Arnold Kling  

What Explains Inequality?

Debating Rubinomics... Finite Labor Supply in India...

Two new books give provocative answers. According to Houses Divided, reviewed here,

Thomas M. Shapiro argues in this sober and authoritative book that we should look to disparities of wealth for the answer...Whites start out ahead because they inherit more from their parents, and America's racially segregated housing markets boost whites' home equities, while depressing those of African-American families.

According to The Pecking Order, reviewed here,

differences between families explain only 25 percent of the nation's income inequality; the remaining 75 percent is explained by differences between siblings.

Finally, it is worth re-reading Tyler Cowen's summary of an article by Kerwin Kofi Charles and Erik Hurst.

The age-adjusted intergenerational wealth elasticity is 0.37. What does this mean? If parents have wealth 50 percent over the mean in their generation, the wealth of their children will be 18 percent above the mean in the childrens' generation.

...Income levels account for about one-half of the parent-child wealth relationship. In other words, high income parents tend to produce high income children, to some extent. The children earn much of their wealth. Education and financial gifts account for very little of the correlation across parents and children.

For Discussion. What new research questions are suggested by the results of these three studies?

Comments and Sharing

CATEGORIES: Income Distribution

COMMENTS (23 to date)
Don Boudreaux writes:

Here's a letter that I wrote today to The Washington Post Book World. I thought it a bit too easy to mention in this letter that I inherited not a single cent from my parents.


15 February 2004

Editor, The Washington Post Book World
1150 15th St., NW
Washington, DC 20071

Dear Editor:

It’s a shame that reviewer Michael Hout did not more critically analyze Thomas Shapiro’s thesis in The Hidden Cost of Being African American (“Houses Divided,” Feb. 15th). Arguing, as Shapiro does, that white Americans are wealthier than black Americans because whites generally receive larger inheritances than do blacks is facile. Asian-Americans, for example, have done extraordinarily well at accumulating wealth despite starting off on these shores with very little.

More importantly, the most insidious obstacles to black progress go unmentioned: government schools that barely educate young blacks; Social Security, which transfers wealth to whites with longer life-expectancies from blacks with shorter life-expectancies; and, worst of all, minimum-wage legislation, which prices unskilled workers out of the labor market.

Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Eric Krieg writes:

The biggest thing that children inherit from their parents is IQ, or lack of it. If wealth is 25% inherited, intelligence is 50%, and thus trumps it.

Can we be honest? The economic problems in the black community have nothing to do with inherited wealth, or inherited intelligence. They have to do with culture, one that does not value intellectual pursuits.

Lawrance George Lux writes:

A statistical study need be made as to the average Income level of inheritors prior to receipt of inheritance. I personally assumed it has always been quite high. There is a percentage of Trust-fund babies which are growing in number, but I think the percentage is low. lgl

Peter Gallagher writes:

Hello Arnold,

A possible premise is that families' contribution to their members' income is due more to 'social capital' than the transmission of bankable wealth. After all, most modern governments do their best to tax away inherited wealth (not in the USA?), and many kids make much less than optimal use of the wealth transferred to them during their minority (e.g. the most expensive education) than they might. This is the definition of being a kid.

On this view, kids that are poorly equipped from a social capital point of view often (but not always) do badly in terms of life-time income and kids whose connections, 'fall back' options, family geographical spread or adherence etc are very good don't as a matter of course earn big incomes (and overall the 'intergenerational wealth elasticity' is less than .4) because -- theorem -- even desirable stocks of social capital dissipate when families disperse across generations.

Differences in wealth between siblings don't offer much specific support for the theory but don't seem to controvert it either. The explanation for these differences might lie in all those other things that seem to account for personal wealth (that I'd be tempted to sum up as 'personal qualities' and luck).

My suggestion, therefore, for the research question would be whether the initial premise is true as well as plausible: that family contributions are no more than 'social capital' and that the intergenerational transmission rate reflects the nature of this 'social capital'.

BTW: I'm a bit uncertain about how much credence to give to the concept of 'social capital'. It's a bit like melody in current jazz: it looks like its going to be something definite and recognizeable until you try to take hold of it and then it isn't.

