concentrated more wealth in pensions than in shares. mutual funds and exchange-traded funds, or ETFs.
More than 50% of black financial wealth is invested in pensions, the New York Fed found. Less than 20% of black wealth is stored in private companies, corporate stocks and mutual funds. In contrast, less than 30% of white financial wealth is invested in pensions, while about 50% is invested in companies, stocks and mutual funds.
“Black workers are still more likely to be unionized, which could play a role in the pension story,” Jones said. “But how people are exposed to the opportunity to invest in the stock market — whether it’s something they grow up with or not — we know it’s different for white families than it is for people of color.” Black relatives are less likely to receive an inheritance, she said.
During the pandemic, the real value of black-owned financial assets fell below 2019 levels in 2022 and continued to decline steadily, while the real value of Latin America financial assets fell below 2019 levels in 2022 and remained stagnant. Neither group’s real financial assets have recovered to their 2019 values.
Owning a business is another part of financial prosperity, and separate data shows that Black-owned businesses have had a harder time during the pandemic.
Although fewer than 10% of all U.S. business owners are Black, Black-owned businesses were also more concentrated in sectors that were hardest hit when COVID first spread, an Economic Policy Institute analysis of government data shows. In April 2020, more than 40% of Black entrepreneurs reported not working, compared to just 17% of white entrepreneurs.
The industries with the largest overall job losses early in the pandemic were also those where more Black-owned businesses are concentrated: housing, food services, retail, health care and social assistance. According to the Bureau of Labor Statistics, approximately 28% of Black-owned businesses are in these industries, compared to just under 20% of white-owned businesses.
Still, Deputy Treasury Secretary Walley Adeyemo said Wednesday that economic conditions for Black households are improving, citing rising employment and wages for Black Americans since before the pandemic, and an increase in Black business ownership and stock market participation .
Adeyemo suggested that some “policy prescriptions” might be needed to even out the distribution of financial wealth in the US
“The gap between black and white wealth in America is still too wide,” he said.
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