Unit Seven: How The American Economic System and the Health Care System Affect Group Relations

To some degree, the issue of how the economic system is related to minority group status has been touched on in several previous units.  In this unit the role of the American economic system will be examined in greater detail to see its impact on majority-minority relations. In a previous chapter, we saw the relationship between an agricultural based society and slavery.  That relationship had an enormous impact on dominant-minority group relations.   The move of the United States to an industrial society also had a profound impact on dominant-minority group relations. Both the period of industrialization (1820 – 1950) and the period of post-industrialization ( 1950 to the present) have had an important impact on dominant-minority group relations.

The Move From an Agrarian Society to an Industrial Society


The industrial revolution which began in England in the 1700’s eventually spread to the United States in the early 1800’s.  Under an agrarian society, the ownership of land was important.  But to a society dominated by industry and commerce, the ownership of capital was dominant.  Paternalistic relationships such as slavery work well in agricultural societies which are designed to control a large, involuntary labor force, but do not work well for an industrial economy that is skilled and not limited to geographic constraints.  Because industrialization relies on large groups of workers located in cities, it becomes difficult, if not impossible, to maintain paternalistic controls.

The Rigid Competitive System

As a country moves from an agricultural society to an industrial one,  paternalism gives way to rigid competitive group relations.  Under a rigid competitive system,  minority groups are allowed more freedom to compete economically, which then makes the dominant group more hostile and prone to attack minority group members.  The characteristics of a rigid competitive system are listed below:

1)  Status is determined largely, but not entirely, on race. Small elites develop among the disadvantaged minority groups.

2)  Division of labor is largely determined by race.  Frequently majority and minority workers work together, but often the majority worker is paid higher wages.  This is referred to as a dual-wage market.

3)  Separation or segregation of racial groups in extensive.  Segregation is necessary to protect the status of the dominant group from the upward mobility of the minority group.

4)  The competition for jobs between majority and minority workers brings with it the high potential for conflict and violence.

The rigid competitive system was first evident in the Antebellum North (northern states opposed to slavery). Industrialization did not come equally and at the same time to every region.  Industrialization began in northern states first.  Slavery had been abolished in all northern states by 1804.   So free blacks in the north had to compete for new factory jobs with new white immigrants.  Over time, numerous discriminatory laws were passed which were designed to protect white workers from black competition.  In 1862 Irish longshoremen threatened to shut down the port of New York unless all black workers were fired.  In 1863 a huge race riot broke out in New York City as thousands of whites protested being drafted to fight in the Civil War.  Up to 2,000 people died in the violence.

  1.  President Wilson Resegregated Federal Workforce


The Shift From Rigid to Fluid Competitive Relationships

The move from an industrial economy to a post-industrial society caused a change in group relationships. This caused a move from rigid competitive relations to a fluid competitive relationship.  Under a fluid competitive system, there are no formal or legal barriers to competition.  Within fluid competitive race relations one finds open conflict and competition associated with rigid competitive relations, but the social system is beginning to resemble a class system instead of a caste system under a rigid competitive system. Formal discrimination is outlawed, and, in theory, members of each group are able to pursue any endeavor. Fluid competition doesn’t quite work, however, because, minorities have few resources and members of the majority still control major institutions.  People continue to think of themselves as possessing racial identities. As a result, when resources are in short supply, there is competition between racial groups for those resources. In general, minorities are much less restricted than under rigid competitive relationships, but it is still a system of racial inequality. In fact, competition between the groups might be intense, because of the greater freedom on the part of the minority to express their discontent.


Characteristics of Three Systems of Group Relationships

Paternalistic Rigid Fluid
Subsistence Technology Agrarian Early Industrial Advanced Industrial
Stratification Caste, Group determines status. Mixed.  elements of caste and   class.  Group determines status. Variable Class more   important.  Group strongly affects status, but inequality varies within   groups.
Division of Labor By group.  Simple division of   labor. Mostly by group.  some   sharing of jobs by different groups. Group moderately related to   job.  Complex specialization.  Great variation within groups.
Contact between groups High rates, but contact unequal. Lower rates of contact, mostly   unequal and often conflictual. Higher rates of contact and   highest rates of equal status contact; conflict common.
Power differential Maximum.  Minority groups   have little ability to pursue self-interest. Less.  Minority groups have   some ability to pursue self-interest. Least.  Minority groups have   more ability to pursue self-interest.


The Current Economic System and Group Relations

When researchers look at data from the Census Bureau and other sources, they notice that there is a large gap between  the economic position of white people in America and that of the various minority groups.  Although progress has been made for some younger, college educated minority group members, there still exists for each minority group a large population of its members who are impoverished and unemployed.


Asset Ownership in the United States Today

By many measures the United States is the most economically well off society in the world.  yet, most of the ownership and control of its wealth lies in the hands of small number of very large multinational corporations and the ruling elite.  To a large degree, many minority group members have been excluded from our country’s wealth.

Wealth represents the total value of what someone owns.  Wealth ownership in the United States is not equally distributed amongst the population. Let’s examine some of the common sources of wealth and its relationship to race and ethnicity.

1.  The Racial Wealth Gap Increases Four-Fold

2.  Black and Latino Retirement (In)securities

3.  Whites Own 90% of the Nation’s Wealth


Stock Ownership

Minorities are about one third as likely to own stocks as white Americans.  For those who did own stocks, the average amount owned was twice as much for whites as for Hispanics, and almost three times as great as for blacks.These statistics should not seem surprising, because minority groups don’t have the disposable income to invest in stocks and mutual funds.


