Long Run Wealth Inequality

Abstract:     
One approach to analyzing inequality is to compare average economic choices from a classical theoretical framework. Another approach considers the impact of the formation of society, through statutes and institutions, on average economic outcomes. This dissertation studies the effects of slavery on black-white wealth inequality upon the emancipation of slaves in the US using historical, crosssectional data from the Integrated Public Use Microdata Samples (IPUMS).

Foremost, a theory of relative wealth is presented, where wealth is determined by group-specific wages, hours of work, consumption, and interest rates. Historical black-white differences in wealth were estimated using regression decomposition. This technique decomposes economic differences into the portion explained by differences in characteristics and the unexplained portion due to different returns to a set of characteristics (See, e.g., Blinder 1973 and Oaxaca 1973). Results confirm that we cannot reject that the claim that, when comparing the wealth of ex-slaves to the wealth whites, differences in wealth due to unexplained (or discrimination) effects dominate the portion due to classical characteristic differences.

Furthermore, the size and source of contemporary black-white wealth differences have historical roots: In 1870, at least 75 percent of white-black wealth differences were not explained by characteristic differences described by the classical model when employing the primary index. This is consistent with wealth decompositions of late twentieth century data that shows that three-quarters of white-black differences in wealth were unexplained (See, e.g., Blau and Graham 1990).

Finally, since unexplained differences in states that abolished slavery after the CivilWar were 10 percent higher than unexplained effects in states that abolished slavery well before the CivilWar and the magnitudes of the unexplained effects were similar over the long-run, we cannot reject the existence of a negatively bounded correlation between the duration of time from enslavement and the magnitude of unexplained differences in wealth.

Number of Pages in PDF File: 63

Keywords: economic discrimination, regression decomposition, wealth inequality, slavery, discrimination theory

JEL Classification: J7, C2, D9, E2, H5, H7, N3, B15, D31, D91, E21, H54, H73, I2, I3, J15, J31, J71, K00, N11, N31

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