For decades, Latinos and African Americans had been narrowing the wealth gap between themselves and white Americans. But, according to a new analysis
of Census data, the Great Recession has wiped out those gains. According to the Social & Demographic Trends sector at the Pew Research Center, the median net worth of white households is now 20 times that of blacks and 18 times that of Latinos. The crash of the housing market and its continuing malaise are responsible for much of the disparity.
The wealth gap is now the widest it has been since 1984, when the Census Bureau began collecting such data. In 1995, the year the wealth gap was the narrowest, the wealth ratio for whites and African Americans as well as whites and Latinos was 7 to 1.
The data were taken from the 2009 Survey of Income and Program Participation, a questionnaire which the Census Bureau distributes periodically to tens of thousands of households. In this instance, 36,000 households participated.
The Pew Research analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.
As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149.
Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks, 23% for Hispanics and 11% for whites.
Much of the disparity derives from the fact that the net worth of African American and Latino households depends more on their primary asset, their home, than does that of white households. The housing boom that began more than a decade ago lifted the net worth of minority home owners as prices rose. The boom also boosted the median wealth of Latinos because they are disproportionately employed in the construction industry that was building all those new houses. The bust had the opposite effect. Not only have housing prices continued to fall, but the crippled construction industry lost nearly 2 million jobs.
Although the net worth of white households was also affected by what’s happening in the housing market, they were more likely to have assets in 401k, Keogh and savings accounts, as well as stock holdings. For 2009, these assets made up 28 percent of whites' net worth, compared with 19 percent for blacks and 15 percent for Hispanics. Since then, while housing has continued its downward spiral, the stock market has risen significantly, which means the wealth gap may now be larger than it was in the period the Census data covers.
Hope Yen reported:
"I am afraid that this pushes us back to what the Kerner Commission characterized as 'two societies, separate and unequal,'" said Roderick Harrison, a former chief of racial statistics at the Census Bureau, referring to the 1960s presidential commission that examined U.S. race relations. "The great difference is that the second society has now become both black and Hispanic." …
"Typically in recessions, minorities suffer from being last hired and first fired. They are likely to lose jobs more rapidly at the beginning of the recession, and are far slower to gain jobs as the economy recovers," said Harrison, who is now a sociologist at Howard University. "One suspects that blacks who lost jobs in the recession, or who have tried to help family members or relatives who did, have now spent whatever savings or other cashable assets they had."
While the recession worsened the wealth gap, the trend has been headed in that direction for a long time. A study conducted in 2007 by the Institute on Assets and Social Policy found that middle-income whites had less wealth than high-income African Americans in 1984, but by 2007 they had accumulated four times as much wealth. Tom Shapiro noted that this period coincided with lower tax rates for more affluent Americans. That has been one of the main contributors to the wealth and income inequality that now plagues the United States in a ratio that is—or should be—more akin to banana republics than mature industrialized nations.
Currently 1 percent of the population owns 40 percent of the wealth and 25 percent owns 87 percent. During the so-called “recovery” from the recession, which officially ended 25 months ago, 88 percent of the rise in income has been captured by corporate profits, while only 1 percent has gone to wage-and-salary earners. That kind of income disparity adds to the gap in a country where wealth is already distributed more unequally than anywhere else in the developed world.
Given the attitude toward cutting taxes on "job creators" now prevalent in Washington, there’s every reason to believe this situation will worsen.