Study highlights role of stocks in wealth gap
Profits generated by publicly traded corporations between 2004 and 2019 amounted to about $13.4 trillion being paid to shareholders in the form of stock buybacks and dividends. But the distribution of those payouts went overwhelmingly to white families, according to data from the Federal Reserve Bank.
About $13 trillion of payments to stockowners went to white households, while a much smaller amount — $181 billion — went to Black households, according to a recent report from the New York-based Roosevelt Institute. The study highlights how the unequal distribution of stock ownership has played an increasing role in widening the racial wealth gap.
Many factors have caused Blacks to have less money invested in stocks — from working lower paying jobs to having lower odds of inheriting wealth — but the reality is that an increasing corporate focus on fattening shareholders’ pockets has not helped most Black Americans, said Lenore Palladino, an assistant professor of economics at the University of Massachusetts Amherst.
“We have a false myth that we live in a shareholder democracy and that everyone owns stocks and when the stock market goes up, everyone benefits,” Ms. Palladino said.
Only about half of American households own stocks, and those that do mostly hold it in retirement accounts.
The Federal Reserve’s Survey of Consumer Finances most recent report released in 2016 found just 52% of U.S. families own any stock whatsoever and 87.8% of those who held stock did so in a tax-deferred retirement account like an IRA or a 401(k). Only 26.9% owned individual shares of stock.
Stock prices continue to soar even as the COVID-19 pandemic has caused millions of people to lose jobs and many businesses to shut down. The close of trading in June marked Wall Street’s best quarterly performance since 1998. The S&P 500 rose nearly 20% in the quarter despite a massive 34% drop early in the pandemic.
The African American community has been especially hard hit by both health and economic effects of the coronavirus crisis. The market’s rise also has come despite social upheaval around the country as protesters across the nation have flooded the streets to decry systemic racism in response to the videotaped killing of George Floyd by a Minneapolis police officer.
The asset class that compounds wealth over time and pays dividends to mostly affluent white families has continued to thrive in a way that seems disconnected from the harsh realities of current events.
Ms. Palladino, also a fellow at the Roosevelt Institute, recently authored a research paper for the organization called “The Contribution of Shareholder Primacy to the Racial Wealth Gap,” which focuses on how the unequal distribution of stock ownership has played an increasing role in widening the gap.
She said the report released in February opens up a broad conversation about black wealth, and the lack of it. “African Americans have faced a long history of racism and exclusion that has prevented their ability to build wealth over generations, beginning with the horrors of chattel slavery,” Ms. Palladino said.
“We can’t talk about economics without talking about history,” she said. “Why are some white households able to accumulate stocks? Many white households have wealth passed down many generations. They had opportunities to accumulate wealth that African Americans did not.”
Examples of discrimination against Blacks that have limited their ability to build wealth through the years include the system of economic exploitation known as sharecropping, which kept former slaves in continual debt to white landowners. Jim Crow laws, which were enforced until 1965, mandated segregation in all areas of society including public schools, parks and neighborhoods.
About 1 million Black World War II veterans were excluded from taking advantage of GI Bill-guaranteed mortgages, which helped many returning soldiers achieve homeownership during the post-war suburban housing boom.
Ms. Palladino’s study used data from the Federal Reserve Bank that pointed out gross disparities in the
amount of shareholder payments that went to white and Black families — $13 trillion versus $181 billion.
Also, as of the third quarter of 2019, the study found white families owned an overwhelming 92.1% total share of the stocks and mutual funds market with a value of $23 trillion. Black families owned only 1.5% of the stock market pie valued at $380 billion.
The 2016 Survey of Consumer Finances by the Federal Reserve Bank showed that while the median family wealth for white households was $171,000, for Black households it was $17,600.
Wealth is calculated as the total value of assets such as real estate, stocks and bonds, and cash a person owns minus debt. Wealth is important because it allows people to maintain a standard of living even if they are not receiving a paycheck from a job.
Housing is a significant part of Black people’s overall wealth. The housing crisis of 2008 was devastating to the wealth of many Black people because communities of color were targeted by lenders for the toxic subprime loans that led to millions of Americans losing their homes to foreclosure.
Even beyond race, overall wealth inequality is growing in America.
According to the Federal Reserve’s Distributional Financial Accounts, the share of wealth held by the top 1% went from 23.9% in 1983 to 32.3% in 2019.
Meanwhile, the wealth share of the bottom 50% of American households fell from 3.7% in 1983 to 1.5% in 2019.
Two economists at the Federal Reserve Bank of Cleveland, Dionissi Aliprantis and Daniel Carroll, published a study in February 2019 that concluded that any policies to close the racial wealth gap would have to focus on closing the racial income gap, although the study didn’t identify concrete suggestions on addressing it.
The most recent American Community Survey by the U.S. Census Bureau shows white non-Hispanic households earned a median income of $67,937, while Black households had a median income of $41,551 in 2019.
“While the existence of a racial wealth gap may not be altogether surprising, it may be surprising how little the racial wealth gap has changed over the past half century, even after the passage of civil rights legislation.” the Cleveland Fed study said.
The other problem with unequal ownership of company stocks that Ms. Palladino raises in her study relates to the dogma in corporate America to cut wages for workers in order to increase profits for shareholders.
Those decisions made in corporate boardrooms may seem far removed from the issue of the racial wealth gap, but cuts to employee wages and other benefits also affect African Americans who are disproportionately in the low wage workforce.
Ms. Palladino used megaretailer Walmart as an example of how this plays out.
In roughly 500 stores, Walmart said this year it has raised starting hourly pay from $11 to $12 an hour. It also provides traditional high school graduation and college degree programs, but the median pay for a Walmart associate in 2019 was $22,484, according to the Securities and Exchange Commission.
Meanwhile, Ms. Palladino noted the retailer, which is among the largest non-government employers for African Americans, pays billions of dollars in dividends to shareholders and “about half of those payments go to members of the Walton family.”