How Does Social Security Affect the Racial Wealth Gap?

John Sabelhaus
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John Sabelhaus: Brookings Institution, University of Michigan

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: The large and persistent gap by race in U.S. household wealth is a well-established empirical fact, though the causal mechanisms for wealth differentials are still a subject of much debate. Previous research on wealth inequality has shown that expanding the concept of wealth to include Social Security reduces overall wealth inequality (Sabelhaus and Volz, 2022a). These two observations motivate the questions and empirical approach in this study. Focusing on individuals born between 1936 and 1965 and observed at ages 51 to 56 in two household data sets, I first study wealth ratios and wealth rankings by race using conventional household wealth measures, and then study the implications of expanding the wealth measure to include Social Security. In the wealth measures excluding Social Security there is 23 percentage-point average wealth rank gap between Black and White individuals, and that falls to 13 percentage points after controlling earnings and other observables. Adding Social Security reduces racial wealth gaps, but also draws our attention to the fact that resolving expected Social Security funding shortfalls could have first order implications for wealth inequality and the racial wealth gap. Adding Social Security does not impact wealth rank gaps by race, however, which reinforces the need for further research on differences in wealth accumulation dynamics.

Pages: 44 pages
Date: 2023-03
New Economics Papers: this item is included in nep-age and nep-ure
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