Agglomeration Economies and Race Specific Spillovers

Racial social isolation within and across 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 returns to local area concentrations of economic activity and human capital spillovers to vary with the racial and ethnic composition of both the establishment and the local area employment. Higher own-race exposure for establishment workers to workers at surrounding establishments strengthens the relationship between productivity and both employment density and concentrations of college educated workers. Effects for human capital spillovers are largest for firms with more patents and more research and development spending. Looming demographic changes suggest that this drag on productivity may increase over time.