But I have seen some intriguing attempts to explain differences in growth rates in comparable developing economies, and the welfare impacts of migration on both the country of emigration and immigration that employ the notion. So I'm interested in seeing it applied in other contexts.

Best wishes,


David Thomson writes:

The economic success of the newly arrived Asians is indeed overwhelming evidence that inheritance has little do do with overall wealth creation. Why are blacks in such bad shape? I can immediately think of two reasons:

1.) Extremely high illegitimacy rates

2,) The contempt toward education by black males. Far too many of them consider acquiring an education as “acting white.”

Boonton writes:

I'm very suspecious of attempts to explain the economic status of blacks (or others) by appeal to a supposed contempt for education. First of all, this reeks of ancedotal evidence or worse...not a broad based objective study of attitudes towards education. Second, I think it ignores the most valuable features of 'social capital'. They are:

1. Forgiveness of mistakes, if a kid screws up his parents have the capital to 'make it ok'. Also his parents have the power to step in and help out at key moments. For example, they may contribute $4,000 when he is trying to get together a down payment on his house. This transfer of wealth is minor but because it happens at a key time it has a big effect later on.

2. Connections - The kid who spends his college years partying at the frat house is able to still form solid connections that will guide him thru his career. I've seen several people in high level positions whose college memories are basically one big party. Nevertheless, their 'contempt for education' doesn't seem to have hurt their rise. In fact it seems to have helped them.

3. I strongly suspect that the US overinvests in education. People are being made to get expensive 4 yr, even 6 yr degrees when they aren't necessary. I'm sure many of us have encountered jobs where new hires are required to have college degrees but old timers in the office often started with just a HS diploma. I suspect that education is being used more as a screening tool than a capital asset.

Eric Krieg writes:

>>I've seen several people in high level positions whose college memories are basically one big party.

George W. Bush? Ha!

No one says that education and intelligence are everything. They're merely good predictors.

GWB has a 120 IQ, based on his SAT score. That isn't exactly low intelligence.

Eric Krieg writes:

>>this reeks of ancedotal evidence or worse...not a broad based objective study of attitudes towards education.

It's anecdotal. That doesn't mean it's wrong.

The damning thing in my mind is that, when you compare kids of the same socioeconomic background, you find that the black kids still score 3 or 4 grades behing the white kids on achievement tests.

Eric Krieg writes:

"More recent theories suggest that historical oppression, perceived lack of opportunity, and "rumors of inferiority" all conspire to create an "oppositional culture" which equates academic success with "acting white." These theories of cultural influence have yet to be adequately researched. (Jencks and Phillips, 1998)"

You have to wonder how such a theory could be proven.

Eric Krieg writes:

"Of the more than 129,000 blacks who took the ACT test this year, not one scored a perfect score of 36. On the other hand, there were 141 white students who received the highest score of 36. Only one black student achieved a score of 35 on the ACT. There were more than 1,100 white students who scored 35 or above on the ACT.

But here is the most discouraging statistic in this year's ACT report: In 2003 more than 87 percent of all white test takers scored at or above the median score for blacks. "

Anyone willing to take bets on how many of those with scores of 36 were East Asian or Indian?

Bernard Yomtov writes:


Could you provide a link for the ACT data?

Also, I'm not sure what you mean by "George W. Bush? Ha!"

Hasn't he pretty well admitted that he didn't take school very seriously?

triticale writes:

The assertion that segregation depresses home values in black communities needs to be reviewed. The area south of downtown Chicago, which I have heard referred to as The Gap, has been a hotbed of black gentrification for some time now, and on the near west side, around the United Center the same thing is happening. The integrated neighborhood of Milwaukee where I live has the fastest rising home values in the city.

Incidentally, I have heard neighbors, parents and teachers, complaining about the "studying is acting white" meme. My theory is that this attitude was created and spread by white supremecists.

Eric Krieg writes:

Bernard, are you humor impaired? Come on, man. It's a JOKE!

Eric Krieg writes:

I provided the link. Click on my name in the original post.

Eric Krieg writes:

>>My theory is that this attitude was created and spread by white supremecists.

Essentially unprovable. But the way certain academics throw around the word "racist" these days...

