Want to close the Black/White Income Gap? Work to Reduce Segregation.
By Joe Cortright
Nationally, the average black household has an income 42 percent lower than average white household. But that figure masks huge differences from one metropolitan area to another. And though any number of factors may influence the size of a place’s racial income gap, just one of them – residential segregation – allows you to predict as much as 60 percent of all variation in the income gap from city to city. Although income gaps between whites and blacks are large and persistent across the country, they are much smaller in more integrated metropolitan areas and larger in more segregated metropolitan areas. The strength of this relationship strongly suggests that reducing the income gap will necessarily require reducing racial segregation.
To get a picture of this relationship, we’ve assembled data on segregation and the black/white earnings gap for the largest U.S. metropolitan areas. The following chart shows the relationship between the black/white earnings disparity (on the vertical axis), and the degree of black/white segregation (on the horizontal axis). Here, segregation is measured with something called the dissimilarity index, which essentially measures what percent of each group would have to move to create a completely integrated region. (Higher numbers therefore indicate more segregated places.) To measure the black-white income gap, we first calculated per capita black income as a percentage of per capita white income, and then took the difference from 100. (A metropolitan area where black income was 100% of white income would have no racial income gap, and would receive a score of zero; a metro area where black income was 90% of white income would receive a score of 10.)
The positive slope to the line indicates that as segregation increases, the gap between black income and white incomes grows as black incomes fall relative to white incomes. On average, each five-percentage-point decline in the dissimilarity index is associated with an three-percentage-point decline in the racial income gap (The r2 for this relationship is .59, suggesting a close relationship between relative income and segregation).
What’s less clear is which way the causality goes, or in what proportions. That is to say: there are good reasons to believe that high levels of segregation impair the relative economic opportunities available to black Americans. Segregation may have the effect of limiting an individual’s social networks, lowering the quality of public services, decreasing access to good schools, and increasing risk of exposure to crime, all of which may limit or reduce economic success. This is especially true in neighborhoods of concentrated poverty, which tend to be disproportionately neighborhoods of color.
But there are also good reasons to believe that in places where black residents have relatively fewer economic opportunities, they will end up more segregated than in places where there are more opportunities. Relatively less income means less buying power when it comes to real estate, and less access to the wealthier neighborhoods that, in a metropolitan area with a large racial income gap, will be disproportionately white. A large difference between white and black earnings may also suggest related problems – like a particularly hostile white population – that would also lead to more segregation.
The data shown here is consistent with earlier and more recent research of the negative effects of segregation. Glaeser and Cutler found that higher levels of segregation were correlated with worse economic outcomes for blacks. Likewise, racial and income segregation was one of several factors that Raj Chetty and his colleagues found were strongly correlated with lower levels of inter-generational economic mobility at the metropolitan level.
Implications
To get a sense of how this relationship plays out in particular places, consider the difference between two Southern metropolitan areas: Birmingham and Raleigh. Birmingham is more segregated (dissimilarity 65) than Raleigh (dissimilarity 41). The black white income gap is significantly smaller in Raleigh (blacks earn 17 percent less than whites) than it is in Birmingham (blacks earn 29 percent less than whites).
The size and strength of this relationship point up the high stakes in continuing to make progress in reducing segregation as a means of reducing the racial income gap. If Detroit had the same levels of segregation as the typical large metro (with an dissimilarity index of 60, instead of 80), you would expect its racial gap to be 12 percentage points smaller, which translates to $3,000 more in annual income for the average black resident.
These data presented here and the other research cited are a strong reminder that if we’re going to address the persistent racial gap in income, we’ll most likely need to make further progress in reducing racial segregation in the nation’s cities.
The correlations shown here don’t dispose of the question of causality: this cross sectional evidence doesn’t prove that segregation causes a higher black-white income gap. It is entirely possible that the reverse is true: that places with smaller income gaps between blacks and whites have less segregation, in part because higher relative incomes for blacks afford them greater choices in metropolitan housing markets. It may be the case that causation runs in both directions. In the US, there are few examples of places that stay segregated that manage to close the income gap; there are few places that have closed the income gap that have not experienced dramatically lower levels of segregation. Increased racial integration appears to be at least a corollary, if not a cause of reduced levels of income disparity between blacks and whites in US metropolitan areas.
If we’re concerned about the impacts of gentrification on the well-being of the nation’s African American population, we should recognize that anything that promotes greater racial integration in metropolitan areas is likely to be associated with a reduction in the black-white income gap; and conversely, maintaining segregation is likely to be an obstacle to diminishing this gap.
