Financial Markets’ Strong Performance Deepens Wealth Inequality Amid Pandemic, New Data Shows
The COVID-19 pandemic has had a profound impact on the global economy, with many individuals and businesses struggling to stay afloat. However, new data released this week reveals that while some segments of society have experienced financial gains during this challenging time, others have been left further behind. A report from the New York Federal Reserve Bank highlights how the strong performance of financial markets, particularly the stock market, has deepened existing trends of wealth inequality.
The data shows that from the first quarter of 2019 through the second quarter of 2023, the real net worth of white individuals grew at a much faster rate compared to Black and Hispanic individuals. White individuals saw their net worth increase by 30 percentage points, while Black and Hispanic individuals experienced growth of only 9 percentage points and 21 percentage points, respectively. This disparity is concerning and highlights the ongoing issue of wealth inequality in the United States.
One of the factors contributing to this wealth gap is the higher percentage of white households that have investments in stocks and mutual funds. According to a separate survey conducted by the Federal Reserve, approximately 65.6% of white households had investments in stocks, compared to 28.3% for Hispanic households and 39.2% for Black households. This disparity in investment opportunities has a significant impact on wealth accumulation and further widens the gap between racial and ethnic groups.
Janelle Jones, Vice President of Policy and Advocacy at the Washington Center for Equitable Growth, emphasizes the difference between income gains and closing the wealth gap. While there have been positive developments in terms of income growth for Black Americans, closing the wealth gap remains a challenge. The study highlights that much of the divergence in net worth can be attributed to differences in financial asset holdings. Black households tend to have more wealth concentrated in pensions rather than stocks, mutual funds, and exchange-traded funds (ETFs). In contrast, white households have a higher percentage of their financial wealth invested in businesses, equities, and mutual funds.
The COVID-19 pandemic has further exacerbated these disparities. While government support measures such as increased unemployment benefits and stimulus checks helped prevent a recession, the reopening of the economy in 2021 led to a significant rise in financial asset prices. This increase in asset prices disproportionately benefited those who had investments in the stock market, further widening the wealth gap. Although financial assets experienced some declines in 2022 when the Federal Reserve increased interest rates, these declines did not fully offset the earlier gains.
Furthermore, the pandemic had a detrimental impact on Black-owned businesses. Economic Policy Institute analysis of government data reveals that Black-owned businesses were more concentrated in industries that were hit hardest by the pandemic, such as accommodation, food services, retail, health care, and social assistance. This concentration resulted in higher job losses for Black-owned businesses compared to their white-owned counterparts. The struggles faced by Black business owners during the pandemic have contributed to the widening wealth gap.
Despite these challenges, there have been some positive developments. Treasury Deputy Secretary Walley Adeyemo 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 disparity between Black and white households in America.
In conclusion, the strong performance of financial markets during the pandemic has deepened existing trends of wealth inequality. While some individuals and households have seen their net worth grow substantially, others have been left further behind. The disparities in investment opportunities and the concentration of wealth in certain assets contribute to this widening wealth gap. It is crucial for policymakers to implement effective strategies to address this issue and ensure a more equitable distribution of financial wealth in the United States.