I guess it depends on your definition of "white supremicist".

Some of this stuff is self reinforcing. If blacks don't value education, then schools in predominatly black areas are not going to be very good. Since home prices are so strongly correlated to local school performance, then housing prices in those areas will lag behind. And so forth.

Mcwop writes:

Gary S. Becker has already explained the Gap quite well in his book A Treatise on the Family. A broken family, regardless of skin color, is a large contibutor. An "unbroken" family can be a powerful economic unit.

Bernard Yomtov writes:


You need on work on your joke-making skills.

Blaming the audience is just a way of avoiding responsibility for the lameness of your humor. Accountability, Eric. Accountability!!

Eric Krieg writes:

It was much funnier in person.

Robert Schwartz writes:

"Black American Students in an Affluent Suburb: A Study of Academic Disengagement" (Lawrence Erlbaum Associates), is by John U. Ogbu, an anthropology professor at the University of California at Berkeley and a well-known figure in the field of student achievement for more than three decades. Indeed, it was Mr. Ogbu's research that popularized the phrase "acting white" in the mid-1980's to help explain why black students might disdain behaviors associated with high achievement, like speaking standard grammatical English.

Now Mr. Ogbu is back, arguing with renewed fervor that his most recent research shows that African-Americans' own cultural attitudes are a serious problem that is too often neglected.

"No matter how you reform schools, it's not going to solve the problem," he said in an interview. "There are two parts of the problem, society and schools on one hand and the black community on the other hand."

Professor Ogbu's latest conclusions are highlighted in a study of blacks in Shaker Heights, Ohio, an affluent Cleveland suburb whose school district is equally divided between blacks and whites. As in many racially integrated school districts, the black students have lagged behind whites in grade-point averages, test scores and placement in high-level classes. Professor Ogbu was invited by black parents in 1997 to examine the district's 5,000 students to figure out why.

"What amazed me is that these kids who come from homes of doctors and lawyers are not thinking like their parents; they don't know how their parents made it," Professor Ogbu said in an interview. "They are looking at rappers in ghettos as their role models, they are looking at entertainers. The parents work two jobs, three jobs, to give their children everything, but they are not guiding their children."

For example, he said that middle-class black parents in general spent no more time on homework or tracking their children's schooling than poor white parents. And he said that while black students talked in detail about what efforts were needed to get an A and about their desire to achieve, too many nonetheless failed to put forth that effort.

Those kinds of attitudes reflect a long history of adapting to oppression and stymied opportunities, said Professor Ogbu, a Nigerian immigrant who has written that involuntary black immigrants behave like low-status minorities in other societies.

* * *

Professor Ogbu is no stranger to controversy. His theory of "acting white" has been the subject of intense study since he first wrote about it in the mid-80's with Signithia Fordham, then a graduate student and now a professor of anthropology at the University of Rochester. They studied an inner-city Washington high school where students listed doing well in school among the "white" behaviors they rejected, like visiting the Smithsonian and dancing to lyrics rather than a beat.

The two anthropologists theorized that a long history of discrimination helped foster what is known in sociological lingo as an oppositional peer culture. Not only were students resisting the notion that white behavior was superior to their own, but they also saw no connection between good grades and finding a job.

Many scholars who have disputed those findings rely on a continuing survey of about 17,000 nationally representative students, which is conducted by the National Center for Education Statistics, an arm of the federal government. This self-reported survey shows that black students actually have more favorable attitudes than whites toward education, hard work and effort.

But that has by no means settled the debate. In the February issue of the American Sociological Review, for example, scholars who tackled the subject came to opposite conclusions. One article (by three scholars) said that the government data were not reliable because there was often a gap between what students say and what they do; another article by two others said they found that high-achieving black students were especially popular among their peers.

"It's difficult to determine what's going on," said Vincent J. Roscigno, a professor of sociology at Ohio State University who has studied racial differences in achievement. "`I'm sort of split on Ogbu. It's hard to compare a case analysis to a nationally representative statistical analysis. I do have a hunch that rural white poor kids are doing the same thing as poor black kids. I'm tentative about saying it's race-based."

