Closing racial gaps across the economy is not only about righting historic wrongs. It is also about choosing a more dynamic future and realizing the full potential of a massively underutilized source of talent, to the benefit of all Americans.
The disparities on display during the COVID-19 pandemic were a jolt to America’s conscience. Job losses were greater for people of color, many of whom lacked savings to cushion the financial blow. The long-standing issues of underperforming public schools and gaps in digital infrastructure exacerbated learning losses among children of color. With Black workers concentrated in low-wage frontline jobs that could not be done remotely, exposure to the virus and inadequate access to healthcare cost lives, widening an already sharp racial gap in life expectancy.
This research provides a fact base to document the racial gaps that exist in the US economy today and offer a vision of what could be gained if they were closed. We adopt the lens of the economic roles individuals play as workers, business owners, savers/investors, consumers, and residents. These roles are obviously not neat silos. But collectively, they offer a multidimensional view of economic life, examining how individuals make a living, spend their incomes, and build wealth or manage debt.
The sobering picture that emerges is meant not to discourage but to galvanize. Addressing the wage disparities described in our research alone could propel an estimated two million Black Americans into the middle class for the first time. This could reverse current trends, with cascading effects lifting the prospects of the next generation even further.
Previous McKinsey research has documented geographic mismatches between Black workers and opportunity; underrepresentation in fast-growing, higher-wage industries; lower odds for advancement and higher attrition for Black workers in frontline and entry-level jobs; low representation in executive roles; and a lack of sponsorship and allyship for Black employees. The occupational lens taken in this work is an important complement to those perspectives—and it is inextricably linked to the wage gap, which holds the key to greater economic mobility if addressed.
Today the median annual wage for Black workers is approximately 30 percent, or $10,000, lower than that of white workers—a figure with enormous implications for household economic security, consumption, and the ability to build wealth. Black workers make up 12.9 percent of the US labor force today but earn only 9.6 percent of total US wages.
We estimate a $220 billion annual disparity between Black wages today and what they would be in a scenario of full parity, with Black representation matching the Black share of the population across occupations and the elimination of racial pay gaps within occupational categories. Achieving this scenario would boost total Black wages by 30 percent and draw approximately one million additional Black workers into employment.
The racial wage disparity is a surprisingly concentrated phenomenon. Less than 4 percent of all occupational categories account for more than 60 percent of it (Exhibit 1). They fall into five broad categories: managers of frontline workers, other managers and executives, professions requiring postgraduate training (such as lawyers and physicians), professions requiring undergraduate degrees and accreditation (such as teachers and accountants), and technology specialists (such as software developers and computer and information systems managers). Furthermore, almost 85 percent of the wage disparity is concentrated in just five sectors (professional services, manufacturing, construction, trade/transportation/utilities, and financial services).
Black workers are disproportionately represented in low-wage occupations and underrepresented in higher-wage occupations
Clear racial patterns continue to exist across the US labor force (Exhibit 2). Nearly half of Black workers are concentrated in healthcare, retail, and accommodation and food service. The vast majority of Black workers within those industries are in lower-paying service roles rather than professional or managerial roles. The type of pattern produces the wage gap. The median wage for all US workers is around $42,000 per year, but 43 percent of Black workers earn less than $30,000 per year.
More than 35 percent of all US nursing assistants are Black, with a median wage of $23,000 (Exhibit 3). Many are hired as independent contractors, without employer benefits and protections. Roughly one-third of all security guards and school bus drivers are Black. They earn median wages of $26,000 and $26,500, respectively, with few structured pathways for professional advancement.
By contrast, Black workers are underrepresented in higher-paying professions relative to their 13 percent share of the labor force. Only 5 percent of US physicians are Black, for example, which has implications for the quality of care. Software developers are highly compensated, but only 4.5 percent are Black.
The advancement of Black women into higher-paying positions is critical in light of the role they play in providing economic stability for their families. Women of all races are less represented in leadership roles, but women of color face double hurdles of sexism and racism. A study of 590 US corporations found that only 58 Black women are promoted into manager roles for every 100 men; 64 Black women are hired directly into these roles for every 100 men.
