Population Association of America, Springer Demography

Are Black Workers Missing the Connection?
The Effect of Spatial Distance and Employee

Referrals on Interfirm Racial Segregation
Author(s): Ted Mouw
Source: Demography, Vol. 39, No. 3 (Aug., 2002), pp. 507-528
Published by: Springer on behalf of the Population Association of America
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ARE BLACK WORKERS MISSING THE CONNECTION?

THE EFFECT OF SPATIAL DISTANCE AND EMPLOYEE
REFERRALS ON INTERFIRM RACIAL SEGREGATION*
TED MOUW
I use data on the hiring practices and spatial location of firms in four cities to model the p
cess of interfirm racial segregation. When I control for the spatial location of the firm, the us
employee referrals reduced the probability of hiring a black worker by 75% in firms that are
than 10% black. Among allfirms, the results suggest that employee referrals arejust as importa
the geographic location of the firm in generating employment segregation: both increase the predicted level of interfirm racial segregation among blue-collar workers in the cities studied by about
10%.
Despite declines over the past two decades, the level of black-white residential segregation remains high in large urban areas in the United States (Cutler, Glaeser, and Vigdor
1999; Glaeser and Vigdor 2001). In addition, this residential segregation seems to be paralleled by an equally high degree of racial social segregation-most blacks and whites in
America have friends of the same, rather than a different, race (Jackman and Crane 1986).
The question posed in this article is whether high levels of residential and friendship segregation result in the employment segregation of black and white workers.
Although the level of interfirm racial segregation has been documented using nationally representative firm-level data (Carrington and Troske 1998), there is little empirical
evidence on the causes of employment segregation. One prominent theory attributes employment segregation to the spatial separation of blacks and whites in large urban areas.
According to the "spatial-mismatch" hypothesis, the decentralization of employment,
combined with persistent residential segregation, has resulted in increased distances between black residential areas and regions of rapid job growth-while jobs move from the
city center to the suburbs, residential segregation restricts the mobility of black workers
and results in increased distances to available jobs. If the distance between jobs in the
suburbs and the city center were large enough, then firm-level racial segregation would
be the natural result of the spatial segregation of black and white residential areas.
An alternative theory, however, argues that it is not residential segregation but informal hiring practices, combined with social segregation, that cause employment segregation. The logic behind this theory is simple: about 40%-50% of jobs in the United States
are found through help or information from friends or relatives (Granovetter 1995). In
racially segregated cities, high levels of social segregation among black and white workers mean that information about jobs is transmitted along racially segregated social networks. Consequently, when firms use employee referrals to fill job vacancies, they tend
to attract workers who are the same race as their current workers, thereby maintaining
existing levels of employment segregation.
Kasinitz and Rosenberg's (1996) qualitative study of hiring practices in an industrial

area located next to a poor black neighborhood seems to confirm this intuition. The authnrs contendedi that althniioh the hlack residents of the neighhnrhnnd in their studv were
*Ted Mouw, Department of Sociology, CB 3210, 155 Hamilton Hall, University of North Carolina, Chapel
Hill, NC 27599-3210; E-mail: tedmouw@email.unc.edu.
Demography, Volume 39-Number 3, August 2002: 507-528 507
508 Demography, Volume 39-Number 3, August 2002
physically close to jobs, they were "missing the connection" because they were not part
of the informal networks that employers rely upon to fill vacancies. This exclusion from
job networks suggests that the current policy emphasis on the spatial mismatch between
urban workers and suburban jobs is misguided. Although many empirical studies have
argued for the importance of the physical distance between the urban poor and available
jobs (e.g., Ihlanfeldt 1988; Ihlanfeldt and Sjoquist 1990, 1991; Kain 1968; Raphael, Stoll,
and Holzer 2000), the emphasis on distance neglects the role that social segregation may
play even in the absence of a "spatial mismatch" (Wilson 1987).
In this study, I used the household and employer surveys from the Multi-City Study
of Urban Inequality (MCSUI) to test the relative effect of spatial location and social segregation on employment segregation. I used data on social networks data from the MCSUI
household survey to document the level of social segregation between whites and blacks.
The household survey contains information on the racial segregation of friendships and
job contacts, allowing me to depict the degree to which job information is transmitted
through racially segregated social networks. Next, I used the employer data to model the
process of employment segregation. The MCSUI employer data contain information on

the race, occupation, and hiring process of the last blue-collar employee hired by 2,400
firms in the four cities. I tested the effect of space and employee referrals on racial hiring
patterns by combining information on the geographic location of each firm with information on the recruitment method that generated the last employee hired. On the basis of
statistical models of the probability that the last worker hired was black, I assessed the
relative importance of space versus hiring practices by generating predicted levels of segregation for two hypothetical scenarios: (1) no residential segregation and (2) no firms
hire through employee referrals. The results indicate that despite the importance placed
on the spatial separation of black and white workers in the literature, informal hiring
practices are just as important in generating interfirm racial segregation.
LITERATURE REVIEW
Carrington and Troske (1998) used firm-level data to measure the level of racial segregation among firms. In addition to calculating overall levels of interfirm segregation, they
showed that the level of employment segregation seems to be related to both the size of
the city and the level of residential segregation within the metropolitan area. When they
calculated segregation levels on the basis of a subsample of firms located in relatively
integrated cities or small metropolitan areas, they found that the levels of segregation
within industrial classifications dropped substantially. This finding is consistent with the
spatial-mismatch hypothesis, which argues that the residential separation of inner-city
minorities from jobs represents a barrier to equal opportunity.
Why would residential segregation result in employment segregation? The spatialmismatch hypothesis contends that racial employment segregation and high unemployment rates of blacks are the result of residential segregation and job decentralization.
There are three basic conditions for a spatial mismatch to exist: (1) persistent residential
segregation restricts the geographic mobility of black workers, (2) jobs are decentralized
across the metropolitan area, and (3) significant commuting and job-search costs increase
significantly with the distance between the worker's residence and the available job. If
decentralized employment is increasing because jobs are moving from the central city to
the suburbs, then a shortage of jobs near black residential areas may result in an increase
in the unemployment rate of black workers (Kain 1968; see also Ellwood 1986). Most
empirical tests of the spatial-mismatch hypothesis have focused on the effect on black
unemployment rates (see Holzer 1991 for a review). If these three basic conditions hold,
however, the spatial mismatch hypothesis also predicts that employment segregation will
increase. Workers tend to work at "nearby" jobs because of the effect of distance on commuting and job-search costs, resulting in geographic segregation in employment that
Interfirm
Racial
Segregation
509
reflects the underlying pattern of residential segregation. Moreover, the level of employment segregation also may be affected by residential segregation if employers discriminate on the basis of real or imagined discrimination by customers (Kain 1968).
The effect of residential segregation on employment segregation depends on the spa-
tial pattern of neighborhoods. In an extreme case, if a metropolitan area were composed

