Two Faces of the ICT Revolution: Desegregation and Minority-Majority Earnings Inequality

42 Pages Posted: 8 Dec 2005  

Martin Kahanec

IZA Institute of Labor Economics; Central European University; Central European Labour Studies Institute

Date Written: December 2005

Abstract

Social interaction is the primary vehicle through which advancement of information and communication technologies (ICT) affects socio-economic outcomes. In the context of minority-majority relations, social distances and segregation determine the benefits individuals gain from social interaction and from improvement of its efficiency. In the general equilibrium framework, this paper argues that ICT advancement disproportionately increases the efficiency of social interaction in ethnically integrated social networks and that of majority individuals, thereby causing desegregation and increasing interethnic earnings inequality at the same time. The argument thus explains the concurrence of two seemingly contradicting developments in the lives of Black and White Americans since the late 1970s - rising interethnic earnings inequality and desegregation of Blacks. Furthermore, I establish that there is a threshold level of ICT below which all minority individuals prefer segregated neighborhoods and above which some minority individuals choose to integrate, thereby reaping the efficiency benefits of social interaction with the larger society. I interpret the reversal of the segregation trend that occurred in the late 1970s as a consequence of advancement of ICT beyond this threshold level. Finally, I suggest an explanation of why typically no desegregation occurred in extraordinarily segregated areas and in the case of recent immigrants.

Keywords: segregation, earnings inequality, minority, social interaction, ICT revolution, migration

JEL Classification: J15, J71, O15, O33

Suggested Citation

Kahanec, Martin, Two Faces of the ICT Revolution: Desegregation and Minority-Majority Earnings Inequality (December 2005). IZA Discussion Paper No. 1872. Available at SSRN: https://ssrn.com/abstract=869004

Martin Kahanec (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

Central European Labour Studies Institute ( email )

Zvolensk√° 29
Bratislava, 82109
Slovakia

HOME PAGE: http://www.celsi.sk

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