Home Ownership

One of the most common sources of wealth for Americans is their home.  The disparity in home ownership is one of the reasons why the median net worth of whites is about ten times that of blacks and Hispanics. Census Bureau data shows that white homeownership rates are 73%, compared to 43% for blacks and 46% for Hispanics.2  Since owning a home is a major source of wealth, these differences contribute to the large gap in wealth between white people and minority groups in the United States.


Land Ownership

In human societies where private property is seen as important, the ownership of land is a key source of wealth accumulation.  In the United States today, of all private U.S. agricultural land, white Americans own 96% of land ownership, 97% of the value, and 98% of the acres. 3


Consequences of Wealth Disparities

Using the statistics from the paragraphs above,  it becomes apparent that the lack of wealth by minority groups in the United States is an important factor in understanding economic inequality. Minorities, unlike white Americans, are at a disadvantage when it comes to the accumulation of wealth.  Since these inequities have existed for some time, the gap between the wealth of white Americans and the various minority groups will be difficult to overcome.  White Americans have benefited from this wealth gap by being able to pass on to their children and grandchildren accumulated wealth.  Because of this, most social scientists believe that wealth is a better indicator than income for explaining the long-term economic discrimination that exists in U.S. society.


Income Disparities

From the 1960’s through the late 1980’s the income disparity between whites and blacks shrunk.  According to a 2012 Census Bureau study,  Among the race groups, Asian households had the highest median income in 2011 ($65,129). The median income was $55,412 for non-Hispanic-White households and $32,229 for Black households. For Hispanic households it was $38,624.

The ratio of Black to non- Hispanic-White income was 0.58, and the ratio of Hispanic to non-Hispanic- White income was 0.70. Between 1972 and 2011, the change in the Black-to-non-Hispanic-White income did not change.  Over the same period, the Hispanic-to-non-Hispanic-White income ratio declined from 0.74 to 0.70.

There also exists a racial wealth gap with respect to wages. A September 2016 report from the Economic Policy Institute states that the wage gap between whites and blacks has increased over the past few decades. Wages for black males in 1979 were 22.2% lower than white males wages.  In 2015, the gap has grown to 31%.  The gap between white and black women was 6% in 1979.  By 2015 the gap has grown to 19%. Attaining a higher education also failed to close the gap between black and white workers, the report found. Black men with a bachelor’s degree or more and who had 11 to 20 years of work experience made 27.2 percent less than whites with the same level of education and experience. Black women with a bachelor’s degree or more and 11 to 20 years of work experience were paid 10.6 percent less than white women.

Employment Disparities

Since the 1940’s, the unemployment rate has been almost twice as high for blacks as for whites, with young African American males having the highest unemployment rates. Non-Hispanic Whites made up about two-thirds of the U.S. labor force in 2011. About 15 percent of the labor force in 2011 was Hispanic or Latino. Non-Hispanic Blacks made up 11 percent of the labor force, and non-Hispanic Asians accounted for 5 percent. American Indians and Alaska Natives composed about 1 percent of the labor force, as did persons of two or more races. Native Hawaiians and Other Pacific Islanders made up less than 1 percent.  In 2011, the unemployment rate for the United States averaged 8.9 percent but varied among racial and ethnic groups. The rates were highest for non-Hispanic Blacks (15.9 percent) and for American Indians and Alaska Natives (14.6 percent). Unemployment rates were lowest for non-Hispanic Asians (7.0 percent) and non-Hispanic Whites (7.2. percent).


1.   The Silent Depression: How Are Minorities Faring In the Economic Downturn?

2.  Low-wage African American workers have increased annual work hours most since 1979

Poverty Disparities

Poverty rates for blacks are about three times higher than those for whites. The gap in poverty rates has narrowed since 1980, but it remains substantial. According to Census Bureau data, the poverty rate for white residents was 9.8 percent in 2011. It was 27.5 percent for black residents, 25.3 percent for Hispanic residents, and 12.3 percent for Asian -American residents.

1.  Black Children in the United States Have Poverty Four Times Higher Than White Children

Public Facilities

Most public facilities before the Civil Rights Movement were segregated.  State and local governments were the most active in segregating public facilities.  In the South, public segregation was usually required by law.  In the rest of the country it varied.  In some states there was formal restrictions, and in other states there was weak enforcement.  Until the Supreme Court rulings in the 1950’s and 1960’s, the federal government did little to stop the discrimination.

Welfare Reform

The welfare system in the United States has been under heavy criticism for a long time. The main criticism of welfare was that it didn’t provide recipients an incentive to work.  Perhaps even more importantly, it penalized those who did work by cutting off welfare, Medicaid coverage, and child care expenses.  So if a welfare recipient worked, they would quite frequently be worse off than if they didn’t.  The welfare program also tended to break up families by taking away aid from women if a man were present in the house.

In 1996, Congress passed, and President Clinton signed, welfare reform legislation.  Some of the new legislation’s requirements were extra funds for child care so mothers could go to work,  a lifetime limit of five years to receive welfare, a requirement to accept employment,  and to reduce food stamp benefits.  Research on welfare reform has shown that it has been effective in moving large numbers of poor people from welfare to work, but it doesn’t appear that they are economically better off because of welfare reform.  The number of single mothers collecting welfare from the early 1990’s to 2000 were cut in half, while the overall welfare rolls fell by about 59%. 8  Although welfare reform has succeeded in freeing many people from welfare dependency, it may be too early to say if it was a success.  Many of the gains were seen in the 1990’s when the economy was booming.  Since the recession of 2001, many state governments have had to make cuts to balance their budgets, with many of these cuts being in programs that keep people out of welfare and out of poverty.  Because many of the poor single-parent families with children are African American or Hispanic, any fiscal crisis is going to affect these families disproportionately.  Whether good or bad, the welfare reform law is unlikely to go away.

