Academic journal article Federal Reserve Bank of St. Louis Review

Trends in Neighborhood-Level Unemployment in the United States: 1980 to 2000

Academic journal article Federal Reserve Bank of St. Louis Review

Trends in Neighborhood-Level Unemployment in the United States: 1980 to 2000

Article excerpt

Although the average rate of unemployment across U.S. metropolitan areas declined between 1980 and 2000, the geographic concentration of the unemployed rose sharply over this period. That is, residential neighborhoods throughout the nation's metropolitan areas became increasingly divided into high- and low-unemployment areas. This paper documents this trend using data on more than 165,000 U.S. Census block groups (neighborhoods) in 361 metropolitan areas over the years 1980, 1990, and 2000; it also examines three potential explanations: (i) urban decentralization, (ii) industrial shifts and declining unionization, and (iii) increasing segregation by income and education. The results offer little support for either of the first two explanations. Rising residential concentration of the unemployed shows little association with changes in population density, industrial composition, or union activity. It does, however, show a significant association with both the degree of segregation according to income as well as education, suggesting that decreases in the extent to which individuals with different levels of income and education live in the same neighborhood may help account for this trend. (JEL J11, J64, R20, R23)


The rate of unemployment is one of the most basic indicators used to gauge the state of the economy. High rates, of course, tend to occur in recessionary periods when levels of economic activity decline, whereas lower rates tend to prevail in times of expansion when employers typically increase the size of their payrolls. Over time, as the economy fluctuates between periods of expansion and recession, we see corresponding changes in the rate of unemployment.

Although this temporal variation in unemployment is widely known, there is also a fair amount of variation geographically. At any point in time, unemployment can differ substantially across states, cities, and counties as a result of differences in industrial compositions, labor market demographics, and region-specific shocks.

Geographic variation even extends down to extremely small areas: Census tracts and block groups (i.e., neighborhoods). (1) Hence, within the same metropolitan area, some neighborhoods have a much higher incidence of unemployment than others.

To be sure, residential areas in the United States have long exhibited a tremendous amount of heterogeneity with respect to the characteristics of the households that inhabit them. Some neighborhoods, quite simply, tend to be populated by households with high levels of income and wealth, whereas others are inhabited by relatively poor households. It is therefore not at all surprising that, within any local labor market, there would be neighborhoods with high levels of unemployment and those with low levels.

However, what is particularly interesting about the extent to which individuals sort themselves by characteristics, such as the incidence of unemployment, concerns the potential implications for various labor market outcomes. In particular, a large literature examining "social interactions" has argued that the characteristics of individuals' residential areas greatly influence their economic outcomes. Case and Katz (1991), for instance, find strong peer effects characterizing a variety of behaviors, including criminal activity, drug and alcohol use, schooling, and employment status within a sample of residential areas in Boston. Similarly, Topa (2001) finds evidence of local spillovers in unemployment across Census tracts in Chicago: High levels of unemployment within a neighborhood tend to have a negative influence on the employment prospects of individuals residing within or near that neighborhood. Wilson (1987) suggests that neighborhood effects of this sort form the basis of the rise in inner city poverty in the United States in recent decades. As successful workers have gradually left inner cities, those who remain are surrounded by rising levels of poverty and joblessness, which makes it increasingly less likely that the residents of these areas will find work. …

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