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

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  • Elizabeth Ananat
  • Shihe Fu
  • Stephen L. Ross

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, 2013. "Race-Specific Agglomeration Economies: Social Distance and the Black-White Wage Gap," WISE Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
  • Handle: RePEc:wyi:wpaper:002057
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    References listed on IDEAS

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    1. 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, Elsevier.
    2. Neumark, David & Simpson, Helen, 2015. "Place-Based Policies," Handbook of Regional and Urban Economics, Elsevier.
    3. Daniel S. Hamermesh & Katie R. Genadek & Michael C. Burda, 2017. "Racial/Ethnic Differences In Non-Work At Work," SFB 649 Discussion Papers SFB649DP2017-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Camille Hémet, 2015. "Diversity and employment prospects: neighbors matter!," Working Papers 2015/4, Institut d'Economia de Barcelona (IEB).
    5. Burda, Michael, 2017. "Racial/Ethnic Differences in Non-Work at Work," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168183, Verein für Socialpolitik / German Economic Association.
    6. Topa, Giorgio & Zenou, Yves, 2015. "Neighborhood and Network Effects," Handbook of Regional and Urban Economics, Elsevier.
    7. Crafts, Nicholas & Klein, Alexander, 2015. "Agglomeration Economies and Productivity Growth: U.S. Cities, 1880-1930," CEPR Discussion Papers 10673, C.E.P.R. Discussion Papers.
    8. Yang, Guangliang & Li, Lixing & Fu, Shihe, 2017. "Do Rural Migrants Benefit from Labor Market Agglomeration Economies? Evidence from Chinese Cities," MPRA Paper 80713, University Library of Munich, Germany.

    More about this item

    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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