America’s racial wealth gap could cost the country between $1 trillion and $1.5 trillion from 2019 and 2028 by impacting consumption and investment, according to a study released by consulting firm McKinsey on Tuesday.
The McKinsey report reiterated the country’s stark wealth gap, which has been growing for decades and was worse in 2016 than it was in 1963, according to the Urban Institute. The McKinsey study said that, as of 2016, the median white family had over ten times the wealth of the median black family. The study also detailed the extent to which the racial wealth gap is hurting the overall economy by depressing spending and investment.
“Our forecast relies on the established Oxford model to look at a broad range of investments that happen as communities develop greater wealth: from new business creation, investments in housing, education, and infrastructure, to stock portfolios and retirement accounts,” Jason Wright, a McKinsey Partner who co-authored the report, told Newsweek in an email.
“The key thing to remember is there is a knock-on effect as spending power leads to greater demand and new development, which creates a virtuous cycle. In this way, closing the wealth gap for Black Americans, positively impacts the wider U.S. economy too,” he added. “The $1.5 trillion investment represents the increased economic activity that we estimate will be manifested in housing, capital market investment and consumption.”
The report emphasized the disparate economic conditions of white and black Americans. It said that black workers are more likely to be unemployed than white workers, even after controlling for education, duration of employment and reason for unemployment. It noted that black families are 33 percent less likely to own a house than white families, and that black families’ homes appreciate value more slowly.
A report from Georgetown University, which was released earlier this year, noted the significant advantage that individuals born into wealth families have. Being born wealthy is often a better determinant for success as an adult than academic performance is, the report found.
A “child from the bottom quartile of socioeconomic status who has high test scores in kindergarten has only a 3 in 10 chance of having a college education and a good entry-level job as an adult, compared to a 7 in 10 chance for a child in the top quartile of socioeconomic status who has low test scores,” the study said.
And black Americans are less likely to be born into wealth than white Americans, McKinsey said. Eight percent of black families receive inheritance, while 26 percent of white families do. Black families that do receive an inheritance get just 35 percent of the money of white families who get one.
The report directly linked racial wealth disparity to U.S. history, noting the impact of the National Housing Act of 1934, which led to discriminatory housing policy.
“Institutional forces, such as the National Housing Act of 1934, contributed to structural racial and socioeconomic segregation, limiting many black families’ housing options to those in D-rated neighborhoods, which are characterized by distressed housing stock, lower-income residents, and overall decline,” the report said.