Understanding permanent black-white earnings inequality
AbstractAverage annual earnings of black US households have remained at around half the average earnings of white households for more than 30 years. Why are the earnings of black households so low compared to those of white households? Why can blackwhite earnings inequality of such magnitude be permanent? This paper provides a quantitative answer based on neighborhood effects. The economic and demographic characteristics of neighborhoods and the distribution of earnings are determined endogenously from the location and investment decisions of altruistic parents. Permanent racial inequality arises from residential segregation by race and earnings coupled with neighborhood effects that impact the productivity of parental investments. The model is calibrated by targeting observed segregation by race, segregation by earnings, housing price differences across neighborhoods, intergenerational earnings mobility, and the magnitude of parental investments in children. The benchmark steady state earnings distribution accounts for .72 of the observed black-white percent difference in household earnings. The paper argues that local housing markets, local human capital externalities and racial neighborhood preferences are necessary ingredients in explaining permanent black white inequality.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2010-047.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-DGE-2010-11-27 (Dynamic General Equilibrium)
- NEP-URE-2010-11-27 (Urban & Real Estate Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Dionissi Aliprantis & Daniel Carroll, 2012. "Neighborhood dynamics and the distribution of opportunity," Working Paper 1212, Federal Reserve Bank of Cleveland.
- Dionissi Aliprantis, 2012. "Assessing the evidence on neighborhood effects from moving to opportunity," Working Paper 1233, Federal Reserve Bank of Cleveland.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xiao Xiaohong) The email address of this maintainer does not seem to be valid anymore. Please ask Xiao Xiaohong to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.