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

Elizabeth Ananat, Shihe Fu, Stephen L. Ross

NBER Working Paper No. 18933
Issued in April 2013
NBER Program(s):   CH   LS

We present evidence that benefits from agglomeration concentrate within race. Cross-sectionally, the black-white wage gap increases by 2.5% for every million-person increase in urban population. Within cities, controlling for unobservable productivity through residential-tract-by-demographic indicators, blacks’ wages respond less than whites’ to surrounding economic activity. Individual wage returns to nearby employment density and human capital rise with the share of same-race workers. Manufacturing firms’ productivity rises with nearby activity only when they match nearby firms racially. Weaker cross-race interpersonal interactions are a plausible mechanism, as blacks in all-white workplaces report less closeness to whites than do even whites in all-nonwhite workplaces.

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This paper was revised on June 24, 2015

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Document Object Identifier (DOI): 10.3386/w18933

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