Financial Markets Fuel Wealth Inequality Amid Pandemic, New Data Shows
The COVID-19 pandemic has had a profound impact on the global economy, causing widespread job losses and economic uncertainty. However, new data released this week reveals that the financial markets have played a significant role in exacerbating existing wealth inequality during this challenging time. The report, published by the New York Federal Reserve Bank, highlights the stark disparities in net worth between different racial and ethnic groups.
According to the findings, white individuals experienced a significant increase in their net worth compared to Black and Hispanic individuals. From the first quarter of 2019 through the second quarter of 2023, the real net worth of white individuals outgrew that of Black and Hispanic individuals by 30 percentage points and 9 percentage points, respectively. This disparity is concerning, especially considering the efforts made to provide government financial support and stabilize the job market.
Interestingly, the unemployment rate for Black Americans is currently at 5.3%, near a record low, compared to the overall unemployment rate of 3.7%. Additionally, earnings for the typical Black full-time worker have increased by 7.1% since before the pandemic. While these figures indicate progress in terms of income, they do not address the underlying issue of wealth inequality.
One of the main reasons for the difficulty in closing the wealth gap is the disparity in stock market participation. A separate survey conducted by the Federal Reserve reveals that a significantly larger number of white households traditionally have investments in stocks and mutual funds compared to Hispanic and Black households. As of 2022, approximately 65.6% of white households had investments in stocks, while only 28.3% of Hispanic households and 39.2% of Black households did.
Janelle Jones, Vice President of Policy and Advocacy at the Washington Center for Equitable Growth, emphasizes the difference between making gains in income and closing the wealth gap. She explains that the study highlights the challenges of wealth accumulation, particularly for communities of color. While government support, such as increased unemployment benefits and stimulus checks, helped prevent a COVID-induced recession, the subsequent rise in financial asset prices further widened racial wealth disparities.
The report’s authors attribute much of the divergence in net worth to the real values of financial asset holdings. They note that Black households tend to have more wealth concentrated in pensions rather than stocks, mutual funds, and exchange-traded funds (ETFs). In fact, over 50% of Black financial wealth is invested in pensions, while less than 30% of white financial wealth is allocated to this area. On the other hand, less than 20% of Black wealth is stored in private businesses, corporate equities, and mutual funds, compared to approximately 50% for white households.
Jones suggests that the difference in exposure to stock market investments may be influenced by upbringing and family background. She explains that white families are more likely to have early exposure to investing in the stock market, which contributes to their higher participation rates. Additionally, Black family members are less likely to receive inheritances, further limiting their ability to accumulate wealth.
The decline in the real value of financial assets held by Black and Hispanic individuals during the pandemic has been significant. While the real value of Black-held financial assets dropped below its 2019 level in 2022 and continued to decline steadily, Hispanic-held financial assets dipped below their 2019 level in 2022 and stagnated. Neither group has seen their real financial assets recover to pre-pandemic levels.
Another factor contributing to wealth inequality is business ownership. Black-owned businesses faced significant challenges during the pandemic, with more than 40% of Black business owners reporting that they were not working in April 2020. This figure is in stark contrast to the 17% of white business owners who were not working during the same period. The industries hit hardest by the pandemic, such as accommodation, food services, retail, health care, and social assistance, were also the sectors where more Black-owned businesses were concentrated.
Despite these disparities, Treasury Deputy Secretary Walley Adeyemo remains optimistic about the economic conditions for Black households. He points to rising employment and wages for Black Americans since before the pandemic, as well as an increase in Black business ownership and participation in the stock market. However, he acknowledges that more needs to be done to address the significant wealth gap between Black and white individuals in America.
In conclusion, the COVID-19 pandemic has not only highlighted existing wealth inequality but has also exacerbated it. The strong performance of financial markets, particularly the stock market, has further widened the gap between different racial and ethnic groups. While efforts have been made to stabilize the job market and provide government support, these measures have not effectively addressed the underlying issue of wealth accumulation. It is clear that more comprehensive and targeted policies are needed to bridge this gap and ensure a more equitable distribution of financial wealth in the United States.