We analyzed the pipelines into several higher-paying professions that have traditionally been important to upward mobility and found multiple obstacles along the way. Looking specifically at the pipeline for lawyers, we see a falloff at every stage that is larger for Black students and practitioners than for their white peers. The drop in representation is particularly steep between law school applicants and law school enrollees. If the attrition rates for Black students and candidates at each stage could be lowered to match those of their white peers, thousands more Black lawyers would enter the profession each year—although it would take decades for these annual flows to alter the current makeup of the profession.
Representation is also lagging among public school teachers. The gap is continuously fed when thousands of candidates do not continue all the way through the professional development pipeline and join the workforce in proportional numbers each year. Falloffs occur at the point of undertaking dedicated education training and certification. Just 4 percent of recent graduates certified to teach are Black—but other research shows that getting more Black teachers into classrooms would have a real impact on long-term educational achievement for Black students.1
Some managerial occupations offer multiple ways to enter. But Black workers have more limited access to established business networks and formal internship programs to get in the door. Once there, it is also harder for Black employees to advance organically from entry-level to managerial jobs; their attrition rates are higher, and many report a trust deficit and a lack of sponsorship and allyship.
On top of skewed representation, pay gaps exist between Black and white workers within occupational categories. This issue accounts for $96 billion, or 44 percent, of the overall disparity. It is especially noteworthy that Black workers who do advance into managerial and leadership ranks are often paid less than their white counterparts.
Multiple interventions can contribute to improving labor market outcomes
While most of our research efforts focused on sizing the gaps, our findings suggest several starting points for action:
- Diversify hiring and promotions, and improve the workplace experience. Employers can expand where and how they recruit while eliminating biases in hiring. One way to do this is to de-emphasize traditional credentials and hire based on aptitude and skills; another is to offer more paid apprenticeships and internships to Black applicants. Beyond hiring, organizations can examine the workplace experience and attrition for different groups of employees. Many Black workers face day-to-day discrimination and scrutiny that make promotions more difficult to achieve. A McKinsey survey found a 27-percentage-point gap between Black and white employees who report feeling accepted at work. But these dynamics can be changed. A number of companies have established formal mentoring and sponsorship programs; others are incorporating diversity goals into managerial performance reviews.
- Strengthen educational pathways. Pre-K and K-12 education lays a foundation for better labor market outcomes, so strengthening schools is vital. College degrees, from associates to bachelor’s, may not guarantee upward mobility, but they remain an important passport to the middle class, particularly as employers have been adding requirements for academic credentials, even for jobs that did not require them in the past. However, there is a significant gap in educational attainment between Black Americans and other racial groups. Supporting historically Black colleges and universities (HBCUs) is key, since they educate almost 20 percent of Black college graduates. But other institutions can do more to enroll and support Black students. Since many are the first in their families to attend college, dozens of institutions have added social, advisory, and financial programs to increase their completion rates. STEM degrees are required for many of the fast-growing jobs of the future, but currently only 6 percent of computer science and engineering students are Black. Nontraditional training programs, such as multiweek coding bootcamps, teach specific skills and could offer a model for a more direct and accountable training ecosystem.
- Improve the quality of jobs disproportionately held by Black workers today. Black workers are the backbone of the nation’s caregivers and essential frontline workers, and their value was made clear during the pandemic. Looking forward, an aging population is expected to increase demand for the types of care-economy roles that many Black workers occupy today. Upgrading the quality and stability of these jobs is an issue of growing importance. The public and private sectors can address issues such as the wages paid for truly essential work, predictability of hours, workplace safety, sick leave, and other benefits.
- Prepare for the future of work. Approximately 6.7 million Black workers (42 percent of the Black labor force) currently hold jobs that could be subject to disruption by 2030. MGI’s scenarios for post-pandemic changes, including increasing automation and business model disruptions, show demand falling for four of the top ten occupations with the greatest absolute numbers of Black workers today (cashiers, janitors, cooks, and retail salespeople). Many people who hold these jobs will need education or on-the-job training to develop new skills. Others may be able to move into higher-paying roles where their experience and existing skills could be extended. Someone who works as a customer service representative could become an administrative supervisor and eventually an operations manager, for example, while additional training and certification could enable a nursing assistant advance to become a registered nurse.
