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This paper examines the effect of the racial composition of labor markets on wage rates and the racial wage gap. The wage rates of white as well as black workers are significantly lower in industry-occupation-regional groups with high densities of black workers, while the racial wage gap does not vary systematically with respect to racial density. Interpretation of racial gap estimates can be sensitive to inclusion of a racial density variable, particularly in sparse specifications. An explanation for the wage-density relationship cannot be established, but results are most consistent with a quality sorting explanation and, to a lesser extent, the crowding hypothesis.
Hirsch et al. (Wed,) studied this question.