By Shankar Vedantam
The racial wage gap in the United States — the gap in salary between whites and blacks with similar levels of education and experience — is shaped by geography, according to new social science research.
The larger the city, the larger the racial wage gap, according to researchers Elizabeth Ananat, Shihe Fu and Stephen L. Ross, whose findings were recently published by the National Bureau of Economic Research.
“The average racial gap in metropolitan areas of around 1 million people — and you can think of a place like Tulsa, Okla. — is about 20 percent smaller than the gap in the nation’s largest metro areas of Chicago, L.A. and New York,” Ananat says.
Ananat’s research suggests that the racial gap is not directly the result of prejudice or, at least, prejudice conventionally defined. Rather, it has to do with patterns of social interactions that are shaped by race — and a phenomenon that economists call spillovers.
Economists have long noted that multiple companies in an industry often congregate in an area — think of movie companies in Hollywood or investment bankers on Wall Street — and observed that these firms become more profitable. Indeed, this may be one reason why an up-and-coming tech company would want to locate in Silicon Valley, rather than in Tennessee, where costs are far cheaper.
But why do companies that congregate become more profitable? It has to do, Ananat says, with the fact that when a number of companies involved in similar work are concentrated in one area, they effectively create an ecosystem where ideas and refinements can spread easily from one company to the next, and increase productivity overall.