Recently, I had a discussion with a friend about income inequality and how it relates to the racial wage gap. I found this conversation particularly relevant given the current Democratic primary race, where wealth inequality has been a hot-button issue among the frontrunners. The logic behind how one affects the other is simple. Certain minorities tend to be poorer on average than whites, so policies that improve income inequality will disproportionately affect minorities and work to close the racial wage gap. The question at the forefront of our conversation was: exactly how much would policies that fix income inequality also close the racial wage gap?
To get some clarity on the question, I set out to do a simple thought experiment. In it, I first created a hypothetical world with two races and 11,500 people: 10,000 white people and 1,500 black people. I then simulated a sample income distribution using Census Bureau data on income by race (how I created the sample income distribution merits its own article). The shape of the resulting distribution roughly resembled the real-world distribution of income in the United States:
To get around this issue, experts use a metric called the Gini Index to measure the degree of economic inequality in a society. A Gini index of 0 indicates a perfectly equal society, while a Gini index of 1 indicates a perfectly unequal society. The Gini index of my 5-person society would be 0.4736, placing it among the top 25 most unequal societies in the world. My initial distribution was constructed to have a Gini index resembling the United States’ own Gini index (refer to my accompanying article to see how I was able to do that). There are many estimates of the Gini index for the United States, usually ranging between 0.40 and 0.50 (I somewhat arbitrarily used the figure of 0.464 from the Census website).
Making a Better Society
Our little thought experiment has taught us a few things. First, the United States is a really unequal society. Our Gini index is higher than any of our peers, and it even surpasses that of Russia, China, and India. This is likely being driven by the fact that the rich in the United States are really rich. Second, reducing inequality would go a long way to fixing the disparity in pay between races, but it won’t completely solve the problem. Short of redistributing wealth so that everyone makes exactly the same, sweeping policies that address wealth inequality won’t eradicate the racial wage gap. Targeted polices that work to level the playing field for minorities like ensuring fair housing or preventing predatory lending practices, which disproportionately target communities of color, are needed to see a real impact.