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Race-Specific Agglomeration Economies: Social Distance and the Black-White Wage Gap

Author

Listed:
  • Elizabeth Ananat

    (Duke University)

  • Shihe Fu

    (Wang Yanan Institute for Studies in Economics (WISE) Xiamen University)

  • Stephen L. Ross

    (University of Connecticut)

Abstract

We demonstrate a striking but previously unnoticed relationship between city size and the black-white wage gap, with the gap increasing by 2.5% for every million-person increase in urban population. We then look within cities and document that wages of blacks rise less with agglomeration in the workplace location, measured as employment density per square kilometer, than do white wages. This pattern holds even though our method allows for non-parametric controls for the effects of age, education, and other demographics on wages, for unobserved worker skill as proxied by residential location, and for the return to agglomeration to vary across those demographics, industry, occupation and metropolitan areas. We find that an individual’s wage return to employment density rises with the share of workers in their work location who are of their own race. We observe similar patterns for human capital externalities as measured by share workers with a college education. We also find parallel results for firm productivity by employment density and share college-educated using firm racial composition in a sample of manufacturing firms. These findings are consistent with the possibility that blacks, and black-majority firms, receive lower returns to agglomeration because such returns operate within race, and blacks have fewer same-race peers and fewer highly-educated same-race peers at work from whom to enjoy spillovers than do whites. Data on self-reported social networks in the General Social Survey provide further evidence consistent with this mechanism, showing that blacks feel less close to whites than do whites, even when they work exclusively with whites. We conclude that social distance between blacks and whites preventing shared benefits from agglomeration is a significant contributor to overall black-white wage disparities.

Suggested Citation

  • Elizabeth Ananat & Shihe Fu & Stephen L. Ross, 2014. "Race-Specific Agglomeration Economies: Social Distance and the Black-White Wage Gap," Working Papers 2014-019, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2014-019
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Race-Specific Agglomeration Economies: Social Distance and the Black-White Wage Gap
      by maximorossi in NEP-LTV blog on 2014-12-02 18:18:43
    2. Race-Specific Agglomeration Economies: Social Distance and the Black-White Wage Gap
      by maximorossi in NEP-LTV blog on 2014-05-27 19:54:54

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    Cited by:

    1. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    2. Camille Hémet & Clément Malgouyres, 2018. "Diversity and Employment Prospects: Neighbors Matter!," Journal of Human Resources, University of Wisconsin Press, vol. 53(3), pages 825-858.
    3. Neumark, David & Simpson, Helen, 2015. "Place-Based Policies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1197-1287, Elsevier.
    4. Daniel S. Hamermesh & Katie R. Genadek & Michael C. Burda, 2021. "Racial/Ethnic Differences in Non-Work at Work," ILR Review, Cornell University, ILR School, vol. 74(2), pages 272-292, March.
    5. Guangliang Yang & Lixing Li & Shihe Fu, 2020. "Do rural migrants benefit from labor market agglomeration economies? Evidence from Chinese cities," Growth and Change, Wiley Blackwell, vol. 51(3), pages 910-931, September.
    6. Ingrid Gould Ellen & Stephen L. Ross, 2018. "Race and the City," Working Papers 2018-022, Human Capital and Economic Opportunity Working Group.
    7. Klein, Alexander & Crafts, Nicholas, 2015. "Agglomeration Economies and Productivity Growth : U.S. Cities, 1880-1930," CAGE Online Working Paper Series 235, Competitive Advantage in the Global Economy (CAGE).
    8. Burda, Michael, 2017. "Racial/Ethnic Differences in Non-Work at Work," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168183, Verein für Socialpolitik / German Economic Association.
    9. Topa, Giorgio & Zenou, Yves, 2015. "Neighborhood and Network Effects," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 561-624, Elsevier.

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    More about this item

    Keywords

    black-white wage gap; agglomeration; human capital externalities; information networks; total factor productivity;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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