Closing Northeast Ohio’s racial wealth gap is a social, moral and economic endeavor
Article by Rachel Abbey McCafferty
Published April 10, 2023 10:00am
Read the full article on Crain's Cleveland Business
Much has changed since the 1960s, politically, socially, economically. Think the cost of housing, cars, eggs. Think the jobs that exist today that didn't then, the style of clothes we wear to do them, the music we listen to on our commute. Think the advances in technology and medicine.
But the deep racial inequities the Civil Rights Act of 1964 aimed to eliminate? Still in place.
The chasm between what white workers and Black workers are paid — and the wealth gap that results — has persisted in the decades since 1964. That's a problem that restricts individuals and families, and holds back the economy and our country at large.
Cleveland has a lot of benefits: a great restaurant scene, different attractions, an affordable cost of living, said Kayla Griffin, president at the Cleveland NAACP. But it also has a serious problem when it comes to wealth distribution. Investing in the people who live in the city — not just downtown — could change that.
"We could be a force to be reckoned with," Griffin said.
But those racial income and wealth gaps are long-term, historical problems, and there haven't yet been sustained pushes to close them, said economist Dionissi Aliprantis.
Helping more people achieve higher levels of education may not close the racial income or wealth gaps, but could improve individual lives on a personal level.
"Closing the gap entirely is one question," he said, "and making substantial progress is a different one."
In Ohio, there are signs that the racial income gap has not only persisted, but has grown over time. Today, it's about triple what it was in 1979, said Michael Shields, a senior researcher at Policy Matters Ohio. And wages for Black Ohioans have been pushed down in that time.
Specifically, by 2021, Black men saw their wages decrease by almost $5 an hour, adjusted for inflation, compared to 1979, Shields said. Pay for Black women grew, but it grew more slowly than pay for white women.
There are a variety of reasons for this disparity.
Shields noted that the shrinking manufacturing base has impacted men's earning power. Aside from just the loss of available jobs, the loss of union jobs has had an impact. Policy Matters Ohio's "State of Working Ohio 2022" report, authored by Shields, notes that the racial pay gap persists across union membership rates and educational attainment levels, though union membership narrows it.
The incarceration rate — and the number of jobs that are restricted if someone has a criminal conviction — may also play a part. Shields said the number of people incarcerated in Ohio has tripled since the mid-1970s, and it's known that Black men are treated more punitively by the criminal legal system than their white counterparts.
Poverty has been "perpetuated" by policies over time, said the NAACP's Griffin. For example, wealth is often transferred through families by home ownership. There's a direct line between redlining, which kept Black families out of certain neighborhoods, and the racial wealth gap, Griffin said, as where people live has financial implications. What kind of impact does it have when homes in Black neighborhoods are appraised differently than those in white neighborhoods, she asked.
Kathryn Wilson, a professor of economics at Kent State University whose area of expertise is public finance, noted that some of the disparity speaks to the inequities that came well before the Civil Rights Act: the granting of land to white men out West; the education and mortgage-related GI Bill benefits that almost exclusively went to white veterans. That property built equity that often passed from generation to generation.
"We have done very little to break that over the past six decades," Wilson said.
And income and housing are tied together in less direct ways, too.
Daniel Carroll, a senior research economist along with Aliprantis at the Federal Reserve Bank of Cleveland, noted that income differences not only have a direct impact on the amount of money coming into a household, but a higher income can also lead to a better credit score and a better mortgage rate, which can lead to living in a better-connected neighborhood with stronger schools, and so on and so forth.
He and Aliprantis, an associate vice president and senior research economist at the Cleveland Fed, are the authors of "What Is Behind the Persistence of the Racial Wealth Gap?," an economic commentary that points to the racial income gap as the "primary driver behind the wealth gap."
Aliprantis said much of this work stemmed from curiosity in what was driving the persistence of the racial wealth gap, beyond the obvious role of the country's past. And it is a stark gap. In 2016, their piece noted, Black-led households reported an average wealth of $140,000, compared to white-led households' $901,000 reported wealth.
There are a few often-discussed factors behind the gap, Aliprantis said, including wealth transfer through measures like inheritance, returns on savings and investments like housing and differences in earnings. Aliprantis said at the start of his and Carroll's research, he would have put equal weight on each of those categories, which Carroll noted was common in the field.
The two started doing some different modeling, accounting for differences in areas like race, age and income, to test this theory out. And, Aliprantis said, it quickly became apparent that the difference in earnings was the real key.
This gap is "troubling," they wrote in the commentary, "not just because it is an inequality of outcomes, but also because it strongly suggests inequality of opportunity."
If lifetime earnings are a race, awareness of the uneven starting blocks is critical to making a difference.
Jill Rizika, president and CEO of Towards Employment, which focuses on helping people gain employment, said that someone who grew up in a redlined neighborhood may not be starting on the "same playing field." Maybe they didn't have access to broadband internet, or they might have persistent health challenges like asthma because of the quality of the building they lived in. Skills and education are important, but organizations like Towards Employment want to help people take on those other barriers to opportunity, too, offering wrap-around support.
"You bring your whole self to work," Rizika said.
Employers should be aware of the challenges current employees may be facing, too. Becoming more aware of such things as how public benefits work and how to access them may make employers realize that what they thought was "above and beyond" should just be a core offering, Rizika said.
