|Title||A Precise Characterization of The Black-White Wealth Gap|
|Year of Publication||2001|
|Authors||Barsky, R, Bound, J, Charles, KK, Lupton, JP|
|Institution||University of Michigan|
|Keywords||Consumption and Savings, Women and Minorities|
Previous work on black-white wealth differences has not adequately accounted for the profound disparity between blacks and whites in the distributions of lifetime earnings, and has not provided a metric for judging the economic significance of observed wealth differentials. We construct a synthetic white earnings distribution that is comparable to the black earnings distribution, using a novel weighting scheme that downplays the influence of high-income whites. This sophisticated correction for earnings explains some, but not most, of the observed differences in the wealth distributions. We propose a new metric to gauge the quantitative economic impact of the wealth gap conditional on earnings: the addition to retirement disposable income flows resulting from the annuitization of financial wealth holdings as of retirement. Taking mortality and retirement income sources such as Social Security into account, annuitized wealth has little appreciable affect on retirement income flows for either blacks or whites below the median. Perhaps twenty percent of black households have enough wealth to have a nontrivial effect on post-retirement income flows. Throughout the earnings distribution, however, whites are considerably more likely to have large potential retirement income from financial wealth than their black counterparts.
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