© Jesse Rothstein 2024
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AEA Papers & Proceedings 114.
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We use detailed location information from the Longitudinal Employer-Household Dynamics (LEHD) database to develop new evidence on the effects of spatial mismatch on the relative earnings of Black workers in large US cities. We classify workplaces by the size of the pay premiums they offer in a two-way fixed effects model, providing a simple metric for defining “good” jobs. We show that: (a) Black workers earn nearly the same average wage premiums as whites; (b) in most cities Black workers live closer to jobs, and closer to good jobs, than do whites; (c) Black workers typically commute shorter distances than whites; and (d) people who commute further earn higher average pay premiums, but the elasticity with respect to distance traveled is slightly lower for Black workers. We conclude that geographic proximity to good jobs is unlikely to be a major source of the racial earnings gaps in major U.S. cities today.
Forthcoming, American Economic Journal: Applied Economics.
We use data from the Longitudinal Employer-Household Dynamics program to study the causal effects of location on earnings. Starting from a model with employer and employee fixed effects, we estimate the average earnings premiums associated with jobs in different commuting zones (CZs) and different CZ-industry pairs. About half of the variation in mean wages across CZs is attributable to differences in worker ability (as measured by their fixed effects); the other half is attributable to place effects. We show that the place effects from a richly specified cross sectional wage model overstate the causal effects of place (due to unobserved worker ability), while those from a model that simply adds person fixed effects understate the causal effects (due to unobserved heterogeneity in the premiums paid by different firms in the same CZ). Local industry agglomerations are associated with higher wages, but overall differences in industry composition and in CZ-specific returns to industries explain only a small fraction of average place effects. Estimating separate place effects for college and non-college workers, we find that the college wage gap is bigger in larger and higher-wage places, but that two-thirds of this variation is attributable to differences in the relative skills of the two groups in different places. Most of the remaining variation reflects the enhanced sorting of more educated workers to higher-paying industries in larger and higher-wage CZs. Finally, we find that local housing costs at least fully offset local pay premiums, implying that workers who move to larger CZs have no higher net-of-housing consumption.
Rising interest rates can create “mortgage rate lock” for homeowners with fixed rate mortgages, who can hold onto their low rates as long as they stay in their homes but would have to take on new mortgages with higher rates if they moved. We show mobility rates fell in 2022 and 2023 for homeowners with mortgages, as market rates rose. We observe both absolute declines and declines relative to homeowners without mortgages, who are unaffected by mortgage rate lock. Mobility declines are not explained by changes in home values. Overall, our estimates imply that rising interest rates reduced mobility in 2022 and 2023 for households with mortgages by 14% and caused $17bn of deadweight loss.
In Harriet Newburger, Eugenie Birch, and Susan Wachter, editors, Neighborhood and Life Chances: How Place Matters in Modern America. 2011. Philadelphia: University of Pennsylvania Press.
Quarterly Journal of Economics. 125 (1).
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Despite extensive public infrastructure spending, surprisingly little is known about its economic return. In this paper, we estimate the value of school facility investments using housing markets: standard models of local public goods imply that school districts should spend up to the point where marginal increases would have zero effect on local housing prices. Our research design isolates exogenous variation in investments by comparing school districts where referenda on bond issues targeted to fund capital expenditures passed and failed by narrow margins. We extend this traditional regression discontinuity approach to identify the dynamic treatment effects of bond authorization on local housing prices, student achievement, and district composition. Our results indicate that California school districts underinvest in school facilities: passing a referendum causes immediate, sizable increases in home prices, implying a willingness to pay on the part of marginal homebuyers of $1.50 or more for each $1 of capital spending. These effects do not appear to be driven by changes in the income or racial composition of homeowners, and the impact on test scores appears to explain only a small portion of the total housing price effect.
Quarterly Journal of Economics 123(1).
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Schelling (“Dynamic Models of Segregation,” Journal of Mathematical Sociology 1 (1971), 143–186) showed that extreme segregation can arise from social interactions in white preferences: once the minority share in a neighborhood exceeds a “tipping point,” all the whites leave. We use regression discontinuity methods and Census tract data from 1970 through 2000 to test for discontinuities in the dynamics of neighborhood racial composition. We find strong evidence that white population flows exhibit tipping-like behavior in most cities, with a distribution of tipping points ranging from 5% to 20% minority share. Tipping is prevalent both in the suburbs and near existing minority enclaves. In contrast to white population flows, there is little evidence of nonlinearities in rents or housing prices around the tipping point. Tipping points are higher in cities where whites have more tolerant racial attitudes.
American Economic Review 97(5).
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Journal of Public Economics 91(11-12).
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Racial segregation is often blamed for some of the achievement gap between blacks and whites. We study the effects of school and neighborhood segregation on the relative SAT scores of black students across different metropolitan areas, using large microdata samples for the 1998–2001 test cohorts. Our models include detailed controls for the family background of individual test-takers, school-level controls for selective participation in the test, and city-level controls for racial composition, income, and region. We find robust evidence that the black–white test score gap is higher in more segregated cities. Holding constant family background and other factors, a shift from a highly segregated city to a nearly integrated city closes about one-quarter of the raw black–white gap in SAT scores. Specifications that distinguish between school and neighborhood segregation suggest that neighborhood segregation has a consistently negative impact while school segregation has no independent effect, though we cannot reject equality of the two effects. Additional tests indicate that much of the effect of neighborhood segregation operates through neighbors’ incomes, not through race per se. Data on enrollment in honors courses suggest that within-school segregation increases when schools are more highly integrated, potentially offsetting the benefits of school desegregation and accounting for our findings.
American Economic Review 96(4).
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In a multicommunity model, high-income families cluster together in any equilibrium, and cluster near effective schools if effectiveness is an important component of community desirability. Governmental fragmentation facilitates this residential sorting. Thus, if parents prefer effective schools, income correlates with effectiveness in high-choice-market equilibrium. I examine the distribution of student background and test scores across schools within metropolitan areas that differ in the structure of educational governance. I find little indication of the “effectiveness sorting” that is predicted if parents choose neighborhoods for the efficacy of the local schools. This suggests caution about the productivity implications of school choice policies.
© Jesse Rothstein 2024
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