- Help the excluded enter the labor market. Mass incarceration has a lifetime of consequences as people struggle to find work after their release. Employing the approximately two million formerly incarcerated Black Americans at the same rate as formerly incarcerated white Americans could potentially add some 210,000 new workers to the economy.
- Consider how to expand opportunity across industries and geographies. Large employers, industry groups, unions, professional societies, and educational institutions can focus on diversifying talent pipelines into higher-paying fields. Companies can also consider expanding their footprint and corporate operations into underserved communities and more diverse parts of the country.
The vast majority (96 percent) of all Black-owned businesses are sole proprietorships; that figure is only 80 percent for non-Black-owned businesses. However, our analysis focuses on the representation and growth of Black-owned employer businesses—and even for them, scaling up remains a challenge.2
In a parity scenario, Black-owned businesses would generate $1.6 trillion more than they do today. This has two components. First, if the Black share of business ownership matched the Black share of the population, 615,000 more enterprises would exist, potentially generating $1 trillion in revenue, assuming current relative levels. Second, if Black-owned firms matched the average scale of their industry peers, they would add another $600 billion in revenue.
Similar to the pattern in the labor force, the aggregate revenue gap is highly concentrated. Seventy percent of it exists within just five industries: wholesale trade, retail trade, construction, manufacturing, and professional services.
Black-owned businesses are fewer in number and smaller in size than their peers
The US Census Bureau’s Annual Business Survey identified some 124,000 Black-owned businesses with more than one worker—which means that they constitute only 2 percent of the nation’s total, far below the 13 percent Black share of the US population.
A lack of Black representation in certain corners of the labor market, especially in managerial and highly paid professional roles, suggests that the pipeline of people who could make the leap into business ownership is thinner. The absence of Black-owned businesses is particularly notable in industries such as mining, oil, and gas; utilities; agriculture; and manufacturing. Additionally, there are only 1,242 Black-owned information technology businesses (versus 68,569 non-Black-owned businesses). As the industry continues to grow rapidly and transform other parts of the economy, the presence of Black tech entrepreneurs will be critical to ensuring that the information ecosystems and digital tools of the future are inclusive.
Black entrepreneurs often hit structural and market barriers, starting with the difficulty of securing startup capital and loans. White entrepreneurs start their businesses with $107,000 of capital on average, but the corresponding figure for Black founders is $35,000.3 Starting from behind in this way can create a heavier debt burden that makes it harder to survive the startup stage.
These challenges may be one reason that Black entrepreneurship is stronger in less capital-intense industries. Roughly one-third of Black-owned employer businesses are in healthcare and social assistance. Many are home healthcare providers, daycare providers, and physician’s offices. The “low cost of failure” emerged as a theme in interviews we conducted with business owners in the home healthcare field, where starting can be relatively simple but scaling up is harder.
The Black-owned businesses that do exist tend to be small, both by number of employees and per-firm revenue. Black-owned companies employ about 15 percent fewer workers on average than their non-Black-owned counterparts; only 2 percent have more than 50 employees. Black-owned employer firms generate only 60 percent of the revenue produced by their non-Black-owned counterparts ($1 million annually on average, versus $2.4 million). The Black business owners we interviewed cited exclusion from professional networks and a lack of flexible capital to invest in technology and R&D innovations as common challenges to scaling up.
In home healthcare, for example, the average Black business generates only about half of the revenue of non-Black-owned firms—and one of the biggest hurdles seems to be branching out beyond the inaugural group of patients. Larger home healthcare services have established themselves as trusted partners with hospitals and primary care physicians who can provide a stream of ongoing referrals. But this path can be narrow, and if Black business owners are not part of these networks, it can be hard to scale in the same way.
Manufacturing stands out as an arena in which Black-owned businesses are larger. Although only 1 percent of US manufacturing firms are under Black ownership, those companies generate slightly more revenue than non-Black-owned manufacturing businesses, at nearly $6 million in annual revenue on average. Formal private- and public-sector supplier diversity initiatives have helped owners get a foot in the door, obtain larger orders, and build track records.
