Investing in Racial Economic Equality

From Goldman Sachs Research, this is Allison Nathan. Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients. In this episode, we're focusing on America's current reckoning with its long history of social and economic racial inequality. The economic gaps between black and white Americans are stark and in many cases haven't improved in decades. Black Americans on average experience higher levels of unemployment, earn lower wages, and accumulate less wealth than white Americans. At this pivotal moment of loud and clear rejection of this unacceptable statu

To set things up, it's very important we keep certain terminologies clear that income consists of flows the person receives over some point in time, say, over a year, and income can be of two sources. It can be earned, we call earnings, or unearned income, say the receipts one gets from dividend payments. Okay? Wealth is the sum total of all we own minus all we owe. Much of what we know by the income gap is in fact limited to a slice of income, earnings or wages or something like that. The income we receive, the flows we receive by virtue of selling our labor. For most people, earnings is a re

What's driven the narrowing and then the rewidening?

We can disaggregate various explanatory factors into two sets of conditions or forces. One kind of force is a force that shifts the overall shape of the earnings distribution. I want you to imagine an accordion. Yeah? There are some forces that take the American accordion and squeeze it inwards. Yeah? Those forces that squeeze the American accordion inwards necessarily lower income gaps or earnings gaps among all Americans or between groups of Americans. Do you see? There are other forces which say, leave the shape or squeezing in of the accordion the same, but move blacks from the left side o

But Charles explains there are different ways to put the income gap into perspective. In addition to the earnings level gap discussed, there's the earnings rank gap, where in the earnings distribution a black man would rank if he were white. And one of Charles' most striking findings is that this earnings rank gap has barely moved in seventy plus years, leaving an average black man relatively no better off than his grandfather. Here's more from Charles on that.

Imagine we took a black guy of any arbitrary income level or earnings level. Let's ask where he would rank if he were white. We know he will not rank at the median because whites have higher income. How far below the median would he rank, yeah, in the white distribution in this hypothetical thought experiment? If there's a result that over my career has floored me that at the median, where the median black person would rank in the white earnings distribution has not improved for seventy years. A man today who's 30 ranks in the overall white earnings distribution where his father would rank. I'

While the picture looks bleak at the median, Charles says the income gap looks moderately better for top earners even if it's still wide. And that largely owes to race specific policies that have disproportionately benefited black men at the top of the income distribution.

At the top of the earnings distribution, the earnings gap is actually smaller than at the median. We're remember I said there's a 68% gap at the median? At the ninetieth percentile, it's 48%. Mhmm. That's much smaller, but that's still big. And for the ninetieth, we have seen, as we saw at the median, some closing up until 1970, and then some rewidening after 1970. Interestingly, the rewidening we have obse