of a "quiltwork" pattern of alternating white and black neighborhoods, then high levels of
segregation would not result in racial differences in the distance to jobs. However, because the pattern of residential segregation in American cities is typically a largely black
central city surrounded by white suburbs (Farley et al. 1978), high levels of residential
segregation may be sufficient to generate geographic employment segregation. In his
study of employment in Detroit and Chicago, Kain (1968) found that the geographic segregation between white and black workers was strongly associated with patterns of residential segregation in these two cities.
Nonetheless, although geographic location makes sense as an explanation for blackwhite employment segregation, it is possible to criticize the spatial-mismatch hypothesis
by arguing that the effect of spatial distance on commuting and job-search costs is overstated. Cohn and Fossett (1996) and Ellwood (1986) argued that commuting distances per
se cannot explain the black-white gap in unemployment rates. In a study of the location
of jobs and workers in Boston and Houston, Cohn and Fossett contended that many jobs
still exist within reasonable commuting distances of inner-city black neighborhoods (however, their critique did not take into account the number of competing workers; see Mouw
2000). Similarly, Ellwood (1986) studied the pattern of white and black commuters in
Chicago and found that most workers commuted to jobs that were far from their neighborhoods anyway. Slight racial differences in commuting time to work, he claimed, are
insufficient to explain black-white differences in labor market outcomes. Ellwood noted
that large black-white differences in employment persist even within the same geographic
areas and argued that "race not space" is the key explanatory variable. Nevertheless, other
studies have claimed that commuting distance is a key explanation for racial differences
in employment (Ihlanfeldt and Sjoquist 1990, 1991), but the evidence is still in dispute
(Jencks and Mayer 1990).
If commuting distance itself does not explain black-white differences in the labor
market, what about the role of distance on the costs of job searches? Spatial models of job
search have often assumed that individuals search for work by physically looking for
openings (i.e., Holzer, Ihlanfeldt, and Sjoquist 1994; Seater 1979; Simpson 1992) and
that the costs of job searching increase monotonically with the distance between the
worker and the job. As a result, most studies of the spatial-mismatch hypothesis have
used the physical distance between workers and jobs to measure the combined effect of
commuting and job-search costs. In a study of the geographic component of job-search
behavior in Los Angeles, Stoll (2001) found that black workers tend to search for work
over larger distances than do white workers, suggesting that differences in search costs
may explain some of the black-white gap in unemployment rates. However, because the
effect of distance on the dissemination of job information may vary significantly with
recruitment method, one should be cautious about using distance as a proxy for access to
information about jobs. Although one may expect that distance is more important for job
searches when firms use posted help-wanted signs or hire walk-in applicants, it may be
less important when the information about the job openings is advertised in a newspaper
or is transmitted through networks of workers and friends. In the case of newspaper advertisements, the cost of finding out about job openings is simply the price of a newspaper. In the case of employee referrals, job information is contingent on being part of the
right networks of job contacts. Indeed, if the high job-search costs for black workers are
due instead to their exclusion from racially segregated job networks, then it is incorrect to
attribute their low employment rates entirely to spatial factors.
An alternative possibility is that segregated job networks generate employment seg-
regation. Wilson (1987) argued that social networks, not the physical distance to jobs, are
the problem. He contended that urban blacks are socially isolated from job networks be-
cause of the lack of friends who are employed in steady jobs who can serve as "role
models" and give them information about available job openings. Furthermore, Wilson
stated, even when job openings in the inner city become available, inner-city workers
may have trouble hearing about them if they are not tied into the job network. In other
words, if black workers are routinely excluded from jobs because of employers' recruit-
ment practices, then bringing jobs closer to the inner city will not improve their employment prospects.
Kasinitz and Rosenberg (1996) presented a dramatic illustration of the importance of