1.  The Welfare Queen Myth


Theories on Economic Discrimination

The question of why does economic discrimination exist in society is a fundamental issue that sociologists have struggled with.  Below are some theories that attempt to explain economic discrimination.

Gary Becker’s Theory

In the late 1950’s Gary Becker developed a theory to explain economic discrimination.  His theory draws on both psychology and sociology.  Gary Becker’s theory says that if employers choose to discriminate, they do so because of their own prejudices or because of concerns or reactions from white employees or customers.  According to Gary Becker, such discrimination is dysfunctional for both the employer and society.  Such economic discrimination gets in the way of the employer receiving the best qualified candidate.  For society at large, it represents a waste of human resources.  For minorities, economic discrimination of this type means lower paying jobs and higher unemployment rates.  The only ones who benefit from such an arrangement would be white workers who receive better jobs and higher pay than they would under a non-discriminatory system.  Whether it was restrictions on Chinese immigration in the 1800’s, or Mexican immigration in the world of today, workers in the dominant group have an economic incentive to be hostile towards minority workers.

Gary Becker’s theory states that over the long run, economic discrimination should disappear from society because businesses that discriminate would be at a competitive disadvantage in relation to businesses that did not discriminate.  Market forces would over time force businesses that discriminate to either stop discriminating or to go out of business all together.

Does Gary Becker’s theory have merit?  In the last few decades there has been a reduction in discrimination, but only to a limited degree.  While overt forms of racism and discrimination have become illegal and uncommon, other forms of discrimination, both intentional and unintentional, have continued to occur.  In addition, there may be other factors at work besides prejudicial attitudes that might have a larger impact on economic discrimination.

Split Labor Market Theory

Split Labor Market Theory borrows a little bit from Becker’s theory (prejudicial attitudes) but says these are created from the social structure and not individual preferences.  Split Labor Market Theory sees economic discrimination as a result of competition between groups. The competition, and who wins and loses, is determined largely by the relative power of the groups.

According to this model, employers do not have a “taste to discriminate” as Gary Becker’s model suggests.  They discriminate because they are forced to by another interest group that benefits from discrimination.  In the United States that would be white laborers.  From the white worker perspective, discrimination insulates them from competition from minority group workers.  White laborers demand exclusion of minority group workers from desirable jobs (nice paying factory jobs as an example).  This means there are good paying “white’ jobs and lower paying “minority” jobs.  For the employer, it means that in such a “split” labor market, white labor costs more than minority labor.  This higher labor cost is not in the interest of the business owner or capitalist.  It does not make sense to discriminate because discrimination limits the pool of potential employees. This split labor market, where white labor costs more than minority labor can be achieved in a number of ways.  One method is to demand educational credentials (which are costly to low wage earning minority group members).  Another way is to prevent minority group members from an area.  If they are not allowed to move to an area, then they can’t compete for a job.  A third method to keep minority workers out of the labor market is to keep them out of labor unions.  This was especially true in labor unions prior to World War II.  The Wagner Act of 1935 helped establish an important new right – to unionize. The act’s original version prohibited racial discrimination, but the American Federation of Labor fought against it and the final version permitted unions to exclude nonwhites. As a result, nonwhites were not only locked out of higher-paying jobs, they were also denied union protection and benefits: medical care, full employment, and job security. Moreover, they were legally barred from challenging their exclusion. Although the laws changed in the late 1950s, many craft unions remained all white well into the 1970s.

Marxist Theory of Discrimination

Marxist theory of discrimination agrees with the split labor market theory that discrimination in employment comes from competing interest groups.  It differs from the previous two theories, however, on who wins and loses as a result of the discrimination.  The previous theories argued that white workers gained and employers or capitalists lost. The Marxist Theory of discrimination believes the opposite:  that employers and capitalists gain while white workers lose.  Racial conflict between the groups divides the groups and weakens their power relative to that of employers. Race becomes a tool that is used to by the owners of wealth to “divide and conquer”  the working class. Workers of the dominant group who demand higher wages known that they can always be replaced by minorities who will work for less.  One important belief of this theory is that class divisions have more influence on economic discrimination than race and ethnic group differences.  Marxists would argue that the working classes are exploited regardless of their race and ethnicity.  This perspective would argue that economic discrimination exists because capitalism pits one group against another.  From a Marxist theory perspective, racism keeps minorities in low-paying jobs, thereby supplying the capitalist ruling class, which is predominately white, with cheap labor.    An example of this would be the frequent use of minority groups as strikebreakers in the early twentieth century, where white unions excluded blacks and blacks were used as strikebreakers.

Most sociologists agree that under different social conditions, each theory can be correct.  They also agree that economic discrimination reduces the productivity of a society, and that it reduces the size of the “economic pie”.