Though provocative, these data don’t control for a host of other factors that we know are likely to influence the economic outcomes of individuals, including the local industrial base and educational attainment. It would be helpful to have a regression analysis that estimated the relationship between the black white earnings gap and education. It may be the case that the smaller racial income gap in less segregated cities may be attributable to higher rates of black educational attainment in those cities. For example, the industry mix in Raleigh may have lower levels of racial pay disparities and employment patterns than the mix of industries in Birmingham. But even the industry mix may be influenced by the segregation pattern of cities; firms that have more equitable practices may gravitate towards, or grow more rapidly in communities with lower levels of segregation.
Brief Background on Racial Income Gaps and Segregation
Two enduring hallmarks of race in America are racial segregation and a persistent gap between the incomes of whites and blacks. In 2011, median household income for White, Non-Hispanic Households was $55,412; for Blacks $32,366 (Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2011, Table A-1). For households, the racial income gap between blacks and whites is 42 percent. Census Bureau data shows on average, black men have per capita incomes that are about 64 percent that of Non-Hispanic White men. This gap has narrowed only slightly over the past four decades: in the early 1980s the income of black men was about 59 percent that of Non-Hispanic whites.
Because the advantage of whites’ higher annual incomes compounds over time, racial wealth disparities are even greater than disparities in earnings. Lifetime earnings for African-Americans are about 25 percent less than for similarly aged Non-Hispanic White Americans. The Urban Institute estimated that the net present value of lifetime earnings for a non-hispanic white person born in late 1940s would be about $2 million compared to just $1.5 million for an African-American born the same year.
In the past half century, segregation has declined significantly. Nationally, the black/non-black dissimilarity index has fallen from an all-time high of 80 in 1970 to 55 in 2010, according to Glaeser and Vigdor . The number of all-white census tracts has declined from one in five to one in 427. Since 1960, the share of African-Americans living in majority-non-black areas increased from less than 30 percent to almost 60 percent. Still, as noted in our chart, their are wide variations among metropolitan areas, many of which remain highly segregated.
Technical Notes
We measure the racial income gap by comparing the per capita income of blacks in each metropolitan area with the per capita income of whites in that same metropolitan area. These data are from Brown University’s US 2010 project, and have been compiled from the 2005-09 American Community Survey. The Brown researchers compiled this data separately for the metropolitan divisions that make up several large metropolitan areas (New York, Chicago, Miami, Philadelphia, San Francisco, Seattle, Dallas and others). For these tabulations we report the segregation and racial income gaps reported for the most populous metropolitan division in each metropolitan area.
Want to close the Black/White Income Gap? Work to Reduce Segregation.
Nationally, the average black household has an income 42 percent lower than average white household. But that figure masks huge differences from one metropolitan area to another. And though any number of factors may influence the size of a place’s racial income gap, just one of them – residential segregation – allows you to predict as much as 60 percent of all variation in the income gap from city to city. Although income gaps between whites and blacks are large and persistent across the country, they are much smaller in more integrated metropolitan areas and larger in more segregated metropolitan areas. The strength of this relationship strongly suggests that reducing the income gap will necessarily require reducing racial segregation.
To get a picture of this relationship, we’ve assembled data on segregation and the black/white earnings gap for the largest U.S. metropolitan areas. The following chart shows the relationship between the black/white earnings disparity (on the vertical axis), and the degree of black/white segregation (on the horizontal axis). Here, segregation is measured with something called the dissimilarity index, which essentially measures what percent of each group would have to move to create a completely integrated region. (Higher numbers therefore indicate more segregated places.) To measure the black-white income gap, we first calculated per capita black income as a percentage of per capita white income, and then took the difference from 100. (A metropolitan area where black income was 100% of white income would have no racial income gap, and would receive a score of zero; a metro area where black income was 90% of white income would receive a score of 10.)
The positive slope to the line indicates that as segregation increases, the gap between black income and white incomes grows as black incomes fall relative to white incomes. On average, each five-percentage-point decline in the dissimilarity index is associated with an three-percentage-point decline in the racial income gap (The r2 for this relationship is .59, suggesting a close relationship between relative income and segregation).
What’s less clear is which way the causality goes, or in what proportions. That is to say: there are good reasons to believe that high levels of segregation impair the relative economic opportunities available to black Americans. Segregation may have the effect of limiting an individual’s social networks, lowering the quality of public services, decreasing access to good schools, and increasing risk of exposure to crime, all of which may limit or reduce economic success. This is especially true in neighborhoods of concentrated poverty, which tend to be disproportionately neighborhoods of color.
But there are also good reasons to believe that in places where black residents have relatively fewer economic opportunities, they will end up more segregated than in places where there are more opportunities. Relatively less income means less buying power when it comes to real estate, and less access to the wealthier neighborhoods that, in a metropolitan area with a large racial income gap, will be disproportionately white. A large difference between white and black earnings may also suggest related problems – like a particularly hostile white population – that would also lead to more segregation.
