Initial conditions at Emancipation: The long-run effect on black-white wealth and earnings inequality

Black-white wealth inequality is much greater than black-white earnings inequality in the United States. The existing empirical literature has not been able to fully explain the wealth gap. This paper investigates how much of current black-white income and wealth inequality can be explained by initial conditions at Emancipation and nearly 100 years of segregated schools. A two-sector model with group-specific human capital accumulation and school expenditure differences can explain the path of black-white convergence in earnings over the past 130 years. The model also reproduces the fact that black-white wealth ratios remain much lower than black-white earnings ratios. (C) 2007 Elsevier B.V. All rights reserved.