Economic Discrimination Theories Summary

Theory Cause Winners Losers
Becker’s Theory Prejudice white workers minority workers, society at large, employers
Split Labor Market Theory Interest Group(white workers) white workers minority workers
Marxist Theory Interest Group(capitalists) Employers, Capitalists all workers, regardless of race, ethnicity


Recent Trends and Their Impact on Economic Inequality

In this section we will look at some of the social trends that continue to influence economic inequality in U.S. society.  One new one is education.  Employers are increasingly asking workers for higher levels of education for jobs whether or not that education is actually needed for the job. Although asking workers for more education is not overtly racist, it does have consequences.  Inflated educational requirements, along with the high cost of education, makes it difficult for minority workers, many of whom are poor, to compete for high paying jobs. Thus, high educational credentials adds to unemployment and poverty amongst minority groups.

Job Loss and Job Decentralization

As was mentioned in previous units, prior to World War II and directly following it, many minority groups moved to large cities to work in industrial and factory jobs.  Beginning in the 1960’s, the American economy began accelerating the process of deindustrialization.  Deindustrialization refers to the loss of manufacturing jobs due to automation and globalization.  Many of the lost manufacturing jobs from deindustrialization were lost in central cities, where large minority populations lived.  This means a disproportionate share of minority group members suffered when jobs left the central cities.  Between 1947 and 1967 manufacturing employment in central cities declined by 4 percent.  New York City lost 600,000 jobs between 1970 and 1980.  Chicago lost 200,000.   East St. Louis, Illinois, a predominately black community, lost half of its manufacturing jobs between 1950 and 1970.  As higher paying industrial jobs moved out, lower paying service jobs moved in.  The effects of this job decentralization has been particularly burdensome on African American and Latino males, who once relied on manufacturing jobs for stable, and good paying employment.  At the same time there has been a job shift to the suburbs, which tend to be predominately white.  Because many minority workers in urban areas cannot afford an automobile or because of housing segregation, which will be discussed further below, it becomes difficult for minority workers to leave the central cities and to move to where the jobs are.  This situation has led to a geographic mismatch.  Geographic mismatch refers to the problem of how there are jobs available in certain areas, but not in the geographic residence of many minority workers.

Deindustrialization has impacted the racial wealth, employment, and poverty gaps. For example, in Milwaukee, while highly segregated, economic inequality was at historic lows in the 1960’s. Milwaukeeans enjoyed the nation’s second highest median household income in 1969. The black poverty rate was twenty-two percent lower than the US average in 1970, and African American median family income was nineteen percent higher than the US African American median. Milwaukee’s African American poverty rate is now forty-nine percent higher than the African American national average, and median income is 30 percent lower.

Reasons for Job Shifts

There are many reasons to explain the shifting of jobs from central cities to suburbs.  Below is a brief list.

1)  Modern manufacturing jobs are more efficient in sprawling, one story factories than in old, multistory facilities in central cities.  Urban areas lack the land to build one story factories.  In addition the  transporting of goods today is heavily reliant on the highway system, and not rivers and railroads of yesteryear.  Because most shipping is done by truck, businesses tend to locate near the intersection of two highways.

2)  Deindustrialization.  As mentioned above, many jobs have been moved because of automation or globalization.

3)  Employers efforts to avoid unionization.  Many businesses have moved to areas that are predominately white to avoid the creation of a union or to dissolve a union.  White workers tend to be less pro-union than minority workers.

4)  Individual prejudices.  Some employers may be reluctant to keep their businesses in minority neighborhoods because of prejudices and fears.

It is important to note that not only manufacturing jobs have been leaving the central city, but also retail jobs as well.  As the wealthier (and mostly white) population has moved to the suburbs,  the retail businesses have followed.  Fear of crime and a reluctance to shop in minority neighborhoods are also reasons why retail jobs have left the central cities.

Possible Solutions to Job Shifts

One possible solution would be to make it easier to commute from the central cities to the suburbs. Some minority workers have taken this route, but many others cannot.  Few large cities have mass or rapid transportation systems.   Many other minority workers do not own a car.  A 2000 Census Bureau report found that one in four African American households and one in six Hispanic households had no automobile.

A second possible solution is to get minority workers to move to where the jobs are.  However, the cost of moving to the suburbs in often prohibitive.  In addition, there is public opposition to low income housing which has the affect of keeping poor minority workers out of the suburbs.  The problem with finding affordable housing is the next topic that will be explored.


Housing Discrimination and Segregation

housingsegregationThe term housing segregation is used to describe the tendency for people of any two different groups or races to live in separate areas.  In the United States there are many cities where one minority group will live and in another neighborhood mostly whites will live.  Sociologists have a way of measuring housing segregation called the segregation index.  The segregation index works on a scale from zero to one hundred, with zero representing no segregation and one hundred representing complete segregation.  The segregation index looks at any two groups (for example whites and blacks) and tells what percentage of the city’s white or black population would have to move to another area to have no segregation at all.  The segregation index has been used since 1950 – 2000.  In the year 2000, the black-white segregation index for all 331 metropolitan areas in the United States was about 50, down from about 54 in 1990 and the low 60’s in 1980.

Regionally, the lowest levels of segregation are found in the West, and the highest segregation levels are found in the Midwest and Northeast, particularly large, older cities with large black populations.  Some cities such as New York, Chicago, and Detroit, still have black-white segregation scores of over 80.  Historically, housing segregation arose out of the “Great Migration” of African Americans leaving the South to work in Northern cities.  Because white workers saw African Americans as an economic threat to their jobs,  racial segregation in housing was established. One result of housing segregation is that minorities, particularly African Americans, have been largely excluded from the suburbs.  Although the number of African Americans living in suburbs went up during the 1990’s, many blacks living in the suburbs live in areas that are extensions of black neighborhoods from the central city.