employers' recruitment practices on interfirm segregation. In their study of employment
in the Red Hook section of the Brooklyn waterfront, they provided qualitative evidence
that nearby blacks are excluded from employment in high-paying blue-collar jobs because of the prevalence of word-of-mouth recruiting by employers. Few of the local job
openings are advertised in newspapers, and because of their lack of connections, black
residents do not hear about openings that are advertised informally. Similarly, in a qualitative study of employers in Boston, Atlanta, Detroit, and Los Angeles, Moss and Tilly
(2001) argued that informal recruiting procedures tend to reproduce the current racial and
ethnic composition of the workforce, citing several examples of ethnically homogeneous
workforces at firms that hire entirely by word-of-mouth advertising. Other qualitative
studies of recruitment and screening mechanisms have seemed to confirm this intuition
(Kirschenman, Moss, and Tilly 1995; Kirschenman and Neckerman 1991).
The role that social segregation plays in employment segregation depends on the degree to which the labor market is informally organized. In a review of the literature,
Granovetter (1974) cited studies indicating that 30%-50% of all jobs are acquired through
information provided by friends or relatives. Combined with high levels of friendship
segregation between white and black workers, the prevalent use of job contacts means
that a substantial amount of job information may be transmitted through segregated social
networks. Holzer (1 987a) found that whites may benefit more than blacks from the use of
informal contacts in the labor market because they have better contact networks. On the
demand side, Holzer (1987b) showed that 36% of the most recently hired employees in a
1982 sample of 3,500 firms were recruited through employee referrals. Nonetheless, despite the prevalence of informal hiring, few studies have attempted to determine its effect
on equal employment opportunity, primarily because of the lack of adequate data on employers (Granovetter 1974; Stoll 2001). Studies of firm-level segregation have documented the level of racial and gender segregation across firms using firm-level data
(Becker 1980; Carrington and Troske 1995, 1998). However, they have lacked information on the characteristics of employers, such as recruitment methods and the geographic
location of the firms, and hence were unable to analyze the underlying factors that generate interfirm segregation.
Using firm-level data on the last employee hired, Braddock and McPartland (1987)
found that the use of employee referrals to fill vacancies decreased the rate of hiring black
workers for jobs that require a college degree by about 8 percentage points. For jobs that
do not require a college degree, however, they found no statistically significant effect on
the race of the new hire. Although they argued that the use of racially integrated social
networks to find work increases the wages of black job seekers, their evidence was weakened by the fact that they did not actually have information on networks, but proxied the
social networks of job seekers by the racial composition of the high school they attended.
This is likely to be an inaccurate measure of social segregation, and one that is systematically related to a number of other unobserved factors that affect the likelihood of attending
an integrated high school. Holzer and Reaser (2000) also used firm-level data and found
Interfirm
Racial
Segregation
511
that referrals do not affect the percentage of recent applicants to the firm who are black.' In
general, the empirical results of the studies that have used data on employers seem to
suggest that employee referrals do not affect racial employment patterns.
In this article, I argue that the primary consequence of the using employee referrals is
that they increase interfirm racial segregation. In contrast to Braddock and McPartland
(1987) and Holzer and Reaser (2000), I contend that the importance of employee referrals
for equal opportunity depends on the current racial composition of the firm. Because of
high levels of social segregation between black and white workers, the use of employee
referrals in firms that are predominately white (or black) tends to result in predominately
white (or black) applicants. In this sense, employee referrals maintain interfirm segregation by reproducing the current demographic makeup of the firm. Therefore, one should
look at the effect of referrals conditional upon the racial composition of the firm's workers.
HYPOTHESES
On the basis of the foregoing discussion, I can distinguish between the following two
competing explanations of interfirm segregation:
1. Residential segregation and spatial mismatch: The pattern of residential segregation in large urban areas results in spatial separation between white and black workers.
Because job-search and commuting costs increase with distance, workers are more likely
to work close to home, resulting in interfirm racial segregation.
2. Social segregation and employee referrals: Because social networks are highly segregated by race-a fact that I document later in this article-asking for referrals from
current employees reproduces the racial composition of the firm's workforce. Therefore,
employee referrals increase interfirm racial segregation. Compared with jobs filled via
public announcements in newspaper advertisements, employee referrals reduce the chance
of a black hire in predominately white firms and the chance of a white hire in predominately black firms.
DATA AND METHODS
The data used in this article came from the household and employer surveys of the
MCSUI. The MCSUI household data is a representative sample of households in four
large urban areas: Atlanta, Boston, Detroit, and Los Angeles. Data on the social networks
of workers and detailed information on job contacts were collected in Atlanta, Boston,
and Los Angeles. I used the MCSUI data from these three cities for all the black or white
respondents for whom there was information on social networks (683 whites and 852
blacks), as well as those for whom there was information on the use of contacts to find
their most recent jobs (883 whites and 1,101 blacks). The MCSUI employer sample consisted of 3,200 employers in four metropolitan areas: Atlanta, Boston, Detroit, and Los
Angeles. The survey was conducted by telephone between June 1992 and May 1994 with
the individual at each establishment who was responsible for hiring for noncollege (bluecollar) positions (for a discussion of the survey, see Holzer 1996). In addition to the demographic composition of the firm, the respondents were asked an extensive number of
questions about the recruitment process for the last employee hired. I used all the firms
that hired most recently for a noncollege position and for which there were data on their
racial composition (2,413 cases).2
1. He used the personnel managers' self-reports of the percentage of applicants over the past year who
were black as the measure of the racial composition of the applicant pool.
2. A total of 811 cases were dropped: 294 because the last hire was for a position requiring a college
degree, 424 because of missing information on the racial composition of the firm's blue-collar workers, 48
because the last worker hired was the only noncollege worker in the firm, and 45 because the occupation of the
last worker hired was missing.
Table 1. Social Segregation in Networks and Job Searches Among

Respondents in the Multi-City Study of Urban Inequality
Variable
Network
Whites
Blacks
Composition
Proportion
of
Variables
network
members
the same race as the respondent 0.875 0.922

(683) (852)
Proportion who live in the same neighborhood 0.316 0.362
(683) (852)
Job-Search Variables
Used contact to find work 0.478 0.508
(883) (1,101)
Contact is the same race as the respondent? 0.869 0.861

(411) (552)
Contact lives in the same neighborhooda 0.328 0.391
(409) (553)
Contact worked at the hiring firma 0.657 0.662
(411) (553)
Note: The number of cases for each variable is shown i

aAmong respondents who used a contact to find their
Social Network Segregation

I used the household sample to document the level of racial social segregation in these
cities. Table 1 displays measures of segregation among friends and among job contacts for
the MCSUI respondents. The survey questions on social networks asked for demographic
information on the characteristics of up to three friends of each respondent. I excluded
coworkers (about 6% of the total friends who were identified) in an attempt to distinguish
between employment segregation and the underlying level of social segregation. Table 1
indicates that 87.5% of whites' friends were white and 92.2% of blacks' friends were
black. Therefore, the overwhelming majority of close friendships among the respondents
in these cities were racially homogeneous. Next, are social networks geographically based?
If all one's friends were from the same neighborhood, then it could be argued that social
segregation is simply an extension of residential segregation. In that case, the problems

posed by the spatial-mismatch hypothesis and by informal hiring would both be attributable to residential segregation. However, Table 1 shows that only about 30%-35% of the
friends of blacks and whites in this sample lived in the same neighborhood as the respondent. In other words, social networks are partly geographically based, but it would be a
mistake to assume that social networks and neighborhoods are the same thing.
Table 1 also presents information about the use of contacts and the characteristics of
the contact person. In the MCSUI sample, 47.8% of the whites and 50.8% of the blacks
found their most recent job through help or information from friends or relatives. In
addition to documenting the degree to which workers in these cities found jobs through
informal means, the data also provide striking evidence about the degree of racial segregation among job networks. For both whites and blacks, job contacts are highly racially
segregated: 86% of the job contacts were of the same race as the respondent. Moreover,
about two-thirds of the contacts worked at the hiring firm. This finding suggests that the
Interfirm
Racial
Segregation
513
majority of job networks are short-that is, job information is disseminated through relatively short networks. Therefore, although I do not have complete information on the
networks that linked workers to jobs in situations in which there was more than one
intermediary between the job seeker and the job, I contend that the combined evidence
in Table 1 on friendship and job-contact segregation indicates that much of the informal
information about job openings in these cities is transmitted along racially segregated
social networks. Of course, this assertion is tested later when I assess the impact of
informal hiring procedures on job segregation.
The Employer Survey

Having established the level of social segregation in these cities, I turn to the MCSUI
employer data. Table 2 shows the distribution of firms in the sample by the percentage of
black workers in noncollege jobs. This percentage was calculated by excluding the race
of the most recent hire to reflect the demographic makeup of the company before the last
person was hired. The division of the firms into five categories based on the percentage
black in the firm (0%-0.5% "all white"; 0.5%-10% "predominately white"; and
10%-25%, 25%-50%, and 50%-100% "predominately black") was done carefully to
provide the sharpest results without sacrificing the clarity of presentation. The greater
detail of an 11-category racial-composition variable based on dividing the firms by 10%
intervals of percentage black does not affect the results (results not shown but available
on request). In Table 2, the firms are weighted by employment size, so the percentages in
the rows reflect the overall distribution of jobs across different levels of racial integration. In all four cities, this table shows, a large number of firms are almost entirely white
(and/or Hispanic). Similarly, there are a significant number of firms whose blue-collar
workforce is over 50% black.
How does the spatial distribution and racial composition of the firms in the data relate to the underlying pattern of residential segregation? Map 1 depicts the relationship
between residential and workplace segregation in the Detroit metropolitan area (Wayne,
Oakland, and Macomb counties). Each circle represents a firm in the MCSUI data set,
shaded according to the racial composition of its workforce. The firms are superimposed
over a census-tract map of the percentage black in each neighborhood. Similarly, Map 2
shows the race of the last person hired in the firm. These maps indicate a clear spatial
relationship between residential segregation and hiring patterns. Firms that are close to
black residential areas are more likely both to hire black workers and to have a higher
proportion of their current workers who are black. As was discussed earlier, however, the
question remains as to whether the relationship between residential and workplace
Table 2. Distribution of Firms by Percentage Black in Noncollege Jobs for Each City
(Row Percentage)
Percentage Black in Firm
City 0-0.5% 0.5-10% 10-25% 25-50% 50-100% Total N

