Commutes, neighborhood effects, and earnings: An analysis of racial discrimination and compensating differentials

Recent "tester" studies indicate that minority workers face restricted residential and employment opportunities because of racial discrimination in housing and labor markets. These restrictions may create a spatial mismatch between where urban minorities reside and where metropolitan area jobs are located, resulting in reduced proximity of minority workers to jobs. Prior studies of racial discrimination and urban spatial mismatch, however, have paid little attention to the possibility that differences in employment commutes may be partially offset by compensating variations in neighborhood amenities, quality-adjusted house prices, and earnings. Such effects could help to mitigate the impact of discrimination on minority workers. Using a unique subset of the 1985 and 1989 American Housing Surveys, we estimate a fixed effects commute time model that controls for quality-adjusted house prices, neighborhood amenities, and earnings. Results indicate that although blacks have longer commutes than comparably skilled white and Asian workers, roughly one-third of the estimated difference is offset by neighborhood amenity and housing price differentials. However, even after controlling for neighborhood fixed effects and earnings, educated black workers have significantly longer commutes than comparably skilled Asian and white workers. Additional findings indicate that regardless of race, household mobility is an important mechanism through which the market attains a spatial equilibrium, providing further support for arguments that restricted proximity to residential opportunities and jobs reduces the economic welfare of minority households.