Where you live determines where you go to school, what social networks you can join, what jobs you can access, and whether your voice is likely to be heard in the electoral politics.That is why a new report from two demographers, John Logan and Brian Stults, is essential reading. The authors examine patterns of residential racial segregation in the United States using data from the decennial Census from 1980 to 2010. Although black-white segregation is slowly decreasing in most areas, the report reveals that blacks continue to live in very different neighborhoods than whites. Black-white segregation peaked in the 1970s, and has slowly declined since that time. This decline has occurred across both areas where blacks are a small fraction of the population, and those in which they make up a large percentage. According to the authors, most desegregation has occurred from blacks moving into historically white areas, and not the other way around. Areas where Hispanic growth is high are becoming more segregated.6


1.  Housing Patterns:  Comparing Most and Least Segregated Cities

2.  Milwaukee Tops List of Most Segregated City

3.  Census Data and Segregation in America

4.  The Ten Most Segregated Urban Areas in America (slide show)

5.  Why Is The city of Milwaukee the Worst City in America For Black People to Live In?


Explanations for Housing Segregation

One explanation for housing segregation is economic. Because the African American population has a significantly lower average income than the white population,  it becomes difficult for many blacks to afford to live in white neighborhoods.  But recent research seems to indicate that income differences are only a minor reason for segregation, and that the major reason seems to be based on notions of race.  Research from surveys completed by both whites and blacks show that the problem seems to be with the preference of white residents to prefer to live in all white neighborhoods.  In the surveys, blacks expressed a clear preference for living in integrated neighborhoods.  Only a small minority chose to live in an all-black or all-white neighborhood.  The main reason given was a perceived need to get along with whites.  When whites answered the surveys, they provided different responses to those of blacks.  Sizable minorities said they would be unwilling to move to a neighborhood that was 20% black or even a neighborhood with one black household.  The majority of whites surveyed indicated that they would not move to a neighborhood that was one-third black, but did say that they would try to move out of such a neighborhood. 4 These studies show that although some whites are willing to live in integrated neighborhoods, there is a threshold to the degree of integration that most whites will accept.  The research seems to indicate that the behavior of whites shows that they will often move out of a neighborhood once substantial numbers of minorities begin to move in.  There seems to be a definite limit to the degree of integration that whites are willing to accept.  Integrated neighborhoods, the kind that African Americans would like to move into, seem to be the exact kind of neighborhoods that whites want to move out of.

What the research seems to indicate is that the most important factor for explaining housing segregation is  white preferences.  The desire of whites to live in all white or nearly all-white areas influences the composition of neighborhoods. The preference for different composition of neighborhoods means that the word “integration” means something different for whites and blacks.  These preferences create a pattern for housing segregation.  First, the neighborhood becomes more attractive, so blacks and other minorities move in at an accelerated rate. Secondly, whites stop moving in to such neighborhoods.  Finally, in some neighborhoods, whites start moving out at a faster than normal rate.  Because so many whites are unwilling to live in integrated neighborhoods, it has become difficult to eliminate housing segregation.  What the above paragraphs have described is the term “white flight”.  “White flight” refers to the exodus of middle and upper class whites in the United States moving out of inner cities to live in suburbs which are predominately white. One of the main factors involved in whites fleeing for the suburbs is the belief that minorities bring with them cultural values and attitudes (crime, not taking care of their homes) that whites believe will lower the value of their homes.

1.  Northern Violence/Housing Segregation

2.  Housing Segregation and Racism in Levitown in the 1950’s (documentary)

3.  Marching Across Milwaukee’s Mason-Dixie Line in 1967

4.  Milwaukee’s Fair Housing Campaign 1967-1968 (youtube)

Another explanation for housing segregation is the harassment of whites towards minorities, particularly blacks, who move into all-white neighborhoods.  Some of the harassment is mild, in terms of avoidance, derogatory terms, or graffiti.  Other forms of harassment, such as destruction of property, and beatings have been more violent. The Chicago suburb of Cicero for example, was made famous when Civil Rights advocate Rev. Martin Luther King, Jr. led a march advocating open (race-unbiased) housing.  Racial segregation and violence were deeply rooted in Cicero. In 1951 there was a major racial crisis when the Clarks, a black family, rented an apartment and in response 6,000 white people violently attacked the family of a black bus driver. Then Illinois governor, Adlai Stevenson called in the National Guard. In the end Harvey Clark and his family were never able to live in Cicero.  In 1966 Cicero still had no black residents, but many blacks were employed in the city. When protesters marched through town, white residents threw bottles and bricks at the activists. 5


Discrimination in the Real Estate Business

restrictivecovenantSegregation in the United States has also had legal support.  State constitutions (for example, that of California) had clauses giving local jurisdictions the right to regulate where members of certain races could live. White landowners often included restrictive covenants in deeds through which they prevented blacks or Asians from ever purchasing their property from any subsequent owner. In the 1948 case of Shelley v. Kraemer, the U.S. Supreme Court finally ruled that such covenants were unenforceable in a court of law.

