Monday, August 17, 2015

Racial Wealth Gap Persists Despite Degree, Study Says - Note for a lecture, "E Pluribus Unum? What Keeps the United States United"


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Even with tuition shooting up, the payoff from a college degree remains
strong, lifting lifelong earnings and protecting many graduates like a Teflon
coating against the worst effects of economic downturns.

But a new study has found that for black and Hispanic college graduates,
that shield is severely cracked, failing to protect them from both short­-term
crises and longstanding challenges.

“The long­-term trend is shockingly clear,” said William R. Emmons, an
economist at the Federal Reserve Bank of St. Louis and one of the authors of
the report. “White and Asian college grads do much better than their
counterparts without college, while college­-grad Hispanics and blacks do
much worse proportionately.”

A college degree has long been recognized as a great equalizer, a path for
minorities to help bridge the economic chasm that separates them from
whites. But the report, scheduled to be released on Monday, raises troubling
questions about the ability of a college education to narrow the racial and
ethnic wealth gap.

“Higher education alone cannot level the playing field,” the report

Economists emphasize that college-­educated blacks and Hispanics over
all earn significantly more and are in a better position to accumulate wealth
than blacks and Hispanics who do not get degrees. Graduates’ median family
income in 2013 was at least twice as high, and their median family wealth
(which includes resources like a home, car and retirement account) was 3.5 to
4 times greater than that of nongraduates.

But while these college grads had more assets, they suffered
disproportionately during periods of financial trouble.

From 1992 to 2013, the median net worth of blacks who finished college
dropped nearly 56 percent (adjusted for inflation). By comparison, the median
net worth of whites with college degrees rose about 86 percent over the same
period, which included three recessions — including the severe downturn of
2007 through 2009, with its devastating effect on home prices in many parts
of the country. Asian graduates did even better, gaining nearly 90 percent.

To understand just how disappointing these results are, look at the impact
during this period on comparable groups without college degrees. Blacks
without degrees, in large part because they had much less to lose, experienced
a 3.8 percent drop in wealth. Whites who didn’t graduate from college lost
nearly 11 percent. The wealth of Asian nongrads fell more than 44 percent.

There is not a simple answer to explain why a college degree has failed to
help safeguard the assets of many minority families. Persistent discrimination
and the types of training and jobs minorities get have played a role. Another
central factor is the heavy debt many blacks and Hispanics accumulate to
achieve middle­-class status.

The collapse of the housing bubble played havoc with college­-educated
black and Hispanic families, who on average accumulated a huge amount of
debt relative to the size of their paychecks. They borrowed a lot to buy homes,
only to see them plunge in value during the mortgage crisis. While the average
value of a home owned by a white college graduate declined 25 percent, homes
owned by black and Hispanic grads fell by about twice that.

This loss was made more devastating by the fact that blacks and Hispanics
tended to have more of their wealth concentrated in their homes than whites
and Asians, who, on average, accumulated more assets in the stock and bond
markets, primarily through retirement accounts.

The housing boom and bust particularly whipsawed college­-educated
Hispanics: From 2007 to 2013, their net worth fell a whopping 72 percent.

One lesson, according to economists at the St. Louis Fed, is that
borrowing too much to get a piece of the American dream often undermines
any hope of sustaining it.

That notion applies equally to excessive college and housing loans, they
say. “How you finance an asset is just as important as the asset itself,” said Ray
Boshara, director of the Center for Household Financial Stability at the St.
Louis Fed bank.

Substantially narrowing the racial and ethnic wealth gap, Mr. Boshara and
the study’s authors suggest, would require policy changes to expand the
availability of a quality college education without forcing students into outsize

The issue of onerous student debt is surfacing in 2016 presidential
campaigns. Hillary Rodham Clinton, who is seeking the Democratic Party
nomination, has proposed government grants to replace loans for students at
four­year public colleges and universities. The plan has spurred some of her
Republican rivals, including Senator Marco Rubio of Florida and Gov. John R.
Kasich of Ohio, to talk about reducing the student loan burden.

While the recession has caused especially steep declines in black and
Hispanic wealth, the study contends that the problem is deeply rooted and
more persistent. “The recent crisis exacerbated these longer­term trends but
did not by itself cause the long­term trends that we see,” Mr. Emmons said.

In even the best of economic times, blacks and Hispanics have lagged
whites. The black unemployment rate, for example, has consistently been
twice as high as the rate for whites, even among college graduates.
Researchers have repeatedly found discrimination in the job market.

When two nearly identical résumés are sent out, for example, it has been
documented that the candidate with a white­sounding name receives more
callbacks than the applicant with a black-­sounding name.

Discrimination like this and other factors contribute to the persistent and
substantial pay gap between whites and minorities. Blacks, for instance, hold a
disproportionate share of government jobs — a sector that has shrunk in
recent years and provides fewer opportunities for big wage gains. Blacks have
fewer advanced degrees, and the ones who do are more often in lower­paying
fields or graduates of colleges with lesser reputations.

“Blacks and Latinos at all education levels, including college and advanced
degrees, earn less than their white counterparts, which means lower lifetime
earnings” and less ability to save, said John Schmitt, research director at the
Washington Center for Equitable Growth, who reviewed an advance copy of
the report.

Blacks and Hispanics are also less likely than whites to inherit money or
receive help from their parents to cover a tuition bill or a down payment on a

William A. Darity Jr., director of the Duke Consortium on Social Equity at
Duke University, points out that a family headed by a black college graduate
has less wealth on average than a family headed by a white high school

The lack of family wealth is pivotal to understanding the racial economic
gap, he argues.

While the researchers from the St. Louis Fed, when asked, played down
the importance of financial support from family when explaining their results,
Mr. Darity said he believed that family aid helped individuals avoid the type of
risky big­ticket borrowing that ensnared so many Hispanic and black

“Prior family wealth is the key,” Mr. Darity explained in an email, noting
that it “shapes both income-­generating opportunities and the capacity to allow
wealth to grow more wealth.”

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