The data shown here is consistent with earlier and more recent research of the negative effects of segregation. Glaeser and Cutler found that higher levels of segregation were correlated with worse economic outcomes for blacks. Likewise, racial and income segregation was one of several factors that Raj Chetty and his colleagues found were strongly correlated with lower levels of inter-generational economic mobility at the metropolitan level.
Implications
To get a sense of how this relationship plays out in particular places, consider the difference between two Southern metropolitan areas: Birmingham and Raleigh. Birmingham is more segregated (dissimilarity 65) than Raleigh (dissimilarity 41). The black white income gap is significantly smaller in Raleigh (blacks earn 17 percent less than whites) than it is in Birmingham (blacks earn 29 percent less than whites).
The size and strength of this relationship point up the high stakes in continuing to make progress in reducing segregation as a means of reducing the racial income gap. If Detroit had the same levels of segregation as the typical large metro (with an dissimilarity index of 60, instead of 80), you would expect its racial gap to be 12 percentage points smaller, which translates to $3,000 more in annual income for the average black resident.
These data presented here and the other research cited are a strong reminder that if we’re going to address the persistent racial gap in income, we’ll most likely need to make further progress in reducing racial segregation in the nation’s cities.
The correlations shown here don’t dispose of the question of causality: this cross sectional evidence doesn’t prove that segregation causes a higher black-white income gap. It is entirely possible that the reverse is true: that places with smaller income gaps between blacks and whites have less segregation, in part because higher relative incomes for blacks afford them greater choices in metropolitan housing markets. It may be the case that causation runs in both directions. In the US, there are few examples of places that stay segregated that manage to close the income gap; there are few places that have closed the income gap that have not experienced dramatically lower levels of segregation. Increased racial integration appears to be at least a corollary, if not a cause of reduced levels of income disparity between blacks and whites in US metropolitan areas.
If we’re concerned about the impacts of gentrification on the well-being of the nation’s African American population, we should recognize that anything that promotes greater racial integration in metropolitan areas is likely to be associated with a reduction in the black-white income gap; and conversely, maintaining segregation is likely to be an obstacle to diminishing this gap.
Though provocative, these data don’t control for a host of other factors that we know are likely to influence the economic outcomes of individuals, including the local industrial base and educational attainment. It would be helpful to have a regression analysis that estimated the relationship between the black white earnings gap and education. It may be the case that the smaller racial income gap in less segregated cities may be attributable to higher rates of black educational attainment in those cities. For example, the industry mix in Raleigh may have lower levels of racial pay disparities and employment patterns than the mix of industries in Birmingham. But even the industry mix may be influenced by the segregation pattern of cities; firms that have more equitable practices may gravitate towards, or grow more rapidly in communities with lower levels of segregation.
Brief Background on Racial Income Gaps and Segregation
Two enduring hallmarks of race in America are racial segregation and a persistent gap between the incomes of whites and blacks. In 2011, median household income for White, Non-Hispanic Households was $55,412; for Blacks $32,366 (Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2011, Table A-1). For households, the racial income gap between blacks and whites is 42 percent. Census Bureau data shows on average, black men have per capita incomes that are about 64 percent that of Non-Hispanic White men. This gap has narrowed only slightly over the past four decades: in the early 1980s the income of black men was about 59 percent that of Non-Hispanic whites.
Because the advantage of whites’ higher annual incomes compounds over time, racial wealth disparities are even greater than disparities in earnings. Lifetime earnings for African-Americans are about 25 percent less than for similarly aged Non-Hispanic White Americans. The Urban Institute estimated that the net present value of lifetime earnings for a non-hispanic white person born in late 1940s would be about $2 million compared to just $1.5 million for an African-American born the same year.
In the past half century, segregation has declined significantly. Nationally, the black/non-black dissimilarity index has fallen from an all-time high of 80 in 1970 to 55 in 2010, according to Glaeser and Vigdor . The number of all-white census tracts has declined from one in five to one in 427. Since 1960, the share of African-Americans living in majority-non-black areas increased from less than 30 percent to almost 60 percent. Still, as noted in our chart, their are wide variations among metropolitan areas, many of which remain highly segregated.
Technical Notes
We measure the racial income gap by comparing the per capita income of blacks in each metropolitan area with the per capita income of whites in that same metropolitan area. These data are from Brown University’s US 2010 project, and have been compiled from the 2005-09 American Community Survey. The Brown researchers compiled this data separately for the metropolitan divisions that make up several large metropolitan areas (New York, Chicago, Miami, Philadelphia, San Francisco, Seattle, Dallas and others). For these tabulations we report the segregation and racial income gaps reported for the most populous metropolitan division in each metropolitan area.
Related Commentary