Even though restrictive covenants no longer are legally enforceable, the real estate industry still exhibits a pattern of housing segregation.  One practice used today is called racial steering.  Racial steering refers to the practice of selecting which homes to show to prospective white and black home buyers.  Research from studying racial steering has shown that white and black couples who are similar in social and economic characteristics are shown homes, the black couple is shown homes in mixed or all-black neighborhoods, while whites are shown homes in near all white neighborhoods.  Another practice used by real estate agents that added to housing segregation was “blockbusting”.  Blockbusting refers to the practice of real estate agents going into white neighborhoods that border black neighborhoods and tell white homeowners that blacks are moving in, that housing values are going down, and that they need to sell now, while they could still get money for their home.  After buying the home for below market price from white families, real estate agents would turn around and sell the home for an inflated price to a black family.    Blockbusting became illegal under the 1988 Fair Housing Act.

1. Racial Steering Still Going on Today


In this section we will take a quick look at how the federal government contributed to housing segregation.  After World War II, the federal government developed two programs to assist soldiers and middle class Americans to afford housing.  The tax subsidies of these programs went mostly to whites.  Very little aid was available to lower income residents, who often were minorities.  The result was that loans were made available to whites who could then buy houses in the new suburbs, while minorities were restricted to poorer quality housing in the central cities. The FHA’s core insurance program, section 203(b), systematically discriminated against African-Americans. The FHA produced underwriting guidelines based on an economically and historically flawed understanding of a “natural” progression of neighborhood racial change from all-white (with high property values) to all-black (with low property values). These guidelines rated a neighborhood’s suitability for insurance based on racial composition, encouraged or mandated racial covenants as a condition for insurance, and discouraged integrated neighborhoods. Between 1930 and 1950, three out of five homes purchased in the United States were financed by FHA, yet less than two percent of the FHA loans were made to non-white home buyers.

The government also played a role. Beginning in the 1930s and 1940s, the federal government created programs that subsidized low-cost loans, opening up home ownership to millions of average Americans for the first time. At the same time, government underwriters introduced a national appraisal system, tying property value and loan eligibility to race. Consequently, all-white communities received the highest ratings and benefited from low-cost, government-backed loans, while minority and mixed neighborhoods received the lowest ratings and were denied these loans. Of the $120 billion worth of new housing subsidized by the government between 1934 and 1962, less than 2 percent went to nonwhite families. Nonwhites were locked out of home ownership just as most white Americans were finally getting in.

In 1949 the  National Housing Act authorizes urban redevelopment  The housing market available to most nonwhites was rental and later, public housing in segregated urban centers. Government-sponsored urban redevelopment programs destroyed more housing than they built. Ninety percent of all housing destroyed by urban renewal was not replaced; two-thirds of those displaced were Black or Latino. As urban renewal projects destroyed taxable properties, the burden for maintaining social services was shifted onto fewer and fewer residents – encouraging white flight and making the poor poorer. In the 1950s-1960s there was a housing boomDuring the 1950s and 1960s, more and more white homeowners moved to the suburbs. Federal and state tax dollars subsidized the construction and development of municipal services for suburbs, in turn fueling commercial investment. Freeways in major cities connected white suburbs to central business districts, but they were often built through core areas of Black settlement. Many urban Black areas lost their neighborhood shopping districts and successful small businesses as a result. By the 1960s, many businesses began moving jobs from cities to suburbs, further concentrating wealth and needed tax dollars away from urban areas.

1.  Foreclosure Crisis Fueled Rise of Racial Segregation

2. Public Housing:  Government Sponsored Segregation

3. Airbnb and the “sharing economy” still suffer from old-fashioned racism

Impact of Segregation

What are the results of the housing segregation described above?  There are many harmful effects due to housing segregation.  The first is that housing segregation deprives minorities of free choice of neighborhoods to live and restricts the availability of housing.  In addition, housing segregation contributes to school segregation.  Thirdly, housing segregation restricts employment opportunities, and thus adds to the higher unemployment rates for minorities. The higher unemployment means that minorities are often living in areas of higher rates of poverty.  Finally, housing segregation contributes to the racial attitudes of both whites and minorities.  Because we don’t live near each other and have few day to day contacts,  it becomes difficult to remove prejudicial attitudes and stereotypes.  For all the reasons described in this paragraph, housing segregation is widely viewed as contributing to worsening race relations.


The Fiscal Troubles with Cities and Their Impact on Minorities

Previously in this unit, we have looked at employment and housing can affect economic discrimination.  There is one final area that needs to be  added and that is the affect on minorities of living in large urban cities.  The residential patterns of many minority groups in the United States show the great majority of their members live in the nation’s cities. Because of this, the many problems that face cities have a disproportionate affect on minorities.

Over the past few decades, many of the nation’s large cities have faced fiscal problems. There are three main factors which have contributed to the fiscal problems of cities. The first two have been discussed earlier in this unit: the loss of industrial jobs and the increasing concentration of a lower-income population due to housing segregation.  We will now examine the third: the fiscal problems created by a taxing system that requires local financing of city services.

In the past many cities received significantly state and federal funds to operate.  But because of changing politics, the amount of state and federal aid has decreased.  Federal funding for city budgets fell from 18% in 1980, to 6.4% in 1990.  The fiscal crisis affected states in the states from 2002 to 2004 also shrank state aid to many cities.  The result of these reductions is that cities have been forced to raise most of their revenues locally, mainly through taxes.  Because necessary funds to run the city must be raised locally, the people in greatest need of services (large minority populations) are the least able to pay for them.  The property tax is a good example.  The tax works by taxing the value of a property.  If the values of property are high, then a large amount of revenue is able to flow into the city.  If the property values are low, on the other hand, then the city sees a shrinking amount of money coming in.  Because over the past few decades many businesses and middle class people left the city for the suburbs, the amount of property tax revenue has declined.  Because of this, many cities have had to raise the tax rate per dollar of assessed value substantially.  This means that the local tax burden on the poor who live in the cities, is much higher than that of the wealthy living in the suburbs.  One study done on East St. Louis, Illinois, a largely poor and black community, found the city’s tax rate per total pre capita assessed valuation, to be six and a half times higher than the average for the county that it is located in.

