Stock Market Gains Exacerbate Wealth Inequality During Pandemic, New Data Shows
The COVID-19 pandemic has had a profound impact on various aspects of society, and one area that has been significantly affected is wealth inequality. New data released by the New York Federal Reserve Bank reveals that the stock market’s strong performance in 2021 has further entrenched existing trends of wealth inequality during the pandemic. The report highlights the widening gap in net worth between white individuals and Black and Hispanic individuals.
According to the report, the real net worth of white individuals grew by 30 percentage points more than that of Black individuals and 9 percentage points more than that of Hispanic individuals from the first quarter of 2019 through the second quarter of 2023. This disparity can be attributed to several factors, including the higher percentage of white households that have investments in stocks and mutual funds compared to Black and Hispanic households.
The study emphasizes the difference between income gains and closing the wealth gap. While government support, such as increased unemployment benefits and stimulus checks, helped prevent a COVID-induced recession, the rise in financial asset prices with the reopening of the economy in 2021 led to an increase in racial wealth disparities. Even though these market-linked assets experienced a decline in 2022 when the Federal Reserve raised interest rates, the declines did not fully offset the earlier gains.
The report’s authors point out that much of the divergence in net worth by race and ethnicity can be attributed to differences in the real values of financial asset holdings. 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 pensions. On the other hand, less than 20% of Black wealth is stored in private businesses, corporate equities, and mutual funds, compared to about 50% for white households.
Janelle Jones, the vice president of policy and advocacy at the Washington Center for Equitable Growth, highlights the role of exposure and inheritance in wealth accumulation. She explains that white families are more likely to have exposure to the stock market from an early age, while people of color may not have the same opportunities. Additionally, Black family members are less likely to receive inheritances, which further contributes to the wealth gap.
The pandemic has also had a disproportionate impact on Black-owned businesses. Economic Policy Institute analysis of government data reveals that Black-owned businesses were more concentrated in industries that were hardest hit by the pandemic, such as accommodation, food services, retail, health care, and social assistance. This concentration led to higher job losses among Black business owners compared to their white counterparts.
Despite these challenges, Treasury deputy secretary Walley Adeyemo remains optimistic about the economic conditions for Black households. He cites 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 exacerbated wealth inequality, particularly due to the stock market’s performance during this period. The report’s findings highlight the disparities in net worth between white individuals and Black and Hispanic individuals. Factors such as differences in financial asset holdings and exposure to the stock market contribute to this wealth gap. Additionally, the pandemic has disproportionately affected Black-owned businesses, leading to higher job losses. While there have been improvements in employment and wages for Black Americans, there is still a long way to go in closing the wealth gap in America.