Indeed, Professor Mickelson of the University of North Carolina found that working class whites as well as middle-class blacks were more apt to believe that doing well in school compromised their identity.

All these years later, Professor Fordham said, she fears that the acting-white idea has been distorted into blaming the victim. She said she wanted to advance the debate by looking at how race itself was a social fiction, rooted not just in skin color but also in behaviors and social status.

"Black kids don't get validation and are seen as trespassing when they exceed academic expectations," Professor Fordham said, echoing her initial research. "The kids turn on it, they sacrifice their spots in gifted and talented classes to belong to a group where they feel good."

Robert Schwartz writes:

Now your Question, Arnold. If sibling diferences are that important, then intergenerational effects should be very small as they do not impact sibling differnces (maybe mom really did like my brothers better). My gut feeling is that family is the most important variable and that it is most important at the level of intangibles that range from education and health (which is very important!) to attitudes and connections.

Monte writes:

“The main reason African Americans are currently worse off than whites, according to Shapiro, is that today's African Americans inherited less wealth from their parents than today's whites did.”

Nonsense. Numerous studies have revealed that inheritance is not a significant source of wealth, accounting for less than 10% of the total wealth possessed by the top 5% of households. Most of those whom we refer to as “the wealthy” legitimately earned the right to that title. Mr. Shapiro is yet another in a long list of apologists attempting to whitewash the real reasons blacks continue to struggle economically:

“Many have cultivated the rationalized belief that they have a right to a passively obtained entitlement compensatory for their argued imposed unpleasant sociological happenstance. This attitude and the accompanying demands have displaced focus on seriousness and development of work-habits or incisive personal responsibility. This has been further extended into a sociopolitical movement that attempts to substitute development of political movements and political power for concrete effort and responsibility. This is particularly true overall in the urban black population. In the last 40 years the term "poor" has evolved into being a code-word for "black", urban black. If much of West Virginia is in an economically retrograde condition, or if portions of Western Pennsylvania have deteriorated to a point where entire middle-sized towns that have been gutted of industry can be purchased for 25 cents on the dollar, it is not of Politically Correct interest. Poor means Urban Black. It means steering urban blacks into becoming a deployable monolithic political block of leftist political activism and demands.”

Spoiled Blacks: What We Don’t Dare Discuss by Robert L. Kocher

Mr. Econotarian writes:

One of the issues with families is that it isn't just your parents that can help you out - uncles, aunts, cousins, and granparents can help as well. And not just with money, but with connections, especially business and school connections.

That said, I still believe that the War on Drugs created a massively profitable (if dangerous) urban industry, now reaching well into the suburbs, which misdirects many young entrepreneurs.

S.M. Wobbe writes:

I partially agree with Shapiro's argument. Consider the differences in homeownership between Blacks and White's. Whites have a considerably higher rate of homeownership, exceeding Blacks by at least 20% nationally. (see O'Connor "Urban Inequality Evidence From Four Cities") Moreover, if Whites have a higher rate of homeownership, for whatever reason, they have more home equity, which is associated with social mobility. This gives Whites an opportunity to move to better neighborhoods, meaning better schools, and better education.(O'Connor)
I think this is just one of many contributing factors to social inequality. Others, like those mentioned in previous postings, are attitudes or perceptions. In O'Connor's Multi-city Study, they focus on perceptions of discrimination and other cognitive explanations for racial inequality. The study shows that (at least in Detroit, Atlanta, Boston, and L.A.)Black's perceive neighborhoods that are predominantly white as hostile towards them, or financially out of reach. There is some truth in this perception. Less that half of Whites claimed that they would feel uncomfortable in a neighborhood that was 50% Black, and 90% said they would feel more comfortable in a neighborhood that was 90% White. (Multi-City Study) The question is why are neighborhoods that have more Blacks less desirable to Whites. Again I suggest perceptions play a huge role. Whites perceive neighborhoods with a high percentage of Blacks as declining in value, and seek to move. Possibly stereotypes enter the picture... Check out the Muti-City study. It is quite comprehensive, and addresses many different problems contributing to racial inequality.
Like I said, I think there are many different factors contributing to the racial gap. Shapiro, I think, has identified an very important one.

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