Detroit
38.1
18.7
Atlanta
22.9
10.9
15.5
12.7
18.9
23.0
15.1
100
24.4
100
566
615
Los Angeles 36.9 29.1 21.0 8.6 4.4 100 621

Boston
Total
46.1
36.0
24.8
20.9
14.1
17.4
9.8
13.5
5.2
12.2
100
100
611
2,413
Map 1. Racial Composition of Each Firm's Workers Supen

Racial Composition: Detroit Metropolitan Area
1?~~~~~~~~~~~ 0
t d fi g _ t S ~ Racial Composition of the Firm's
< 9 1 ~ ~ ~ ~lu-o lOblar k Emlye
.~.
Percentage Black in Census Tract

5-50%
_50-100%
seg
me
Tab
pap
rec
tha
cou
bin
(th
cat
per
sul
Table 3 shows that there is no evidence that all-white firms (O%-O.5% black) are
more likely than other firms to use employee referrals to generate new workers. If referrals were a deliberate strategy of discriminatory firms to avoid black applicants, one
should observe that employee referrals are more prevalent among white firms because
these firms are likely to be all white. This does not seem to be the case. Nonetheless, it is
also true that almost 16% of hires in all-white firms were obtained through the catchall
category of referrals, "'acquaintances and other." This percentage is significantly larger
than any other category of firm.
Interfirm
Racial
Segregation
515
Map 2. Race of the Last Worker Hired: Detroit Metropolitan Area
'
l4o
~~~~~~~~~~~~~~lac
0 ecntg lcki esu rc
Table 3. Recruitmen Method That Generated the Most Rcent Hire ( l Pc a

0- ~ ~ ~ ~ ~ ~ 010
XgSs 9 \ 9 ~ ~Percentage Black in Fisu rmc
Weighted) ~ ~ ~ ~ ~ ~ wit
Weighted)it
Percentage Black in Firm Tac
Rberuitm e. n Recruit Method P 0ha.5%e0era5-10% h10-2s5 2-n5 Hire50 % Total

Tal .Recruitment Method That5 Generate 1the5 25ost Recent Hie(Clm oPretale
Posted
Sign
Newspaper
Walk-in
Other
5.2
26.1
11.5
3.6
28.9
12.7
Method
1.4
31.0
11.0
6.0
4.8
4.7
25.9
14.5
5.3
5.2
4.2
21.7
16.6
5.4
27.0
12.7
5.2
5.5
Referrals
Employee
23.2
Institutional
24.0
11.7
24.9
16.1
28.2
15.7
31.9
13.9
12.4
25.4
13.7
Acquaintances and other 16.3 9.8 10.7 7.5 7.0 11.7

Total
N
100
825
100
476
100
434
100
327
100
351
100
2,413
Table 4 depicts the relationship between recruitment methods and minority hiring by
showing the proportion of recent hires who were black according to the racial composition of the firm and the recruitment method used. Three important facts are suggested by
this table. First, compared with newspaper advertisements, the use of employee referrals
reduces the chance of a black worker being hired in a predominately white firm (between
0.5 and 10% black) by about 72%, from .116 to .033. Therefore, there is descriptive evi-
dence that predominately white firms tend to remain segregated because of referrals.
Moreover, in firms with larger black workforces, the black hire rate is larger for employee referrals than for newspaper advertisements. This finding also suggests support
for the hypothesis that the effect of referrals depends on the demographic composition of
the firm's current workers. In contrast, however, the overall chance of a black hire (.179
at the bottom of column 6) does not seem to be any different from when employee referrals are used (.179). Second, the black hiring rate for employee referrals is actually higher
than the rate for jobs that were filled using newspaper advertisements. This finding sug-
gests that the overall black employment rate is not adversely affected by the use of employee referrals. Instead, one should look for the effect of referrals on minority hiring
rates conditional on the racial composition of the firm's workers.
A third consideration suggested by Table 4 is that employee referrals are not associated with substantially lower rates of hiring blacks in all-white firms (.036 black versus
.043 overall and .049 using newspaper advertisements). Nonetheless, "acquaintance and
other" referrals, which are significantly more prevalent in this category of firm, result in
almost no black hires (.017 black). This evidence suggests that racial targeting could be
operating through acquaintance referrals rather than employee referrals. The use of acquaintance referrals may represent cases in which the job in question was never advertised broadly. Although this sort of hiring practice may be impractical for large firms
because of its informality and inability to generate a large number of applicants, it may
represent a means by which small discriminatory firms could target white job candidates.
Because the "acquaintance and other" category is an ambiguously defined catchall category, however, one should hesitate to draw any definitive conclusions about its affect on
racial hiring patterns. Overall, although the descriptive results of Table 4 are provocative,
it is necessary to determine whether these differences hold up once controls for heterogeneity in the type of job offered, the location of the firm, and other relevant characteristics
of the selection process are introduced.
To begin with, there do not appear to be significant differences in employees' and
customers' racial preferences, racial targeting in hiring, screening processes, and skills
needed by the different types of firms in these data that would explain the observed level
of interfirm segregation.3 First, the firm's personnel manager was asked whether he or she
thought that the firm's employees and customers had a preference for interacting with
workers of the same race. There do not seem to be large differences in this self-reported
measure of racial preference across firms with different racial compositions.4 The respondent was also asked whether the firm frequently targeted certain neighborhoods when
looking for workers. Neighborhood targeting was used by about a quarter of the firms in
the sample. However, in contrast to the qualitative results reported in Kirschenman and
Neckerman (1991), who reported that white employers tend to use racial targeting to avoid
hiring blacks, I found no evidence that the (self-reported) use of neighborhood targeting
is any higher in all-white firms than in integrated firms: 24.2% of all-white firms versus
27.0% of firms that are 100/o-25% black and 28.8% of firms that are 25%-50% black.
3. I discuss these results here. A complete table is available on request or by following the links for "pa-
pers" on my web site (http://www.unc.edu/-tedmouw/papers).

4. For example, the percentage of employees and customers with a preference for interacting with workers
of the same race is 26.3% and 22.3%, respectively, for all-white firms, and 23.8% and 21.1%, respectively, for
firms that are 10%-25% black.
Interfirm
Racial
Segregation
517
Table 4. Proportion of the Most Recent Hires Who Were Black, by Recruitment Method
(Weighted)
Recruitment Method 0-0.5% 0.5-10% 10-25% 25-50% 50-100% Total
Posted
Sign
Newspaper
Walk-in
Other
.026
.043
.072
Method
.055
.116
.065
.044
.343
.107
.198
.038
.225
.306
.411
.227
.506
.493
.776
.217
.154
.150
.254
.608
.162
Referrals
Employee
.033
Institutional
.033
.051
.181
.156
.233
.281
.479
.626
.179
.644
.247
Acquaintances and other .021 .095 .145 .083 .634 .104
Total
.041
825
.088
476
.176
434
.299
327
.618
351
.179
2,413
As I discussed earlier, some authors (e.g., Moss and Tilly 1995) have stressed the
ways in which the applicant screening process affects minority-hiring rates. To get a picture of the job requirements and screens used in the last recruiting process, I tabulated the
