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Understanding Permanent Black/White Earnings Inequality

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  • Alejandro Badel

    (St. Louis Fed)

Abstract

For more than 30 years, the ratio of average black earnings to average white earnings has remained close to 0.6. Additionally, US cities have remained dramatically segregated by race. This paper provides a joint theory of pre-market skills and residential segregation for quantitatively studying these phenomena. It is established that the magnitude of racial and earnings sorting observed in US cities implies 70 percent of observed black-white inequality. While the mechanism posed is intricate, all of its three non-standard components are essential for permanent black-white inequality to arise in a steady state: neighborhood human capital externalities, house price differences across neighborhoods, and preferences over neighborhood racial composition.

Suggested Citation

  • Alejandro Badel, 2012. "Understanding Permanent Black/White Earnings Inequality," 2012 Meeting Papers 1122, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1122
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    References listed on IDEAS

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    1. Card, David & Rothstein, Jesse, 2007. "Racial segregation and the black-white test score gap," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2158-2184, December.
    2. Cutler, David M. & Glaeser, Edward L. & Vigdor, Jacob L., 2008. "When are ghettos bad? Lessons from immigrant segregation in the United States," Journal of Urban Economics, Elsevier, vol. 63(3), pages 759-774, May.
    3. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    4. White, T. Kirk, 2007. "Initial conditions at Emancipation: The long-run effect on black-white wealth and earnings inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3370-3395, October.
    5. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
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    Cited by:

    1. Dionissi Aliprantis, 2011. "Assessing the evidence on neighborhood effects from moving to opportunity," Working Paper 1101, Federal Reserve Bank of Cleveland.
    2. Dionissi Aliprantis & Daniel R. Carroll, 2012. "Neighborhood dynamics and the distribution of opportunity," Working Paper 1212, Federal Reserve Bank of Cleveland, revised 01 Feb 2013.
    3. Nezih Guner & Christopher Rauh & Elizabeth Caucutt, 2017. "Is Marriage for White People? Incarceration and the Racial Marriage Divide," 2017 Meeting Papers 779, Society for Economic Dynamics.
    4. Daniel B. Jones & Werner Troesken & Randall Walsh, 2012. "A Poll Tax by any Other Name: The Political Economy of Disenfranchisement," NBER Working Papers 18612, National Bureau of Economic Research, Inc.

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