Date

2016

Department or Program

Economics

Primary Wellesley Thesis Advisor

Akila Weerapana

Additional Advisor(s)

Seth Neumuller

Abstract

In 2013, the median wealth of white households was 12 times higher than that of black households. Using data from the Survey of Consumer Finances, I explore the wider context of the racial wealth gap, and conclude that lower returns to investment in housing, education, and assets prohibit black households from accumulating similar levels of wealth as white households. Additionally, analysis of data from the Panel Study of Income Dynamics shows that black and white households not only face different levels of income, but black households experience relatively higher volatility of both the permanent and transitory component of their income. Using a heterogeneous agent life-cycle model with exogenous differences in income profiles, educational attainment, and mortality, I generate endogenous racial differences in wealth accumulation and homeownership rates. The model is only able to explain roughly 6 percent of the observed racial wealth gap, a surprisingly small fraction given the large racial disparities in these factors. This is interesting in its implication that substantial factors beyond income and educational differences are needed to explain the black-white wealth divide. I speculate as to what these factors are, and suggest that a larger share could be explained by an expansion of the mechanisms through which income, education, and mortality, affect wealth accumulation.

Share

COinS