A number of initiatives could further unleash Black entrepreneurship
Supporting Black-owned businesses can have broader ripple effects; these enterprises are often employers for Black workers and forces for community development in their neighborhoods . There is urgency to act, since many Black-owned businesses had precarious finances before the pandemic and were hit hard by closures in 2020.
Large organizations can drive change through the reach of their supply chains. A number of major US corporations have recently committed to increasing spending with diverse suppliers. Beyond the actions of individual companies are issues that permeate entire ecosystems, starting with the need for more transparency and fairness in the way capital is allocated. Large banks, small banks, and online lenders turn down Black loan applicants at a higher rate than non-Black applicants, citing creditworthiness as the primary reason for denials.4 Black entrepreneurs often face a higher cost of capital but more stringent application processes than white loan applicants. Crunchbase data shows that only 1 percent of venture capital funding goes to Black founders.5 This situation mirrors the lack of representation within the nation’s largest VC firms themselves.
Alternative sources of capital can step into some of the funding gaps. Community development financial institutions are designed to promote economic empowerment in distressed communities. No-strings-attached lending and patient capital from social investors can help Black business owners flexibly grow and sustain their firms without the pressures of generating outsized returns immediately.
Programs could also be targeted in industries with large numbers of Black workers. Entrepreneurs often start businesses in the industries where they have experience, which is another factor behind the concentration of Black-owned businesses in healthcare. Four industries (accommodation and food service, healthcare and social assistance, transportation and warehousing, and administrative support) have high Black representation, which could signal an opportunity to help more people in those fields make the leap to starting their own businesses.
In 2019, Black household spending totaled approximately $835 billion.6 This was just under 10 percent of the nation’s total, and lower than the Black share of the US population (13.4 percent). This gap is primarily the result of lower average incomes and wealth. Achieving parity in the labor market could boost Black consumer spending by some 40 percent.
But lower incomes do not fully explain the gap. Some latent demand exists today but is going unmet. Years of underinvestment by the private sector have left some majority-Black communities with a dearth of retail options and key services. In addition, there is an opportunity to introduce products, brands, and services designed specifically to appeal to Black consumers. In some cases, this would involve capturing dollars already being spent elsewhere today—and our own consumer survey shows that Black consumers are often willing to switch what they buy and even pay more for offerings that truly resonate. When combined with the effects of income parity and expanded access to goods and services in Black communities, there is an opportunity to unlock some $700 billion in value that would be shared by companies and Black households. This is a dual opportunity to add revenue for companies and growth for the economy while addressing important gaps in neglected communities and creating value for consumers.
Many Black neighborhoods are consumer “deserts” that need greater access to goods and services
Across all the categories of spending we examined, a higher percentage of the Black population lives in neighborhoods with insufficient access to goods and services.
- Food. One out of every five Black households is situated in a food desert, defined by the USDA as a low-income neighborhood with inadequate access to food. This applies to roughly 8.3 million Black residents, 40 percent of whom live in five states: Georgia, Texas, Mississippi, Florida, and Louisiana. Counties with above-average Black populations have fewer grocery stores, restaurants, and farmers markets but more small convenience stores.
- Housing. The US Department of Housing and Urban Development defines households as “cost burdened” when more than 30 percent of their gross income goes toward housing—and in 2019, this applied to 53.7 percent of Black renter households.7 These gaps are the result of a shortage of affordable housing in majority-Black neighborhoods combined with a long history of discriminatory practices preventing Black Americans from moving into white neighborhoods.
- Healthcare. Black Americans are nearly 2.4 times more likely than white Americans to live in a neighborhood with limited healthcare services, defined as areas that are either medically underserved or have too few providers relative to the population. One in four Black respondents to a Kaiser Family Foundation survey in 2020 reported difficulties in finding conveniently located healthcare.8
- Broadband. Black households are 50 percent more likely to live in areas with limited broadband service, with spillover effects on job hunting, remote work, and remote learning.9 In some urban neighborhoods, networks are in place, but many internet service providers impose credit checks or require cash deposits from new customers, and they disproportionately turn away Black households. Yet Black consumers are actually more likely to participate in e-commerce; they have compensated for broadband gaps by becoming “mobile first.”
