Altonji, Joseph G., and Ulrich Doraszelski. 2005. “The Role of Permanent Income and Demographics in Black/White Differences in Wealth.” Journal of Human Resources 40(1): 1-30.

We explore the extent to which the large race gap in wealth can be explained with properly constructed income and demographic variables. In some instances we explain the entire wealth gap with income and demographics, provided that we estimate the wealth model on a sample of whites. However, we typically explain a much smaller fraction when we estimate the wealth model on a black sample. Using sibling fixed-effects models to control for intergenerational transfers and the effects of adverse history, we find that these factors are not likely to account for the lower explanatory power of the black wealth models. Our analysis of growth models of wealth suggests that differences in savings behavior and/or rates of return play an important role.

Joseph G. Altonji is a professor of economics at Yale University and a research associate at NBER. Ulrich Doraszelski is an assistant professor of economics at Harvard University. The authors thank Ken Housinger for assisting with the data. They also thank Michaela Draganska, William Gale, Bruce Meyer, two anonymous referees, and seminar participants at the Federal Reserve Bank of Chicago (May 1999), Northwestern University (December 2000), the University of Wisconsin (June 2001), and Yale University (December 2002) for helpful comments. They are grateful for support from the Federal Reserve Bank of Chicago, the Russell Sage Foundation, and the Institute for Policy Research at Northwestern University. The authors owe a special debt to Lewis Segal who collaborated with them in the early stages of the project. A less technical, abbreviated summary of some of the research reported here may be found in Altonji, Doraszelski and Segal (2000). All opinions and errors are our own. The data used in this article can be obtained beginning October 2005 through September 2008 from the authors at these addresses: Altonji, Box 208269, New Haven, CT 06520-8269, U.S.A., joseph.altonji@yale.edu, doraszelski@harvard.edu.