Racial differences in Atlanta’s median household income widespread, deeply rootedVacant houses are not uncommon in areas where an owner awaits rising values to maintain a structure that’s fallen into disrepair. This one is near Atlanta’s future Westside Park. Credit: David Pendered
By Guest Columnist DAVID L. SJOQUIST, professor of economics at Georgia State University
The death of George Floyd and others at the hands of the police led to widespread demonstrations demanding police reform. But, more generally, there is a loud, pervasive, and persistent call for true equal rights and equal treatment of people of color. The scope of the treatment is multi-dimensional. If we are to create a more just society we need to address economic inequality across races. This is an enormous challenge, and to see how large it is, consider the city of Atlanta.
While one can tell the story of racial differential in economic conditions and treatment in many ways, racial differences in household income captures it. The racial difference in income in the City of Atlanta is stark and depressing. According to the latest American Community Survey, released by the Census, median annual household income for Black households in the city of Atlanta is $35,048, while it is 2.93 times larger, or $102,693, for white households. These numbers explain why the poverty rate for Blacks in the city of Atlanta is 30.2 percent, while it is 8.1 percent for whites.
Racial differences in other circumstances are driven by income differences. These circumstances include housing insecurity, food inadequacy, lack of appropriate health care, financial wealth, and obviously poverty. In addition, racial differences in many personal conditions, such as mental and physical health and life expectancy, are associated with racial differences in income.
Not all Blacks living in the city are poor and not all whites are rich; 40 percent of Black households have incomes in excess of $50,000, while 20 percent of white households have incomes of less than $50,000. The racial difference in median household income is not as large for the Atlanta metropolitan statistical area; $54,456 for Blacks and $80,470 for whites.
In order to address racial income differences, it is necessary to confront the factors or forces that cause these income differences. Racial discrimination is one factor. There is substantial evidence that many businesses discriminate. Most firms do not actually pay Blacks and whites differential wages for the same job, but many firms do implicitly require that Blacks have higher skill or experience than whites for the same job. This means that the return on education, experience, and ability is lower for Blacks.
There have been many experiments in which resumes are sent to a firm that had announced job openings. The resumes are identical other than one uses a name that suggests the person is Black. Consistently, these experiments find that whites are much more likely to get a positive response from the firm.
There are many other factors beyond discrimination that are associated with racial income differences. There is a mismatch between where Blacks live and the location of jobs. This mismatch makes it more difficult for Blacks to find work and commute to a job. Likewise, some employers are less likely to hire someone who has a long commute. For low-skilled jobs, the number of potential workers is greater in low-income communities. The law of supply and demand results in lower wages in those communities. Research that has compared wages paid by fast food places in low-income and in higher income neighborhoods finds this pattern.
Education is a very significant factor in explaining differences in income. In the City of Atlanta, there is a substantial racial difference in the education level. Only about 2 percent of white adults living in the City of Atlanta have less than a high school education, compared to 14 percent for adult Blacks. On the other hand, 80 percent of whites have a college degree or more, while just 27 percent of Blacks do. Beyond eliminating racial and gender job discrimination, increasing education level would be an important step in eliminating racial differences in household income.
Females have lower incomes than males, which is another equity issue. But given that fact, it is of significance that in the city of Atlanta, 55 percent of Black adults are female while only 46 percent of adult whites are female.
The number of individuals of working age is another factor determining income. The larger the share of kids and seniors, the smaller the share of individuals who are likely to be employed. The percentage of Blacks who are under 18 years of age or over 64 years of age is 36 percent, but only 24 percent for whites.
Household income is the sum of the income of all members of the household. Thus, it is expected that households comprised of a married couple will, on average, have higher income than households comprised of just one adult. In Atlanta, 52 percent of white households are married couples, while it only 21 percent of Black households. Since, on average, females earn less than males, families with no male present will in general have lower incomes. In the City of Atlanta, 38 percent of Black household are female headed, while it is only 6 percent of white households.
A large part of household income is earnings, but income from financial assets, i.e., wealth, is an important source of income for many households. However, Black households have much smaller portfolios of financial assets, even for households with the same income. We do not have data on wealth holding for the City of Atlanta, but nationally it has been found that wealth of Black households is about 56 percent of that of white households, after controlling for income and other factors. And, of course, less wealth means less income.
Eliminating racial differences in household income is a complex, multidimensional problem. Eliminating racial discrimination in employment would certainly reduce racial differences in income, but it would not eliminate them. Recent research suggests that eliminating racial discrimination if the labor market might increase the wage rate for Blacks by at most 15 percent. This implies that the racial difference in median household income in the city of Atlanta would not change much from eliminating discrimination in the labor market. Eliminating racial discrimination in the labor market is no easy task; we have worked on it for years, but with little to show for the effort. But eliminating the other causes of the racial differences in income in the city of Atlanta is probably an even greater challenge.
Note to readers: David L. Sjoquist is a professor in the Department of Economics and a senior associate in the Center for State and Local Finance and Fiscal Research Center at Georgia State University. He specializes in state and local taxation, and urban and regional economics.