use of specific requirements and screens by the firm's racial composition. Overall, one
striking finding is that despite their importance in the theoretical literature, there seems to
be little systematic variation in these variables by the racial composition of the firm.5
Moreover, in the statistical models that follow, I found little evidence of a significant
effect for any of these variables on the probability that the last employee hired was black
(with the exception of daily math skills). For the sake of presenting concise regression
results, I omitted these variables from the regression models discussed here (full results
are available on request or at http://www.unc.edultedmouw/papers).
Measuring the Spatial Location of the Firm

An important empirical problem is how to take the spatial location of the firm into account. I could have used a dichotomous measure of whether or not the firm is in the
central city or the suburbs, but as Maps 1 and 2 indicate, this measure would have missed
much of the geographic variation in proximity to black residential areas. With similar
data, Holzer and Ihlanfeldt (1996) used the ratio of the distance of the firm to the centroid
of the black and white residential populations as a proxy for the effect of distance on
hiring patterns. If a circle of white suburbs surrounds a predominately black city center,
however, this approach may be misleading (in an extreme case, the centroids would both
be at the city center).
To take the spatial location of the firm into account with more precision, I calculated
a spatial measure of the racial composition of "nearby" workers for each firm. In essence, what this spatial measure does is find the proportion of workers who are black
5. For the categories of percentage black in the firm (0%-0.5%, 0.5%-10%, 10%-25%, 25%-50%, and
50%-100%) the requirement of a high school diploma is .302, .358, .378, .308, and .341; that of specific expe-
rience is .269, .263, .276, .264, and .228; that of checks on criminal records is .222, .286, .325, .363, and .404;
and that of the use of checks on education and training is .216, .223, .269, .337, and .341. Complete results are
available on request.
within different-size concentric circles around each firm and then add up these proportions to a single measure, weighting nearby workers more than distant workers according
to actual commuting patterns. I calculated this racial composition measure in several
steps. First, using geographic information on the location of each firm, I identified the
census tract that the firm is located in. Next, I modeled actual commuting patterns. To
take into account the effect of distance on where individuals work, I estimated a "gravity
equation" of commuting behavior in the form of a negative binomial count model (see
Raphael 1998):
Tmp
where
kLa0E1pexp(ydmp),
Tm,
is
the
number
of
(1)
workers
p; Lm is the number of workers in n

hood p; dmp is the distance between
eters to be estimated. The parameter
havior. The advantage of this model is that it provides an accurate single parameter measure of actual commuting patterns. I estimated this gravity function with data from the
1990 Census Transportation Planning Package with data traffic flows between neighborhoods.6 I then used this estimate of y to construct a measure of the racial composition of
the surrounding labor force. Specifically, I defined the "spatial segregation" of the firm's
local labor force for firm m to be: N

BP exp(ydmp)
spatial
segregatinm
())
(2)
where Bp is the number of black work

workers in tract p. Eq. (2) simply calculates a spatial measure of the racial composition of
nearby workers ("spatial segregation" in the subsequent analysis; mean = 0.192, SE =
0.1 19), weighting "nearby" workers more than "distant" workers according to the parameter y.7 In addition to this measure, I also tried simpler measures of spatial location that
were based on the proportion of workers who were black who were in a five-mile radius
(mean = 0.189, SE = 0.216) or 10-mile radius (mean = 0.191, SE = 0.161) around each
firm. These measures were highly correlated with the spatial measure, but not as robust in
regression models, so I omitted them here (results available on request).
In addition to the spatial location of the firm, I also included a measure of the proportion of black workers in the metropolitan area as a whole who worked in the same
(three-digit census) occupation into which the firm hired its most recent employee (mean
= 0. 115, SE = 0.113). This variable is from the 5% Public Use Micro Sample of the 1990
census for each of the four metropolitan areas in the study, and I included it to control
for heterogeneity in the types of jobs offered at different firms. Ideally, I would have had
a data set of multiple hires for the same firm and the same occupation. By controlling for
the occupation percentage black, however, I made explicit that I was attempting to
model within-occupation interfirm segregation (the sorting of similar white and black
workers across different firms), rather than the aggregate process of occupational segregation (alternative models that exclude this variable are available on request). Finally, all
the models I estimated included indicator variables for the city the firm is located in,
6. For example, there were 1,414 zones for Detroit in 1990, resulting in a 1,414 x 1,414 matrix of commuting flows in Detroit. Because of limitations in computer memory, the negative binomial model was estimated 10
times with separate 10% samples.
7. Geographic identifiers are missing for 9.2% of the sample. These cases are coded to 0, and a "missing"
dummy variable is included.
Interfirm
Racial
Segregation
519
firm size, and industry. Holzer (1998) showed that small firms are less likely to hire
black workers, possibly because they are exempt from governmental monitoring by the
Equal Employment Opportunities Commission (Title VII of the Civil Rights Act of 1964
prohibits racial discrimination among employers with 15 or more employees). A significant number of the available positions are in firms with 1-10 employees (27.3%).
RESULTS
Statistical Models
Table 5 shows the results from probit models of whether a black worker was the last
worker hired by the firms in the sample. In all the models, newspaper recruitment was the
omitted recruitment category. As a result, I was testing whether there is any evidence that
other recruitment methods are associated with a higher or lower probability of hiring a
black worker than a newspaper advertisement. Newspaper advertisements are publicly
available announcements of job openings, and of all of the recruitment methods in Table
3 they are the closest approximation of what would happen if job openings were advertised in a manner that made them equally accessible across a metropolitan area, without
regard for space or word-of-mouth social networks.8
Model 1 uses only the recruitment method and racial composition of the firm as explanatory variables. In this model, there is no association between a black worker being
hired and employee referrals. Taken at face value, this finding suggests that there is no
evidence that employee referrals affect the overall probability of a black worker being
hired. These results are similar to those of Holzer and Reaser (2000), who found (also
