This chapter is from the PRB Population Bulletin, "The Demography of Inequality in the United States."

(November 2014) The U.S. population is undergoing significant racial/ethnic change, with rapidly growing Latino, Asian American, and multiracial populations. Immigration has played a key role in these racial/ethnic changes, putting the United States on a path to become "majority minority" by 2043. But the population under age 18 is projected to reach this milestone much sooner—by 2018 or 2019, depending on future levels of immigration. Some of the fastest-growing groups—especially Latinos—are also the most vulnerable, lagging behind other groups on many measures of social and economic well-being.

The good news is that, over the long term, the economic divide between different racial/ethnic groups has narrowed.Twitter logo In 2013, there was a 13 percentage-point gap between the poverty rate of non-Hispanic whites (10 percent) and racial and ethnic minorities (23 percent). This represents a 7-percentage point decrease in the poverty gap since 1987, when the poverty rate for minorities was much higher, at 29 percent. While the poverty rate for whites increased slightly during this 25-year period, from 9 percent to 10 percent, the poverty rates for blacks, Latinos, and Asians declined (see Figure 6).



The bad news is that, in the short term, the recession contributed to a growing poverty gap between Asians and whites versus blacks and Latinos, who were disproportionately affected by job losses during the economic downturn. But the gap also reflects longer-term demographic changes in the U.S. population. Baby boomers, who are mostly white, are reaching retirement age and can receive Social Security income, while young children and their families are more likely to be racial/ethnic minorities and are at a higher risk of being poor. The racial/ethnic divide between generations may contribute to a growing economic gap across different racial/ethnic groups—with an aging white population eligible for benefits that help keep them above the official poverty line, and a younger and racially diverse population entering the workforce during a period of economic instability. If current disparities persist, the number of people living in poverty is projected to increase with the rising share of lower-income racial/ethnic minorities (see Box 3).

White households are also wealthier, on average, compared with black and Latino households. Data from the Survey of Income and Program Participation show that median net worth of whites was over $110,000 in 2011, compared with just $6,300 for black households and $7,700 for Latino households (see Figure 7).



The wealth gap can be explained largely by differences in homeownership and home values between groups, as well as higher levels of private transfers of wealth (for example, through large gifts or inheritances) among whites compared with blacks and Latinos.24 With higher incomes, white families are able to purchase homes eight years earlier, on average, compared with black families, generating more equity and potential for growth in assets.25 Finally, although buying a home remains an important first step toward economic security, homeownership became a liability for many lower-income families during the recent recession. High interest rates, falling home prices, and the rise in foreclosures wiped out trillions of dollars of accumulated wealth.


Box 3
Projecting U.S. Poverty

Reducing poverty will be difficult unless the economic circumstances of blacks, Latinos, and American Indians improve. Between 1980 and 2013, the proportion of racial/ethnic minorities in the U.S. population increased from roughly 20 percent to 37 percent. By 2030, minorities are expected to make up 45 percent of the population. Based on this projection and assuming current poverty levels persist in the future, the number of people in poverty could increase to 68 million by 2050, up from 45 million in 2013 (see figure). However, if the poverty gaps were eliminated, so that poverty rates for all racial/ethnic groups were no higher than those for non-Hispanic whites in 2013, the number of people in poverty in 2050 would drop below the level in 2013, to 44 million.

Closing poverty gaps across different racial/ethnic groups would benefit children more than working-age adults or the elderly, because of the changing racial/ethnic composition of the population under age 18. Eliminating racial/ethnic poverty gaps would reduce the number of children in poverty by 45 percent in 2050, compared with the projected number of poor children if current disparities persist until 2050. For the population ages 18 to 64, the number of poor people would be 30 percent lower in 2050 if poverty gaps were eliminated, while the number of poor people ages 65 and older would be 35 percent lower, compared with the projected number if current racial/ethnic gaps persist until 2050.

These numbers are important because of the high individual and social costs of poverty in the United States, especially among children. It is estimated that each year, nearly 4 percent of the U.S. gross domestic product ($500 billion) is spent on crime and health issues associated with childhood poverty in the United States.1

Reference
1. Harry J. Holzer et al., "The Economic Costs of Poverty in the United States: Subsequent Effects of Children Growing Up Poor," accessed at www.irp.wisc.edu/publications/dps/pdfs/dp132707.pdf, on Aug. 5, 2014.



References

  1. Signe McKernan et al., "Do Racial Disparities in Private Transfers Help Explain the Racial Wealth Gap? New Evidence From Longitudinal Data," Demography 51, no 3 (2014): 949-74.
  2. Thomas Shapiro, Tatjana Meschede, and Sam Osoro, The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide (Waltham, MA: Institute on Assets and Social Policy, Brandeis University, 2013).