Wealth distribution by race
Abstract: The racial wealth gap between Black and White Americans has remained stable over the last 50 years, with the average wealth level of White individuals being six times higher. Additionally, data show that Black households are disproportionately concentrated at the lower end of the wealth distribution, constituting 50% of households with wealth levels below $20,730. To explore the factors contributing to the substantial presence of Black individuals at the lower end of the wealth spectrum, we construct a model incorporating key differences experienced by Black and White households. These include the wage gap, disparities in survival rates, unemployment rates, and incarceration rates. Many of these disparities are likely to accumulate over time, leading to variations in wealth accumulation. Our model endogenously determines the crime rate, alongside consumption and savings choices in this dynamic environment. We derive decision rules and trace the trajectory towards a new steady state, where the initial exogenous disparities gradually diminish in the long term. We then use counterfactual experiments to examine the role of the exogenous factors in the resulting wealth distribution.