The property tax is not the only tax that affects cities.  The sales tax is also affected.  When  retail businesses move their operations to the suburbs, it reduces the amount of sales tax revenue. As a result of tax revenue leaving large cities, the big-city governments of today provide a lower level of services to the needy.  Schools, police departments, fire departments, libraries, and health care facilities have all been cut back.   Although the reduced revenue to cities may not have been a deliberate attempt to discriminate, if the present system of taxation remains intact, minority populations who continue to be concentrated in America’s central cities will continue to be at a disadvantage.

Banking Discrimination

Banks and other financial institutions have long enacted policies that were discriminatory to minority group members.  Today in America’s central cities, many traditional banks have closed up and have been replaced by financial institutions that engage in what is called predatory lending. Predatory lending means imposing unfair and abusive loan terms on borrowers, often through aggressive sales tactics, taking advantage of borrowers’ lack of understanding of extremely complicated transactions, and outright deception. Predatory loans are made in such concentrated volume in poor and minority neighborhoods where better loans are not readily available.

Another practice of financial institutions is racial redlining.  Racial redlining is the practice whereby mortgage lenders figuratively draw a red line around minority neighborhoods and refuse to make mortgage loans available inside the red lined area. Broadly defined, racial redlining encompasses not only the direct refusal to lend in minority neighborhoods, but also procedures that discourage the submission of mortgage loan applications from minority areas, and marketing policies that exclude such areas. In direct economic terms, racial redlining reduces housing finance options for borrowers in minority neighborhoods and weakens competition in the mortgage market. This often results in higher mortgage costs and less favorable mortgage loan terms. More subtly, racial redlining discourages minorities from pursuing home ownership opportunities and in the broadest sense further entrenches the debilitating sociological effects of racial discrimination.

Let’s take a look at how Gary Becker’s theory on economic discrimination can be used to understand how financial institutions can discriminate against minorities in housing.  According to  Gary Becker, discrimination is inefficient, and like all inefficiencies will eventually be driven away from the market.  If one believes this theory, discrimination should hardly exist at all.  For example, take mortgage lending:

Black Family White Family
Family Income $60,000 $60,000
Kids 2 2
Proposed Home value $150,000 $150,000
Credit History Always pay bills on time Always pay bills on time
Looking for loan of $135,000 $120,000
Proposed Neighborhood Racially Mixed, unstable prices All White; Stable prices
Family Net Financial Worth $12,303 $66,800
Main family earner, potential for future promotion and raises uncertain excellent

According to the free market, banks are profit motivated and don’t care about the applicant’s race.  As a profit oriented institution, banks should be equally likely to lend to Whites and Blacks.  If the White family and the Black family both have good credit histories, the bank should lend them both money.  According to Becker’s theory, non-discriminatory banks which lend to all credit worthy customers will make more profit than discriminatory banks, and so the discriminatory banks will quickly go out of business.  If it’s in the bank’s economic interest to lend to all credit worthy people, why doesn’t the Black family get the loan?  Because the home loan industry is not a ‘free market’.  Most home loans are subsidized or guaranteed, in one way or another, by the Federal Government.  So if the Federal government ‘redlines’ an inner city neighborhood, the bank would not be able to make an attractive loan to the residents of that neighborhood, even if they wanted to.  The history of discrimination in the U.S., and the inability of previous generations of Blacks to own homes or businesses means that today’s educated upper middle class Blacks have much lower net worth than their White peers.  Even if the Black family had the same net worth as the White family, they are hurt by neighborhood effects.  Blacks are frequently forced to buy homes in less desirable areas, where home prices are less stable, and which the bank (in its purely profit oriented motives) is less willing to invest in.  Even if the Black family found a potential home in the most exclusive, most desirable, lily White part of town, and even if the Black family has more than enough financial means to afford the house, the bank may still be unwilling to make the loan.  Because Blacks face discrimination at work, in the legal system, and elsewhere, the potential future earnings of the Black family are perhaps lower than that of a White family with the same profile.  Discrimination exists in all areas of American life, and it wouldn’t be prudent, or profit- oriented, for the bank to bet against that discrimination.   If the bank were the only racially discriminatory institution in the country, it would go out of business.  But if racial discrimination is pervasive in other areas of American life, the bank can only stay in business by discriminating as well.  If the system works to make Blacks less ‘credit worthy’, then, in the narrow economic sense, the bank is simply making a rational judgment about the inability of potential Black borrowers to pay back the loan.  In the bank’s view, they may reject all Black loan applicants for purely rational or economic reasons.

1.  Minorities Lose Financial Ground


Health Care

Health care is another issue that negatively affects minority groups.  In the United States today, the racial or ethnic group to which one belongs partially determines how long one will live.  It also affects additional health issues such as incidence of illnesses and cancers, as well as infant mortality rates.

