Resource Category: Education and Human Capital

The term “human capital” expresses the idea that a person’s skill or expertise functions similarly to economic capital, with their ability to earn money increasing as their skills increase. Most researchers agree that higher levels of education lead to higher incomes, but there’s some debate over how much different levels of education ultimately contribute to racial wealth gaps.

Why Education & Human Capital Matter

The Asset Value of Whiteness, for instance, argues that while higher education is associated with greater wealth for Americans of all races, the typical White adult with a college degree still has 7.2 times more wealth than the typical Black adult with a college degree, and 3.9 times the wealth of a Latino college graduate. Because of this type of effect, the authors argue that education-focused strategies alone would do little to close racial wealth gaps. Instead, they argue for direct remediation of racially discriminatory wealth-building policies like racial exclusion from federally subsidized home loans and the full benefits of the GI Bill.

Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance, on the other hand, argues that simple measures of college attainment mask real differences in human capital, such as whether someone pursues a higher-paying field of study. Authors aim to address this by looking at years worked and actual earnings levels as a measure of “human capital,” finding that these two factors combined account for 60 percent of the current White/Black wealth gap for families at the median. Under their approach, human capital is a much larger factor in explaining racial wealth gaps than, say, inheritances, which get more emphasis in The Asset Value of Whiteness. Inheritances do overwhelmingly go to White families, but still only one-third of White families receive any inheritance at all.

Nonetheless, meaningful overlap between these papers remains, with both acknowledging, for instance, that where educational resources are not equally distributed by race, this has led to troubling racial disparities later in life. Authors of both papers likely agree that structural reforms to deliver greater racial equity in our K-12 schools would help close racial wealth gaps, although they likely differ on how much.

Resource Summaries

Summary March 2022

Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance

By John Sabelhaus, Jeffrey P. Thompson

This paper adds to common analyses of the Survey of Consumer Finances (SCF) by using novel data approaches to generate a variety of new insights into the relative asset levels of different racial groups. Compared to some other research, for instance, the authors attribute more importance to the role of education and human capital in asset building.

Specifically, the authors argue that by only looking at broad categories of degree attainment (i.e. college degree, graduate degree, etc.), common measures of human capital understate the true importance of workplace skills and specific choices around field of study for long-term wealth accumulation. This distinction is important because one key determinant of wealth accumulation is lifetime earnings, and lifetime earnings increase dramatically by field of work and years of employment. Therefore, authors add to more common measures of human capital by factoring in estimates of actual job earnings and years of work, finding that these two factors together account for 60 percent of the white/Black wealth gap for families at the median.

The paper also provides new estimates on the receipt of inheritances and inter vivos transfers (i.e. gifts from someone who is still alive). Authors attempt to capture other sources of gifts sometimes missed in the inheritance module of the SCF (like large financial contributions towards the purchase of a home), and come up with slightly higher estimates of inheritances and gifts received by all racial groups.

Despite these slightly higher estimates, authors find that: 1) most American families, regardless of race, receive no inheritance at all; and, yet, 2) large disparities still persist. Roughly one-third of white families (with a head aged 55 and older) ever receive an inheritance or inter vivos transfer, 17 percent of “Other” families receive one, 14 percent of Black families receive one, and eight percent of Hispanic families receive one.

Read on Federal Reserve Bank of Boston

Summary February 2017

The Asset Value of Whiteness

By Amy Traub, Laura Sullivan, Tatjana Meschede, Thomas Shapiro

This myth-busting paper is organized as a set of data-driven arguments against common explanations for what causes racial wealth gaps: e.g. individual differences in education, family structure, full- or part-time employment, and consumption habits.

In each case, the authors provide evidence that these factors actually explain little of the variability in asset levels by race. Further, they argue that because these explanations are rooted in an individual choice framework, they serve to perpetuate negative stereotypes about individual choices made by Black and Latino families.

Explaining racial wealth gaps through predominantly individual choice points shifts attention away from broader policy levers for change. The authors argue that efforts to truly reduce racial wealth inequities at scale must instead be structural in nature, addressing racial wealth inequality’s roots in historically discriminatory public policy decisions.

Read on Demos