Decompose Wealth Disparity Between Hispanics and Non-Hispanics

Background and Purpose:The Hispanic population is estimated to be 52 million and it is projected to grow to 132.8 million by the year 2050. The wealth disparity between Hispanics and Non-Hispanics is the most acute indicator of racial inequality. In 2011, the median net worth of Non-Hispanic households was $113,149, while the median net worth of Hispanic households was $6,325. There are a multitude of factors that contribute to wealth accumulation, such as income, age, and education. On the one hand, wealth disparity between Hispanics and non-Hispanics could be explained by the differences in these factors. On the other hand, these factors (e.g., income, age, and education) may be associated with wealth accumulation differently by race and ethnicity. Therefore, it is important to understand the wealth gap between these two groups.

Methods:The study uses the data collected in the 2011 Panel Study of Income Dynamics (PSID; N=5470). The PSID first interviewed a nationally representative sample of 4802 families in 1968 and continued to collect data from the same families annually until 1997 and every two years thereafter. It collected household wealth data (including assets and liabilities) every four years between 1984 and 1999, and every two years thereafter.  The wealth data in the PSID is considered to be of higher quality than many other survey data. The outcome measure is household net worth, which is the sum of all types of assets minus debt. The independent variables include Hispanics (1=Yes, 0=No), age, gender, race, educational attainment, employment status, household income and some other demographic characteristics. We use the Blinder-Oaxaca technique to decompose mean differences in log wealth between Hispanics and Non-Hispanics.

Results:The weighted mean net worth is about $383,000 for Non-Hispanic households, and nearly $80,000 for Hispanic households. The weighted median net worth is $90,000 for Non-Hispanic households, and $10,000 for Hispanic households. The results of the Blinder-Oaxaca decomposition show that the mean log net worth is 9.97 for Non-Hispanics and 8.09 for Hispanics, yielding a wealth gap of 1.88 (p<.001). Nearly 40% of the gap results from the differences in socioeconomic characteristics between Hispanics and Non-Hispanics, and 47% can be explained by weaker associations of the socioeconomic characteristics with wealth accumulation for Hispanics. The interaction between these two “mechanisms” discussed above interprets another 13% of the gap. We also report the decomposition results for each independent variable (e.g., income and education), respectively.

Conclusions and Implications: Findings suggest that Hispanics accumulate much less wealth due to double disadvantages. Compared to Non-Hispanics, they have disadvantaged socioeconomic backgrounds (e.g., lower education and income). Furthermore, these socioeconomic characteristics contribute less on wealth accumulation for Hispanic households. The research suggests that racial/ethnic barriers are still present for the Hispanic population. Policy changes are needed to encourage the growing number of Hispanic families to accumulate assets. Further social work research should explore why socioeconomic characteristics have various associations with wealth accumulation by race/ethnicity; this is especially important to prevent the wealth gap to grow even further in the future.