On average African Americans live about five and a half years less than whites.  The life expectancy was 71.7 compared with 77.4 for whites (National Center for Health Statistics, 2002b, p. 33)  Life expectancy for Native Americans was 70.6, which is about six year less than for whites.   Infant mortality rates are also higher among minority groups than among whites.  The infant mortality rate (the number of deaths per year of infants under one year old per thousand live births) was 5.3 for whites in 2009, but 12.4 – almost two and a half times as high- for blacks (Centers For Disease Control and Prevention).  The rate for Native Americans was 8.3 per thousand.  For Hispanics, the infant mortality rates were about the same as for whites.

According to the National Center for Healthy Housing, “Minority and low-income families are more likely to live in substandard housing and polluted communities, increasing their risk of childhood lead poisoning, asthma, cancer and other environmentally related diseases.” What’s more: “In addition to being disproportionately affected by disease, minorities often lack adequate insurance and access to health care due to financial and cultural barriers.”

What are the factors that explain such a discrepancy?  Sociologists have come up with a number of them which are outlined below:

1)  Some jobs are more dangerous than others.  Minority group members are overrepresented among many of the occupations that carry a danger or have a higher risk to exposure to toxic substances.  With respect to toxic substances, there is a new term to describe this situation:  environmental racism.  This new term describes a pattern where minorities are disproportionately exposed to hazardous substances both at work and at home.  Many minority communities are located adjacent to industrial facilities that release dangerous pollutants into the air and water.  In urban America, many minorities live in older housing with its increased risk of illness from lead-based paint.  Case strapped Indian Reservations have become a dumping ground for nuclear waste and other hazardous substances.

2)  Issues related to poverty.  There are a number of issues that disproportionately affect minorities because of their high poverty rates.  Poor nutrition, inadequate housing, higher incidents of suffering from stress related diseases such as ulcers and hypertension.

3)  Behavioral factors.  Blacks have higher smoking rates than do whites.  As we saw in unit 9, minorities have higher homicide rates than do whites.

4)  Perhaps the most important factor might be the cost of health care.  In the United States, health care is typically provided through private sector insurance, usually through one’s place of employment.  The public sector provides for limited health coverage, for the elderly with Medicare, and some of the poor with Medicaid.  If you don’t have insurance through your employer, then you have to pay out of pocket.  Such a health care system can be expensive for everyone, especially those who are poor. Topics discussed earlier, such as higher poverty and unemployment rates for minorities also affect health insurance among coverage for minority groups.  In 2015, 16.2 percent of Hispanic Americans and 11.1 percent of African Americans had no health insurance at all, compared with 6.7 percent for whites (U.S. Census Bureau, 2015 Health Insurance Highlights).      Having health insurance plays an important role in how often people will see a doctor.  Those with no insurance have fewer doctor visits than those with insurance.

5)  Availability of Health Care Personnel.  Even when minorities decide to visit a doctor, it doesn’t always mean they will be able to see one.  Inner city neighborhoods, which have large minority populations,  usually have relatively few practicing physicians.  Because the American health care system is based on the ability to pay, a low income urban neighborhood is not an attractive place for doctors to locate-  doctors can earn more money in middle or upper class neighborhoods which are often predominately white.  In addition, many large cities experienced fiscal problems in the 1980’s and 1990’s and closed public hospitals that served large minority populations.  Finally, there is a shortage of minority doctors, who are more likely to locate in minority neighborhoods.


  1. Center for Disease Control’s Health Inequity Report 2011
  2. Rejection by States of Medicaid Money Under Obamacare Hurts the Poor and Minorities
  3.  Two Black Female Doctors Not Allowed by Flight Attendants to Assist Sick Passengers


  action Movies Relevant to This Unit

Below are a list of movies that exhibit sociological concepts learned in this unit.

1.  A Day Without a Mexican.  This movie looks at what happens to the state of California when all of the Mexican people disappear overnight.  Hint:  The economy suffers.

2.  John Q.  A down-on-his luck father, whose insurance won’t cover his son’s heart transplant, takes the hospital’s emergency room hostage until the doctors agree to perform the operation.


 books03Books Relevant to This Unit

Below are a list of books that exhibit sociological concepts learned in this unit.

1.  The Color of Wealth by Meizhu Lui, Barbara Robles, Betsy Leondar-Wright

2.  The Hidden Cost of Being African American:  How Wealth Perpetuates Inequality by Thomas M. Shapiro

3.  Race and Economics by Thomas Sowell

4.  Minority Populations and Health: An Introduction to Health Disparities in the U.S. by Thomas LaVeist




1Net Worth and Asset Ownership of Households:  1998 and 2000, Census Report

2  United States Department of Commerce, “Census Bureau Report on Homeownership”

3   Who Owns the Land?  Agricultural Land Ownership by Race and Ethnicity

4.  Ihlanfeldt, Keith R. and Benamin Scafidi 2004.  “Whites’ Neighborhood Preferences and Neighborhood Racial Composition in the United Sates:  Evidence from the Multi-City Study of Urban Inequality”

5.  Eyes on the Prize:  The American Civil Rights Movement 1954 – 1985

6.  America the Segregated by Brendan Saloner

Farley, John E.      2005   Majority-Minority Relations  (5th Edition)  Upper Saddle River, New Jersey:   Pearson Education

Healey, Joseph F.      1998   Race, Ethnicity, Gender, and Class  (2nd Edition)  Thousand Oaks, California:   Pine Forge Press

Rosenfeld, Michael J. 2001 Notes on Segregation, free markets, and the Mortgage and Real Estate industries 




Copyright ©2006, 2014 Glenn Hoffarth All Rights Reserved

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