Separate and Suffering: The Damaging Effects of Residential Segregation on Metropolitan Economies

President Lyndon B. Johnson signed the Fair Housing Act, which prohibited housing discrimination and put an end to one of the last vestiges of legal segregation in the United States, into law in 1968. Yet, nearly half a century later, residential segregation persists in virtually every major city in the country. The rise of income inequality, in particular, has led to sustained segregation between members of disparate socioeconomic communities. While the negative effects of urban segregation are well documented, the rapid growth of the suburbs, and the subsequent spread of poverty therein, presents new questions on the effects of residential segregation on metropolitan areas as a whole.

In “Residential Segregation, Spatial Mismatch and Economic Growth across US Metropolitan Areas,” researchers Huiping Li, Harrison Campbell, and Steven Fernandez examine the short- and long-term consequences of residential segregation on the economic growth of metropolitan areas in the United States, taking into special consideration the interplay between spatial mismatch and skill complementarity in American cities. Spatial mismatch refers to the idea that residential segregation reduces job opportunities for low-income individuals who may find themselves physically located far from potential places of work, while skill complementarity refers to the ratio of high- and low-skilled workers necessary for an economy to exhibit optimal growth. A lack of skill complementarity due to the separation of the city’s low- and high-skilled workforces may inhibit economic growth. Indeed, the researchers find that residential segregation has a negative effect on the overall economic welfare of cities in large part because it acts as a barrier to skill complementarity, which drives income growth across all economic levels downward.

Li, Campbell, and Fernandez use data from multiple sources including the Regional Economic Information System, the Census of Population and Housing, the Census of Governments, and America Votes to analyze segregation by race and skill in US metropolitan areas. The authors’ tests relate per capita income growth to the levels of segregation across the 1980s, 1990s, and 2000-2005. They find that in the entire 1980-2005 period, high levels of initial segregation are associated with slower levels of economic growth over the subsequent 25 years; in particular, their statistical analyses indicate that race and skill segregation are associated with similar levels of decreased economic growth. Additionally, the researchers’ findings suggest that the decrease in labor force engagement from1980 to 2005, coupled with the increase in metropolitan populations, is associated with a decrease in the growth of wages.

Race and skill segregation are found to have a detrimental effect on economic growth for inner-city residents, while suburban resident incomes are affected only by skills segregation. Larger income disparities between urban and suburban residents, however, are significantly associated with slower long-term income growth in the suburbs. In the manufacturing industry, diversity is shown to contribute positively to economic growth.

Furthermore, the benefits of skill complementarity are observed in the positive effect that low-skilled workers provide to the productivity of high-skilled workers in the high-tech and service industries. In light of this, the authors find that inability of workers to commute to these jobs because of physical distance is an inhibiting factor for low-skilled workers who are unable to access jobs in these booming industries, leading to an increasing negative effect of residential segregation over the period studied and to slower income growth for all workers, regardless of skill level.

While the authors note in their research that little is currently being done to reduce or reverse residential segregation, the policy implications of this study are manifold. Mobility policies aimed at alleviating the spatial disparity between low-skilled workers and currently inaccessible employment opportunities offer a possible avenue to increase the wellbeing, not only of those who may experience trouble finding jobs, but of all workers in metropolitan areas. Further, policies encouraging mixed communities may boost both short- and long-term economic growth in cities that are still reeling from the effects of the Great Recession. For policymakers seeking to enhance the economic prospects of their cities, this study offers noteworthy insights into the enduring issue of segregation.

Feature Photo: cc/(Addison Godel)