using the MCSUI data) that employee referrals do not affect the number of black applicants to the firm, and suggest that the overall black employment rate is not reduced by the
use of employee referrals. In contrast, the racial composition of the firm's workers has a
significant effect on the probability of a black hire. Again, however, Model 1 does not
indicate whether this association represents the effect of discrimination, distance, or hiring practices.
Model 2 adds the number of employees and the spatial segregation measure. Notice
that the coefficients on the dummy variables for city decrease substantially in significance after the spatial segregation measure is included. This result reflects the fact that
much of the intercity difference in the racial composition of the labor force is included in
the spatial segregation measure. The magnitude of the coefficient on the spatial segregation variable suggests the importance of Hypothesis 1 ("residential segregation and spa-
tial mismatch") in explaining the hiring rate of black workers. Next, Model 3 adds the
variable measuring the proportion black in the three-digit census occupation in each metropolitan area. This variable controls for differences in the size of the available black
labor force working in that occupation in each city. As a result, Model 3 models interfirm
segregation by controlling for intracity occupational segregation. The inclusion of this
variable, however, has little substantive affect on the other variables in the model.
To test Hypothesis 2 (that social segregation and employee referrals help to reproduce
the current racial composition of the firm), I needed to test for the effect of referrals
conditional on the racial composition of the firm. I did so in Model 4 by including interaction terms between the recruitment method and the racial composition variable. These
interaction terms test whether other recruitment methods have statistically different black
hiring rates than do newspaper advertisements for each of the different categories of per8. This is not to deny the possibility that some employers may advertise in suburban or ethnic newspapers
that target specific ethnic and racial groups. If a substantial number of discriminatory employers used selective
newspaper advertising to avoid attracting minority applicants, the estimated effect of employee referrals on
segregation would appear to be smaller than it really is because newspaper advertisements are being used as a
proxy for what would happen if job openings were publicly displayed.
Table 5. Probit Models of the Probability That the Last Employee Hired Was Black
Model 1 Model 2 Model 3 Model 4a
Recruitmentb: Sign -0.164 -0.132 -0.176

(0.195) (0.196) (0.197)
Walk-in
0.268**
0.245*
0.234*
(0.114) (0.115) (0.116)

Referral
Employee
0.030
0.055
0.050
(0.097) (0.098) (0.099)
Institutional 0.453** 0.447** 0.444**

(0.109) (0.110) (0.110)
Acquaintance or other -0.095 -0.102 -0.100

(0.134) (0.136) (0.136)
Other Method -0.021 -0.004 0.010

(0.165) (0.167) (0.167)
% Black in Firmc
0-0.5% -0.418** -0.351** -0.363**

(0.114) (0.130) (0.131)
10-25% 0.341** 0.354** 0.345**

(0.110) (0.112) (0.112)
25-50% 0.690** 0.641** 0.616**

(0.114) (0.116) (0.116)
50-100% 1.497** 1.365** 1.346**
(0.116) (0.121) (0.121)
Cityd
Atlanta
0.019
-0.010
-0.150
-0.137
(0.090) (0.092) (0.102) (0.104)
Los Angeles -0.370** -0.197* -0.098 -0.087

(0.102) (0.113) (0.117) (0.120)
Boston
-0.439
-0.066
0.072
0.083
(0.106) (0.139) (0.146) (0.149)

Employeese
1-10
-0.020
-0.001
-0.018
(0.114) (0.114) (0.117)

11-35
0.150
0.137
0.159
(0.096) (0.096) (0.099)

100+
-0.183*
-0.158
-0.159
(0.103) (0.103) (0.105)
Spatial Segregation (% Black) 2.175** 2.117** 2.330**

(0.532) (0.534) (0.545)
Geographic Identifier Missing 0.417** 0.395** 0.457**

(0.161) (0.162) (0.165)
Three-Digit Occupation (% Black) 1.329** 1.319**

(0.407) (0.417)
(continued)
Interfirm
(Table
5,
Racial
Segregation
521
continued)
Model 1 Model 2 Model 3 Model 4a

Constant -1.370** -1.918** -2.138** -1.933**
(0.257) (0.301) (0.311) (0.328)
Number of Observations 2,413 2,413 2,413 2,413
Notes: Standard errors are shown in parentheses. All models also

codes (not shown).
aFor interaction terms for recruitment by percentage black, see Table 6.

bOmitted category is newspaper recruitments.
cOmitted category is 0.5-10% black.

dOmitted category is Detroit.
eOmitted category is 36-99 employees.

*significant atp < .05; **significant atp < .01
centage black in the firm. If Hypothesis 2 is correct, then the use of referrals from current
employees in predominately white firms will tend to attract white applicants, with the
converse being true in predominately black firms. Table 5 shows the results for the control
variables for Model 4, and Table 6 shows the results for the interaction terms. Rather than
show each of the interaction terms separately (which would be 6 x 4 = 24 interaction terms
in addition to all the variables in Model 2), Table 6 presents a linear combination of terms
testing the hypothesis that the effects of other recruitment categories are different from
newspaper advertisements. For each column (i.e., racial composition of the firm) in Table
6, the comparison category is newspaper advertisements. For example, among firms that
are 0%-0.5% black, posted help-wanted signs have a negative effect compared with newspapers (-0.350), but the result is not statistically significant because the standard error is
high (0.443).9 For employee referrals, the sign of the effect compared with newspapers is
consistent with the social segregation hypothesis: a negative effect on black hiring rates in
predominately white firms (-0.690, p < .01) and a positive effect in predominately black
firms (0.564, p < .01). I also found a significant positive effect on black hiring rates for
institutional referrals compared with newspaper advertisements in firms that are more than
10% black and a positive effect for walk-ins in predominately black firms.
To clarify the substantive interpretation of the results from Model 3, Table 7 presents
the predicted probabilities (and 95% confidence intervals) of hiring a black worker based
on the results from the interaction terms in Model 4. The table sets all the other variables
used in the analysis to their population means, so that only the recruitment method and
the racial composition of the firm vary across the table. The asterisks indicate the statistical significance of other methods compared with newspaper advertisements identical to
the results in Table 6. The primary result in this table is that when the control variables
are held constant, the use of employee referrals, rather than newspaper advertisements, in
predominately white firms (0.5%-i 0% black) reduces the probability of a black hire from
.129 to .034, a 74% reduction. Similarly, employee referrals increase the black hiring rate
from .328 to .547 in predominately black firms (50%-100% black). As I indicated earlier,
both these results suggest support for the role of social segregation and employee referrals in interfirm racial segregation. Next, one can see that there is little evidence that
recruitment methods affect racial hiring patterns among all-white firms: acquaintance referrals, which substantially reduced black hire rates in all white firms in the descriptive
