Minority Population Concentration and Earnings: Causal Effect or Spurious Association?

Jeremy Pais, University at Albany, State University of New York (SUNY)
Scott J. South, University at Albany, State University of New York (SUNY)
Kecia Johnson, University at Albany, State University of New York (SUNY)

Seemingly consistent with the hypothesis that heightened visibility and competition lead to greater economic discrimination against minorities, countless studies have observed a negative relationship between minority labor market population concentration and minority socioeconomic attainment. But minorities who reside in areas of high minority representation are likely to differ from minorities who reside in areas with few minorities on many typically unobserved characteristics related to economic attainment; thus, this association may be spurious, a product of either differential skills, behaviors and networks acquired during childhood or of selective migration. Applying individual fixed effects regression models to a quarter-century of panel data from the National Longitudinal Survey of Youth, we find that for both blacks and Latinos the contemporaneous inverse association between minority county racial-ethnic concentration and earnings is completely eliminated when unobserved person-specific characteristics are controlled. These results cast doubt on the widely-accepted hypothesis that high levels of minority labor market concentration generate income discrimination against minorities.