Local labor markets, ethnic segregation, and income inequality

In this article, we examine the impact of spatial segregation on economic inequality between Arabs and Jews in Israel. We argue that segregation has a twofold effect on inequality. The first effect is additive: members of the minority group face disadvantageous opportunity structures. The second is interactive: minority earnings are more dependent on the characteristics of the local labor market. Analysis of the 1983 census of the Israeli population reveals that Arabs live and work in places with limited industrial and occupational opportunities. The findings demonstrate that a substantial portion of the income gap between Jews and Arabs can be attributed to characteristics of local labor markets. Furthermore, Arabs’ earnings are more strongly influenced by labor market characteristics and less by individual-level attributes than the earnings of Jews. Our findings suggest that spatial segregation across local labor markets not only is a result of inequality, but causes and reinforces inequality.