- Banking. Bank branches have been closing rapidly in recent years, and Black Americans are disproportionately likely to live in banking deserts, whether urban or rural. According to FDIC data, nearly half of all Black households were unbanked or underbanked in 2017, compared to just 20 percent of white households.
These gaps tend to intersect. Black households are 2.4 times more likely than white households to live in urban census tracts that are simultaneously food deserts, medically underserved or facing a provider shortage, and characterized by high housing and transportation costs (exceeding 50 percent of the local median income). Some 2.7 million Black residents live in these types of urban environments. This pattern also exists in rural areas, although it affects fewer people.
Investing in underserved communities can be a win-win
Site selection for major retailers is often guided by risk aversion or even by bias. Yet our analysis indicates that moving into underserved retail landscapes can be profitable. We used McKinsey’s proprietary Omni site selection platform to analyze food deserts and the location of grocery stores in Washington, DC. Employing mobile phone data as an admittedly imprecise proxy for foot traffic, we created a model illustrating a hypothetical scenario in which new grocery stores were sited in underserved and majority-Black parts of Southeast DC. The results suggest that these new locations can be profitable.
Social investors, including some Black athletes, are using their capital and their platforms to catalyze the transformation of underserved neighborhoods. Magic Johnson helped to pioneer this approach; for decades, he has invested in retail franchises and mixed-use developments in underserved inner-city neighborhoods. Former Red Sox slugger Mo Vaughn’s company has acquired and rehabbed dozens of deteriorating apartment buildings for low-income tenants. The LeBron James Family Foundation has invested in schools, residential developments, and community amenities in his hometown of Akron, Ohio, and beyond.
Some innovative pilot programs tackling service gaps could be replicated in many more communities. Grassroots initiatives to get fresh produce into food deserts include mobile produce stands, local food co-ops, and pop-up farm stands at transit stations (like Atlanta’s Fresh MARTA Market). The ability to order groceries online with SNAP benefits is rapidly expanding across retailers and geographies as a USDA pilot program scales up. During the COVID-19 pandemic, pop-up and mobile delivery approaches expanded access to testing and vaccinations in underserved communities.
Companies can better connect with Black consumers through more tailored products and improved experiences
Many companies have not hit the mark when it comes to providing Black consumers what they actually want. Data from the 2020 McKinsey Consumer Sentiment Survey shows that Black consumers are more open to switching what and how they buy than other demographic groups. On average, Black consumers are more than 25 percent likelier to change buying behavior, which indicates that their preferences are not being met.
To gauge unsatisfied demand, we launched a proprietary consumer survey of 6,200 American consumers. The responses yielded some reasons for dissatisfaction with products and services that are shared across racial groups, most notably value for money. But Black respondents were far more likely than white respondents to say that current offerings do not meet their needs, especially in personal care products and services, banking and financial services, healthcare, and food. Black respondents also noted not seeing themselves in advertising and marketing campaigns, a lack of same-race business ownership, and a lack of company commitment to social justice. Black consumers report being dissatisfied with products and services that currently account for 30 percent of their spending, or some $260 billion. They are not only willing to switch; they report that they would even be willing to spend up to 20 percent more on average on offerings that are better suited to their needs and preferences.
This is not simply about economics; it is about what wealth can do for people. Making it possible for Black families to build greater wealth would affect every aspect of their well-being. It would improve their prospects for owning the roof over their heads, sending their children to college without debt, starting their own businesses, and simply having greater peace of mind.
The Black-white wealth gap exists at every tier of income, affecting the ability to invest and manage debt
The median Black household has only about one-eighth of the wealth held by the median white household. The actual dollar amounts found in Federal Reserve data are striking: while the median white household has amassed $188,000, the median Black family has about $24,000.
In relative terms, the racial wealth gap is widest between the poorest households. White households below the 30th percentile may be struggling, but they have 40 times more wealth than similarly situated Black households. White households at the 10th percentile have only $950 in wealth—but their Black counterparts are in debt, with negative net worth of almost $13,000.