For example, small increases in earnings can reduce the benefits someone is receiving — and the loss can more than cancel out the gain from the pay raise, Rizika said. Employers who are aware of that might be more cognizant of people's motivations in terms of advancing, she added. And they might want to think creatively about how to bridge that benefits gap.
The labor market is tight now, Rizika said, which means employers are eager to find ways to hire people, to help with readiness needs or to employ previously overlooked demographics. But to make a real difference, there needs to be longer term investment for when the market changes.
This work is necessary to improve the lives of individuals and families, but also to improve the economic health of the region. They're "inextricably linked," Rizika said.
If Cleveland wants to improve its standing as a city, it needs to close the racial wealth gap. The difference in average income between predominantly Black and predominantly white neighborhoods in the city is stark, noted Michael Obi, president of UBIZ Venture Capital at the Urban League of Greater Cleveland. Both are behind the national average, but white households are not as far behind.
"Common sense tells you, if you are a student of statistics and basic averages, you know that if you can move the Black families to get closer to the average of white families, then our region will come out of that negative connotation of being one of the poorest cities in America," Obi said.
Racial income gaps are a social, moral and economic concern, said Bethia Burke, president of the Fund for Our Economic Future. Regions with wider gaps on measures like these fare worse.
The Fund for Our Economic Future's "The Two Tomorrows" report makes racial equity in employment and income a priority for the success of Northeast Ohio's future, saying "economic polarization and systemic racial exclusion are serious and growing threats to the region's economic vibrancy." In the 2018 report, Northeast Ohio comprises 18 counties and four metropolitan areas: Cleveland, Akron, Canton and Youngstown.
The report notes that past efforts to close the racial employment and income gaps focused on individual people and businesses: support for minority entrepreneurs, students and suppliers. But this isn't enough.
"Strategies like these will remain important but their success has been undermined by long-standing and current institutional practices determining land use, transportation, infrastructure development, educational support, and business development," according to the report.
The report suggests one action employers can take to reduce racial discrimination in hiring: using skills assessments. The assessments can increase objectivity in hiring, it said, and workplace diversity.
Amanda Weinstein, an associate professor of economics at the University of Akron with a focus on urban, regional and labor economics, noted that it can be difficult to run experiments in economics, as people can't be assigned to certain attributes as they go about their lives. But there are some. One that clearly applies to the racial income gap looks at resumes, changing names — but not qualifications — to make candidates sound Black or white. Resumes with "Black-sounding names" were less likely to get calls back from employers, Weinstein said.
"That gives us some sense and, kind of, some certainty in economics that some of this gap, this difference in outcomes that we see, has to be discrimination," Weinstein said.
In an interview, Burke noted that there's no one way to close those gaps. It's about home and business ownership, she said. It's about jobs. It's about historic factors persisting to today.
Carroll at the Cleveland Fed said the one positive to the racial income and wealth gaps being so complex is that there are more ways to make a difference. Employers can help by looking at how employees can progress in their organization. Educators can think about what is being taught in their schools.
"There are just so many different ways in which you can make a positive contribution," he said.
And the economy isn't "zero sum," Aliprantis said.
"We're all better off when somebody figures out how to produce a new good, when somebody figures out how to deliver a service better, somebody cures cancer," he said.
People today are locked out of opportunities, said Benjamin Collinger, business development manager and consultant with ThirdSpace Action Lab in Cleveland, a racial equity consulting firm that works with philanthropy, public policy makers and businesses.
"The racial wealth gap is just a tremendous liability on our proverbial balance sheet as a region," Collinger said.
Collinger mentioned that ThirdSpace is part of a project looking at the next phase of Cleveland's lakefront development. Development like that has implications far beyond the direct impact on contracts and suppliers. It could impact the city's transportation system and the cost of living, how "wealth is created in Cleveland," he said.
We're all better off when somebody figures out how to produce a new good, when somebody figures out how to deliver a service better, somebody cures cancer."
— Dionissi Aliprantis, a senior research economists for the Federal Reserve Bank of Cleveland
Each company needs to be thinking about racial equity differently, based on what it does and who it serves. That may look like examining the diversity of a supply chain or delving into pay equity within an organization. Companies can't do everything, Collinger said, but they can identify some steps that align with their mission and make those changes.
On a policy level, some measures that would make a difference could include student loan or medical debt forgiveness, along with an expansion of medical aid programs, said Wilson of Kent State. She noted that white Americans are more likely to take on debt that comes with a tangible asset: a home or car loan. Black Americans are more likely to have medical or student loan debt. Programs that help open up access to the housing market would make a real difference, she said.
Intentional policy change will be critical to closing the wealth gap, said Griffin of the NAACP. Individual businesses fail; entrepreneurship won't close the gap. An equitable system around home appraisals or credit scoring would have an impact on a person-to-person level. And making space for minority-owned businesses can help, too. For example, when Rocket Mortgage FieldHouse was being built, there were guarantees built in that a certain number of minority-owned businesses would get to take part. Not just as contractors constructing the building, Griffin said, but as vendors inside the facility.
The economist Carroll said that, if the gaps started to close, the resulting society — one where people are living in multiracial neighborhoods and attending similar quality schools, one where people have more choices on an individual level — would likely provide "momentum" to close the gaps completely.
"Let's start closing them. Let's start with that," Aliprantis said. "Then we'll figure out how to get the last mile."