Financialization, Personal Debt Burden, & the Black-White Pay Gap in the United States

This paper examines the Black-White pay gap in the United States from 1989 to 2024 using quarterly data from the Bureau of Labor Statistics and the Federal Reserve's Distributional Financial Accounts. Building on existing political economy research, which suggests that personal debt reduces workers' bargaining power by making them more risk-averse in wage negotiations - particularly when job loss threatens their ability to service debt - this study argues that racial discrimination in both personal credit markets and wage negotiations disproportionately disciplines racialized social groups. Regression analysis shows that rising household debt liabilities-to-assets ratios for Black households and a higher share of white business owners have crucially contributed to the persistent wage gap between Black and White Americans. Interestingly, interacting the two coefficients shows that a higher share of white businesses slightly mitigates the effect of debt held by Black workers on the black-white earnings gap. This potentially implies that, despite discriminatory practices, white businesses might represent a relatively more stable employment option for indebted Black workers, thereby reinforcing a vicious cycle of self-perpetuating racialized economic inequality.