Black households start with less family wealth and are constrained in their ability to save. We estimate a $330 billion disparity between Black and white families in the annual flow of new wealth, some 60 percent of which comes from intergenerational transfers. Every year there is a massive intergenerational transfer of family wealth, creating an effect that is both profound and self-perpetuating. Black families are less likely to receive inheritances, and when they do, the amounts are smaller. The gap in inheritances between Black and white recipients is some $200 billion annually.10
Households also build wealth incrementally by saving some portion of their income. But smaller paychecks and debt paydown make it harder for Black Americans to put money aside, contributing to a $75 billion annual disparity in savings.
Black households are less likely to hold longer-term assets (Exhibit 7). The Black home ownership rate at the end of 2020 stood at 44 percent, which is 30 percentage points below the 74 percent home ownership rate of white Americans. While 18.6 percent of white households own stocks, the rate for Black households is 6.7 percent.
Consequently, Black households are not positioned for gains when homes appreciate in value or the stock market has an upswing.
The difficulty of saving has led more Black households to take on debt—and they are often charged higher interest rates. We estimate the cost to Black borrowers from differences in observed interest rates at nearly $2 billion annually for auto loans alone. Black households are also disproportionately burdened by student loans. Four years after earning a college degree, Black graduates hold almost 80 percent higher student debt than their white peers (approximately $23,000). This gap has grown more than 10 times larger since 1993.
Some steps can improve financial inclusion
Disrupting these long-standing patterns will not be easy. The outcomes for Black Americans in their roles as workers and business owners have a direct bearing on their wealth, as does their community context. These factors can be changed, although the positive effects will take time to manifest.
But that does not mean nothing can be done. Enabling higher rates of home ownership requires carefully designed, supportive programs with safeguards against predatory lending. Another option would be to reconsider the ways in which tax policy favors property ownership. Bringing the almost 14 percent of Black households (some two million in total) that were unbanked in 2019 into the financial system would reduce their likelihood of turning to high-fee alternative services. Private employers can play a major role by adding retirement benefits for the one-third of US workers who do not have access to workplace plans; they can also do more to encourage participation. Black representation in financial advisory roles could be another key to overcoming mistrust in the financial system.
Through policy and investment, the public sector helps to set the baseline context for how residents participate in the economy. Many of the fundamental services that meet this definition, from education to healthcare access, fall short for Black Americans. Some public programs have eligibility and implementation rules that create barriers to participation or disparities in spending. Others are underfunded relative to the scale of the need. We illustrate these issues by analyzing a limited set of spending areas that provide citizens with the enablers needed for well-being and full participation in the economy.
Black Americans in the aggregate face greater barriers to participating in some public programs and receive less in per capita government spending. Our analysis finds many government expenditures have features that amplify existing racial disparities in income and wealth . Some of this is due to program design, such as eligibility rules or funding mechanisms. At least 30 percent of all public spending goes to established programs with features that amplify existing racial disparities. This is based on three of the largest categories of public spending: select tax expenditure items, Social Security, and local spending on K-12 education.
Most federal tax expenditures reinforce disparities rather than narrowing them
Tax policy is one of the most powerful tools governments use to encourage or discourage certain economic activities. Tax expenditures (such as reduced tax rates, credits, and exclusions) represent the government’s choice to forgo revenue rather than investing it elsewhere. Federal tax expenditures totaled $1.4 trillion in 2019, with 86 percent (some $1.2 trillion) of this figure claimed by individuals.
Two major line items, the Earned Income Tax Credit and the Child Tax Credit, primarily benefit low- and moderate-income working people—and these are particularly important benefits for women of color. Nevertheless, almost 60 percent of federal expenditures went to taxpayers in the highest income quintile, in which Black Americans are underrepresented (Exhibit 8). Some of the largest line items benefit Americans with real estate holdings, employer benefit packages, investment portfolios, and family wealth. In a scenario of income parity, with proportional Black representation in the top quintiles, Black Americans would have received at least $35 billion more in tax breaks (while also paying more in taxes).
Good health is a fundamental precondition for productive participation in the economy. Yet medical bills constrain household spending in other critical areas—and they are a major factor behind bankruptcies in the United States. As of 2017, Census Bureau data indicated that 10.6 percent of Black Americans were uninsured (compared to 6.3 percent of non-Hispanic whites). While Medicaid aims to bridge gaps in coverage for low-income households, eligibility rules in certain states disproportionately affect Black residents. Expanding Medicaid in eight states would cover an additional one million Black residents within 138 percent of the federal poverty line.
