Agglomeration Economies and Race Specific Spillovers

Racial social isolation within workplaces may reduce firm productivity. We provide descriptive evidence that African-Americans feel socially isolated from whites. To test whether isolation affects productivity, we estimate models of Total Factor Productivity for manufacturing firms allowing the returns to concentrated economic activity and human capital to vary by the match between each establishment’s racial and ethnic composition and the composition of local area employment. Higher own-race representation increases the productivity return from employment density and concentrations of college educated workers. Looming demographic changes suggest that this drag on economic productivity may increase over time.