Abstract: Universal Baby Bonds Reduce Black- White Wealth Inequality, Progressively Raise Net Worth of All Young Adults (Society for Social Work and Research 24th Annual Conference - Reducing Racial and Economic Inequality)

Universal Baby Bonds Reduce Black- White Wealth Inequality, Progressively Raise Net Worth of All Young Adults

Schedule:
Sunday, January 19, 2020
Independence BR C, ML 4 (Marriott Marquis Washington DC)
* noted as presenting author
Naomi Zewde, PhD, Postdoctoral Scholar, Columbia University, New York, NY
Background and Purpose: The distribution of wealth in the United States has grown increasingly unequal over the past half- century, according to the Congressional Budget Office, especially along racial lines. Law makers and researchers have proposed to address the issue by introducing universal “baby bonds,” paid to each new born in the United States and preserved until the individual reaches young adulthood. The proposed bond value is based on a sliding scale up to a $50,000 maximum investment for babies born to families with the lowest net worth. By tying bond values to net worth rather than income the proposed scheme intends to better address the more extremely unequal and persistent racial disparities in net wealth.
Methods:
This study uses longitudinal data from the Panel Study of Income Dynamics on the assets of young adults currently and at birth to simulate contemporary racial inequalities under a counterfactual policy environment in which the U.S. had instituted a baby bond program when the current cohort of young adults were newborns. Young adults in the study are between 18 and 25 years of age in 2015. The initial value of the bond is defined categorically by quintiles of net household wealth observed in 1989 and 1994, then smoothed across the distribution as a function of the inverse hyperbolic sine of parents’ net worth at birth. Initial bond values are assigned in constant 2015 US dollars, and assumed to grow at a 2% rate for the number of years since the young adult’s birth.
Results:
I find that without the baby bond program, median wealth among young Caucasians is approximately sixteen times that of the young African Americans ($46,000 vs. $2,900). The baby bond program raises median wealth for both groups and reduces the disparity to a factor of 1.4, where Caucasian young adults hold $79,159 and African Americans $57,845 at the median. Moreover, the share of all wealth held by the top decile of young adults would decrease from 72% to 65%, marginally approaching the distribution of more egalitarian societies.

Conclusions and Implications: A baby bond program would considerably narrow wealth inequalities by race while simultaneously improving the net asset- position of young adults and alleviating the increasing concentration of wealth at the top.