An important measure of health outcomes is life expectancy. In 2018, life expectancy at birth was 76.2 years for white men but 71.3 years for Black men; it was 81.1 years for white women but 78.0 years for Black women. The average gap across both genders was about 3.5 years. If we apply those lost years across the entire Black population, the painful result is that 2.1 million more Black Americans could be alive today with parity in life expectancy. The COVID-19 pandemic has widened the disparity to a five-year gap. If we again apply those lost years across the Black population, 3.4 million more Black Americans would be alive today in a scenario of parity in life expectancy.
Housing determines stability; it can inflict stress on a household budget or be a vehicle for building long-term wealth. Conscious policy decisions codified racial segregation in housing for many years. Even after those policies changed, their effects calcified over time. Today’s 30-percentage-point racial gap in home ownership means that most Black households are renters—and the majority of them are rent burdened and exposed to the nation’s affordable housing shortage.
The public sector spends about $125 billion annually on federal, state, and local housing assistance. Eighty percent of federal assistance goes to tenant-based rental assistance via vouchers administered by local public housing authorities ($22 billion), project-based rental assistance via contracts with landlords who rent to low-income households ($12 billion), and public housing owned and operated by public housing authorities ($7 billion).12 However, the need outstrips the scale of these investments. Many who are eligible for Section 8 housing choice vouchers find it difficult to obtain and then use them. In cities across the nation, the supply of affordable housing has not kept up with population growth for a variety of reasons, including zoning restrictions, onerous permitting processes, high land and construction costs, and community resistance.
Education prepares individuals for employment and entrepreneurship—and the housing issues described above have a direct bearing on K-12 education for Black children. Nationwide, 82 percent of local revenues for public school districts were derived from local property taxes in 2016–17.13 Affluent residents, through property taxes on higher-value homes, can fund schools with full staffing, well-maintained physical facilities, technology, and extracurricular programs. Residents of less wealthy districts may not generate enough property tax revenue to fund schools where children can flourish. One study finds that more than 20 percent of children in the nation’s underfunded, low-performing school districts are Black.14 State and federal funding supplements local property tax funding and is often allocated based on need, but it does not fully address the gaps.
The national average for annual instructional spending in Black-concentrated public school districts (in which 75 percent or more of the student population is Black) is $1,800 less per pupil than in white-concentrated school districts, a gap that affects 7.7 million Black students across the country.
Racial disparities in higher education, exacerbated by a wide range of socioeconomic factors, show up from enrollment to completion and job placement. Black high school students are less likely to attend colleges and universities. When they do, they are more likely to drop out without degrees and leave carrying a higher debt burden.15
In 2017, total public investment in higher education came to $172 billion.16 At the federal level, Pell Grants offer direct assistance to low-income students. State and local governments operate public university systems that generally charge lower tuition to in-state residents than private institutions. But Black students are often underrepresented at the most selective institutions within those systems.
A bright spot for Black students, historically black colleges and universities (HBCUs) shepherd 20 percent of all Black students who complete bachelor’s degrees through their educational journey. This is an outsize role for a small set of institutions—and they are important engines of upward mobility for Black Americans. However, HBCUs have historically been underfunded, and some are struggling financially.
Income security and social safety nets
One example of a public program with features that amplify existing disparities is Social Security. It is one of the most successful antipoverty programs in the nation’s history, but its design extends income inequality through the retirement years, with particular disadvantages to Black Americans. Social Security represents the lion’s share of economic safety net spending in the United States; it accounted for 23 percent of all federal outlays in 2019.
Benefits are determined based on lifetime earnings, and Black workers are concentrated in lower-wage jobs. Furthermore, due to shorter life expectancies, Black retirees draw benefits for almost four fewer years than white retirees. Mean lifetime benefits are one-third lower for Black retirees than for white retirees ($170,000 versus $260,000), for an annual difference of $2,500. If disparities in income and life expectancy did not exist, Black retirees would receive $31 billion more in Social Security benefits every year.