Effects of Community and Family Background on Achievement

N recent years, considerable attention has been devoted to understanding the causes of earnings differentials between blacks and whites. Conventional economic analysis of the issue has been divided into supply and demand factors. Demand side arguments point to differential returns to blacks and whites with the same level of market-valued characteristics as a principal cause of the lower earnings of blacks. Supply side arguments, on the other hand, focus on the quality and quantity of the market-valued characteristics of black compared to white workers. Although this dichotomization is obviously a necessary and useful step in understanding the causes of earnings differentials between blacks and whites, it fails to place sufficient emphasis on the process by which market-valued characteristics are actually obtained. In particular, given the effect of parents' economic status on their children, this approach does not illuminate the intertemporal consequences of racial discrimination for the acquisition of market-valued characteristics. Also, given the potential of the effects of the community of origin on achievement, it may, in addition, obscure many of the negative externalities affecting the acquisition process that result from being part of a discriminated-against group. This paper addresses these problems by examining a recursive model of the effects of socioeconomic background on education and earnings of black and white men ages 23-32. The main difference between this analysis and other efforts in this area is that it examines not only the effects of the socioeconomic status of an individual's parents, but also the effects of characteristics of the individual's community of origin. While other studies have included variables measuring differences due to region and/or size of place of origin, this paper also controls for differences between individuals at the more disaggregated neighborhood level. The findings of the study suggest that neighborhood differences are at least as important as family characteristics in explaining the gaps between black and white achievement and that the omission of neighborhood characteristics results in a misleading picture of the source of background effects.