9. The coefficient is the sum of the baseline effect for help-wanted signs in the omitted percentage black
category (0.5%-10% black), -0.553, plus the interaction term between signs and 0%-0.5% black, 0.203.
Table 6. Interaction Terms Between Recruitment Method and the Racial Composition of the
Firm for Model 3 (See Notes Below)
Recruitment Method 0-0.5% 0.5-10% 10-25% 25-50% 50-100%
Newspaper Reference Reference Reference Reference Reference

Categorya Categoryb Category' Categoryd Categorye
Sign
-0.350
-0.553
0.587
-0.296
0.109
(0.443) (0.497) (0.572) (0.398) (0.371)

Walk-in
0.245
-0.379
0.135
0.260
0.835**
(0.253) (0.287) (0.267) (0.240) (0.266)

Referral
Employee -0.076 -0.690** 0.372 -0.087 0.564**
(0.236) (0.266) (0.211) (0.212) (0.215)

Institutional 0.131 0.252 0.700** 0.510* 0.567*
(0.264) (0.223) (0.229) (0.244) (0.273)
Acquaintance or other -0.337 -0.137 0.173 -0.835* 0.492

(0.288) (0.285) (0.281) (0.407) (0.336)
Other
-0.117
-0.784
0.436
-0.210
0.536
(0.365) (0.513) (0.345) (0.377) (0.374)
Notes: This table shows the results of interaction terms betwe
Table 5. The reference category for recruitment method is "new
10% black." The cells in this table test the hypothesis that the ef
using newspaper advertisements conditional upon the racial
For columns other than reference category "0.5-10% black," eac
(the effect of recruitment for the "0.5-10% black" and the inte
text for details. Numbers in parentheses are standard errors.
'Comparison category for firms with 0-0.5% black workers
bComparison category for firms with 0.5-10% black worker

CComparison category for firms with 10-25% black workers.
dComparison category for firms with 25-50% black worker
eComparison category for firms with 50-100% black worke
*p < .05; **p < .01
results in Table 4, are not statistically significant in Table 7. As a result, even though allwhite firms (0%-0.5% black) are more likely to use acquaintance referrals to fill vacancies (see Table 3), this likelihood does not appear to affect the hiring of blacks.
Predicted Indices of Interfirm Segregation

I used the results just presented to assess the relative effect of spatial segregation and
employee referrals on overall workplace segregation by predicting the Theil index of segregation (H) based on the predicted probability of hiring a black worker under several
scenarios. These scenarios are (1) with existing levels of residential segregation and informal hiring practices, (2) if all employee referrals were replaced by newspaper advertisements, and (3) if residential segregation were eliminated. I used the Theil index because it
satisfies the principle of transfers, whereas the index of dissimilarity does not. The principle of transfers requires that the index of segregation decrease when black workers are
Interfirm
Table
7.
Racial
Segregation
Predicted
523
Probability
of
Composition of the Firm

Recruitment Percentage Black in Firm
Method 0-0.5% 0.5-10% 10-25% 25-50% 50-100%

Sign
.023
.046
.252
.151
.368
[.002, .118] [.004, .228] [.040, .660] [.039, .379] [.161, .624]
Newspaper
.050
.129
.105
.230
.328
[.025, .092] [.080, .197] [.061, .169] [.150, .330] [.216, .457]
Walk-in
.080
.066
.131
.316
.651
**
[.036, .156] [.023, .155] [.060, .246] [.198, .458] [.488, .791]
Other
.039
.028
.206
.171
.536
[.008,.132] [.002,.1721 [.076,.418] [.051,.395] [.285,.773]

Referral
Employee
.042
.034**
.188
.205
.547**
[.019,.085] [.012,.085] [.121,.276] [.131,.299] [.439,.652]

Institutional
.064
.190
.290**
.410*
.548*
[.026, .136] [.110, .297] [.185, .415] [.271, .561] [.377, .711]
Acquaintance
.024
.102
.140
.058
.518
[.007,.066] [.040,.218] [.061,.269] [.010,.204] [.297, .733]
Notes: 95% confidence intervals are shown in parentheses. The results are predicted
The asterisks indicate that the predicted probability that a black worker is hired usin
significantly different from the predicted probability that a black worker is hired usi
the specified racial composition at *p < .05 or **p <.01 (see Table 6).
moved a firm with a higher proportion of black workers to a

of black workers (James and Taueber 1985). I calculated the segregation index by pretending that the predicted probability of hiring a black worker is the actual racial composition
of the firm's blue-collar workforce. Because information about the recruitment process is
available only for the last worker hired, I was forced to use the predicted probability that
the last worker hired was black as a proxy for the racial composition of the firm. The
segregation indices for each of these scenarios are calculated as follows: first, to simulate
the hiring process for all the firm's workers, I assumed that the use of recruitment methods
is the same for all firms of the same racial composition.'0 To do so, I recoded the recruitment method variables to the group averages by the racial-composition category as depicted in Table 3 (for example, among firms that are 0.5%-10% black, newspapers are
used 28.9% of the time and employee referrals are used 24% of the time). For the first
scenario, I generated the predicted probability of hiring a black worker leaving all the
other variables unchanged from the results in Model 4 of Table 5. Using the predicted
values of hiring a black worker in firm m, Pmb, I could calculate the Theil measure of
segregation (James and Taueber 1985) as follows:
10. In other words, rather than assume the firm used the recruitment method it used to hire its last worker
also to hire all its other workers, I assumed that recruitment methods are similar across categories of racial
composition. Assuming otherwise did not affect the magnitude of the predicted segregation indices presented in
Table 8, although the standard errors for Scenario 1 are smaller, resulting in higher levels of statistical significance.
Y.
m=lr=b,w Pmr
b,
Wmr
XP
Pm
(3)
where
m
r
Pmb);
Wmr
probability
the average predicted hiring by race, respectively." For Scenario 2, I eliminated informal
recruitment by substituting newspaper recruitment for employee referrals (as a result, for
example, firms that are 0.5-10% black are then assumed to use newspaper advertisements
28.9% + 24% of the time). Everything else stays the same as in Scenario 1. For Scenario
3, I modified Scenario 1 by eliminating residential segregation by recoding the spatialsegregation measure to the mean for each metropolitan area to simulate the effect of eliminating racial residential segregation because each firm draws workers form a spatially
integrated labor force. Finally, Scenario 4 presents the combined effect of eliminating
informal recruitment and residential segregation.
Table 8 presents these results. In Panel A, the first column is the average proportion
of black workers in the firms, and the second column is the Theil index of segregation
under these various conditions. Because there is no analytically derived formula for the
standard error for the Theil index (as is the case for the other popular measures of segregation), I used a bootstrap resampling method to generate the standard errors (Efron and
Tibshirani 1993). I replicated the results by drawing 500 samples of 2,413 cases with
replacement from the data, reestimated Model 4, calculated the segregation index, and
used the distribution of results to calculate the standard errors. Because I wanted to test
