Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance
Wealth can support families facing economic shocks that disrupt income; it can be used as collateral to obtain financing that creates additional opportunities; it can be left as a bequest to support family members in the future; and it is vital to financing future consumption in retirement. However, wealth is known to be distributed unequally by race, leading to concerns about fairness, opportunity, and the legacy of racism in the United States. This paper explores two specific factors that have long been identified as playing potentially important roles in generating disparities in wealth by race: differences in earnings and intergenerational transfers in the form of inheritances and inter vivos gifts.
For their analysis, the authors use what they call “private wealth,” a measurement that adds defined benefit pension assets to the standard market wealth concept in the Survey of Consumer Finances. They also introduce predicted earnings histories into the SCF and use the full range of pension generosity measures available in the survey to develop a better understanding of how human capital formation leads—through higher earnings and non-wage compensation over the working life—to the accumulation of wealth. In addition, they enhance the existing intergenerational transfer data in the SCF by including inheritances that are reported outside of the “inheritance” module and reclassifying some as inter vivos transfers to better understand their role in sustaining racial disparities in wealth.