South-Western College Publishing - Economics  
Minorities and Whites are Growing Apart, not Together
Subject level of inequality is increasing, not decreasing
Topic Income distribution and poverty
Key Words

poverty, inequality, median income, median net worth

News Story

The Pew Hispanic Center released results of a study that indicates that over the period 1999 - 2002, white people's economic situations became significantly better relative to minority households. Median net worth of white households over the 1999-2002 period rose 2.6% to $88,651. Over the same period Hispanic households' median net worth fell 24% to $7,932; African-American households' median net worth fell 32% to $5,988. While minority wealth is 1/10 that of white households, median income is much higher, equal to about 2/3 of white households. In 2002, less than half of Hispanic and African-American households were homeowners, compared to 74% of whites.

Much of the wealth differential arises from minorities' inability to gain access to financial services and home ownership. As a result, minorities tend to have much less insulation against recessionary periods than white households do. Given the significant increases in health-care costs, home prices, and reductions in real wages at the bottom of the wage scale, low-wage workers--who are predominantly minorities--have difficulty building up the base (home ownership, financial cushions for emergencies, retirements plans, etc) to accumulate wealth.

Two sectors that have experienced a significant increase in wages--construction and service sectors--are seeing more Hispanic new employees. Whether this translates into greater material wealth remains to be seen.


(Updated December, 2004)

Questions
1.

Given the information cited in the article, what will happen to the Lorenz Curve and Gini coefficient as a result of the changes that occurred between 1999 and 2002? Why? Think in terms of general changes, not specific numeric values.

2. Do you think that an increase in the minimum wage would help to alleviate this growing increase in inequality? Why or why not?
3. Given the significant increase in numbers of Hispanics seeking employment in construction, what might happen to the wage offered in that market? Why?
Source Miriam Jordan, "Wealth Gap Widens in US Between Minorities, Whites." The Wall Street Journal. 18 October 2004.

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