Sometimes, leftists will argue that contemporary racial differences in wealth and income are due to differences in the amount of wealth that people inherit from their parents. In this post, I’ll argue that this probably isn’t true. This will go over some of the same material as my article on slavery and modern racial inequality, but without the emphasis on data concerning slavery and 19th century American economic mobility.
Anyway, the fist thing to note is that racial gaps in wealth and income have not improved in the 50 years. Since the 1960s, the Black-White Wealth gap has increased many times over.
With respect to income, many analyses mislead people by ignoring the impact of incarceration and unemployment on the amount that groups earn. Bayer and Charles (2017) correct for this and find that the difference between the median white and median black male worker in earnings is larger today than it was in 1940.
So, if these gaps are caused by ancestral wealth, this is a problem that African Americans are not making any progress on.
The idea that inheritance plays a large role in racial equality is, on its face, an odd idea since the vast majority of people do not inherit anything until they are rather old.
To measure the role of inheritance in modern racial inequality, we can compare racial wealth gaps among working age people who do and those who do not inherit money. When comparing white and Hispanic Americans, the wealth gap is actually largest among those who inherit no wealth. With respect to black Americans, the wealth gap among those who have no inheritance is 28% lesser than the gap among those who do receive inheritance.
So, as a place to start, we can say that inheritance accounts for, at most, 28% of the black-white wealth gap. The remaining 72% must be accounted for by something else.
Now, this data includes people who inherit money from their parents, but for the general left wing narrative to be true there must be an intergenerational transmission of wealth which lasts more than just two generations. At least for Black Americans, this seems to be mostly untrue.
Toney (2016) finds that a doubling of the wealth of a person’s grandparents predicts an 18% increase in their own wealth if they are white but only a 2% increase in their wealth if they are black. Moreover, the effect among black Americans is not statistically significant, meaning that there is a reasonable change that it is due to sampling error and that the relationship in the general population is actually zero.
On the basis of this data, we can make a prediction about what would happen to black wealth in the future if it were presently set to equal the wealth of white people. So, for instance, if black wealth was increased by a factor of 7.5, three generations later their net wealth would only by 1.5 times greater than it was prior to the 7.5 factor increase and this would leave restore the vast majority of the initial racial wealth gap. While the above paper only looks at three generations, it makes sense to assume that this initial wealth increase would fall apart even more in future generations until it was effectively zero.
Similar results were found by Chetty et al. (2018) who were given data by the IRS that allowed them to conduct a statistical analysis where the sample was the entire US population that filed taxes between the years 1989 and 2015. Chetty et al replicated in dramatic fashion the finding that parental wealth doesn’t transfer to future generation well in black families. They write: “A black child born to parents in the top quintile is roughly as likely to fall to the bottom family income quintile as he or she is to remain in the top quintile; in contrast, white children are nearly five times as likely to remain in the top quintile as they are to fall to the bottom quintile”
Given these findings, there’s no good reason to suspect that racial economic inequality would be significantly reduced in the long run even if the median wealth of black Americans today was elevated to the median wealth of whites. In a few generations, data we have would lead us to suspect that black wealth would regress back towards where it is now.
Before, I said that up to 28% of the black-white wealth gap might be due to inheritance. However, this upper bound is based only on observational data, and it isn’t obvious how that data should be interpreted. After all, two families which differ in the amount of wealth accrued in previous generations might also differ in things like education, intelligence, self control, and work ethic and it may be the intergenerational transmission of these traits, rather than wealth itself, that explains the (fairly weak) stability of wealth within families across generations.
This sort of conclusion is suggested by behavioral genetic research on income. There have been several studies showing that while people born into rich families end up having higher incomes, this is only true when the people in the family are genetically related and is not true in adoptive families (Sacerdote, 2002; Sacerdote 2004).
This is probably not true of the very rich, but within the normal range of variation in family income the correlation between parent and child income is due to traits transmitted genetically rather than parental income causally impacting the income of children. It is highly plausible that something similar is going on with respect to wealth.
Conclusion
To sum up, there isn’t good reason to think that inheritance plays much of a role at all in american racial inequality. Observational data suggests that, at most, it can explain 28% of the black-white wealth gap, but behavioral genetics data implies that the link in wealth between parents and their children may not be causal, and the non-existence of wealth transmission among African Americans makes it implausible to suggest that variation in inheritance from 4+ generations ago causally explains a significant portion of the black-white wealth gap.
Ideas and Data 