Eliminating the Income Gap

A very interesting chapter in the book I recently read, Freakonomics, deals with black and white racial differences (in income, education, and culture) in America. I found the chapter very fascinating and this is what the author of stated: The data shows that Whites in America, on average, have higher income Blacks. But, he said, if you control for education (only take examples where Blacks and Whites have the same level of education), the income gap disappears completely. Meaning a black man and a white man in America that achieve the same level of education can expect to earn the same income. The problem is, though, that Blacks, on average, gain less education that Whites, and the biggest factor (according to the data) that determine one’s education level is income. So you see, it is a terrible cycle.

If your parents have high income, you are more likely to achieve a high educational achievement. And with high education, you are more likely to have high income. And the converse is true. If your parents have low income, you are likely to have low educational achievement. And with low education, you are more likely to have low income.

So how do you break the cycle? On an individual basis, the cycle is broken frequently. Take a person, black or white, from a humble background. If he has tremendous passion and works hard he frequently becomes successful, as measured by education or income or both. But in an over-arching community-at-large basis, the cycle is less easily broken. I think it is possible, though, and as my research below shows, the income gap is narrowing, though at a slower pace than desirable.
In 1984, the average white person in America made $6,526 more per year than the average black person. Nearly 20 years later, in 2002, the average white person made $10,902 more per year than the average black person. On the surface, it might appear as though the black/white income gap is worsening, but things are not always as they appear. In fact, the gap is actually shrinking at a steady pace. The $6,526 in 1984 represented a 35% gap between Whites and Blacks, while the $10,902 in 2002 represented a 27% gap. The income gap is shrinking at a pace of about half a percent per year, and using that model, the gap should completely close by the year 2062. But that sure is a long way off.

Using a different model, though, accelerates the closing of the income gap between Black and White America. If you apply a exponential curve to each groups’ income, the model predicts the gap to close by 2050, 12 years sooner. Regardless of which model you choose, the underlying assumption is that race relations in America will continue to progress as they have over the past 20 years. And also regardless of which model you choose, the income gap is not closing fast enough.

So how can we close the income gap faster? I believe the following chart presents an answer. I found some data telling how much people spent on education. I expected it to show that Whites spend more dollars on education that Black, because, as we have establish, their income is higher on average. But what about the percentage of their income spent on education?On average, and consistently over the past 20 years, Whites spend a greater percentage of their income on education that Blacks. The amount one spends on education stems from the value a person, or when speaking of averages, the larger culture, places on education. The data clearly shows that the Black community, on average, places less value on education, as measured by the percentage of their income spent on education. But this is certainly a cultural trend that can change, and must change if the income gap is to be reduced.

As in the example of a poor individual seeking education, getting it and getting the associated higher income, as the larger Black community places greater value on education, the income gap will begin to shrink more rapidly. This truism, of course, does not only apply to the Black community, but any group of any race. As greater value is placed on education, the percentage of income spent on education will raise, the level of education achieved will increase and income will increase. The low education/low income cycle will be broken, and a new tradition of high education/high income will begin.

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