whether eliminating employee referrals and/or residential segregation reduces employment segregation, Panel B presents significance tests of the comparison between the effects of Scenarios 2-4 to the baseline effect in Scenario 1.
The first row of Table 8 shows the actual proportion black and segregation level
among blue-collar employees for the firms in the data. In the actual data, .199 of the
workers are black, and the Theil index of segregation is .423. The "baseline" model shows
the results for Scenario 1, predicting the level of interfirm segregation on the basis of the
results in Model 4 (i.e., with the existing levels of social and residential segregation).
Notice that while the overall proportion black in the baseline model is virtually identical
to the actual level, the predicted segregation index is substantially lower (.236 versus
.423). This finding indicates that Model 4-and consequently Scenario 1-explains only
about 55% of the interfirm segregation in the actual data. The predicted levels of interfirm segregation presented here will be lower than the actual level of segregation if there
are other factors that affect segregation that are not included in the model (obviously,
employers' discrimination is one such factor).'2 However, as long as these factors are not
systematically correlated with the variables in Model 4, the magnitude of the effect of
spatial location and employee referrals on interfirm segregation should be unaffected.
Scenario 2 depicts what would happen if employee referrals were replaced by newspaper advertisements. Arguably, newspaper advertisements better represent the effect of
publicly available job information. On the basis of the results in Model 4 of Tables 5 and
11. Because the survey's sampling weights give a representative sample of firms weighted by employment, I used the sampling weight as the measure of wmr.
12. In addition, the actual level of interfirm segregation reported in Table 8 is not directly comparable to
the baseline model because the dependent variable in Model 4 is the race of the last worker hired, not the racial
composition of all the firm's blue-collar workers.
Interfirm
Table
8.
Racial
Segregation
Predicted
525
Effect
of
Ref
on Results in Model 4 of Table 5

% Change in
Average Proportion Theil Index of Predicted Segregation
Panel A Black in Firmsa Segregation (H)b From the Baseline
Actual level of interfirm segregation
in the data (among blue-collar workers) .199 .423
(.269)
Predicted segregation based on Model 4
in Table 7
Scenario
1.
Baseline
.203
(.221)
.272
(.025)
Scenario 2. No employee referrals .198 .236 -13%

(.208)
(.026)
Scenario 3. No spatial segregation .198 .246 -10%

(.207)
(.025)
Scenario 4. No Employee referrals and

no spatial segregation .193 .210 -23%
(.193) (.025)
Panel B: Significance Tests: Null Hypothesis SEC
Hno employee referrals = Hbaseline -0.0362 0.0182*

Hno spatial segregation - baseline -0.0264 0.0076**
Hno referrals and no spatial segregation =Hbaseline -0.0615 0.01 89**

Hno employee referrals = Hno spatial segregation 0.0098 0.0200
aStandard errors are shown in parentheses.
bBoostrap standard errors, based on 500 replications, are shown in parentheses.
cBootstrap standard errors, based on 500 replications.
*significant atp < .05; **significant atp < .01
6, one knows that replacing employee referrals by newspaper advertisements would significantly affect the hiring of black workers in predominately white firms (0.5% to 10%
black) and predominately black firms (50% to 100% black). Table 8 confirms this by
showing that the effect of eliminating employee referrals is a 13% decline in the predicted segregation index, from .272 to .236. In Panel B, there is evidence that Scenario 2
results in a statistically significant reduction in the segregation index, but the reader
should also note that the bootstrap standard errors indicate that it is marginally significant
at the .05 level (3 = -0.0362, SE = 0.0182,p = .048).
Next, Scenario 3 indicates what would happen if residential segregation were eliminated. By recoding the spatial segregation measure to its mean for each city, I simulated a
situation in which the racial composition of the nearby labor force is the same for each
firm. This simulation results in a Theil segregation index of .246, which is 10% lower
than the baseline model but slightly higher than Scenario 2. Panel B shows that although
the effect of Scenario 3 (Hno spatial segregation) results in a smaller reduction in segregation than
does Scenario 2 (Hno employee referrals)' the standard errors are smaller (3 = -0.0263, SE =
0.0076, p < .001). Scenario 4 predicts the combined effect of removing employee referrals and residential segregation (a 23% decline in H).
Finally, the last row of Panel B tests whether the effect of Scenarios 1 (no referrals)
and 2 (no spatial segregation) are equal. Despite the fact that the predicted effect of Scenario 1 is slightly lower than Scenario 2, I cannot reject the hypothesis that they have the
same effect on interfirm segregation. In other words, the evidence indicates that employee
referrals and residential segregation have similar effects on employment segregation.
Although Table 8 in some sense merely restates the results of Model 4 of Tables 5
and 6, it is useful to translate the regression coefficients into actual segregation levels. Of
course, the predicted segregation levels are only as good or as accurate as the underlying
statistical model that is used to generate them-and using the actual level of segregation
among these firms as a guide, the model explains only about half the overall level of
interfirm segregation. Nonetheless, the results show that employee referrals have a statistically significant effect on the level of interfirm segregation and that the effect of referrals seems to be roughly equivalent to the effect of the spatial location of the firm within
the metropolitan area."3
DISCUSSION AND CONCLUSIONS

The importance of segregated networks and employee referrals has often been discussed,
but there have been few empirical tests of this hypothesis, largely because of the lack of
firm-level data on employers' recruitment practices and racial hiring patterns. The results
presented here confirm the intuition that employee referrals in predominately white
firms tend to result in white workers being hired: in firms that are 0.5%-10% black, the
use of employee referrals results in a significant reduction in the probability of black
workers being hired. Likewise, the use of employee referrals in predominately black
firms (50%-100% black) results in an increased probability that black employees will be
hired. The combination of these two effects means that employee referrals, in the context
of high levels of social segregation between blacks and whites, result in increased levels
of interfirm racial segregation.
As a result, the empirical evidence presented here indicates that even in the absence of
direct discrimination by employers, black workers do not have an equal chance of being
hired in predominately white firms that hire through employee referrals. This finding seems
to confirm the qualitative results of Kasinitz and Rosenberg (1996) and Moss and Tilly
(2001). At the same time, however, the results in Models 1 and 2 of Table 5 indicate that
employee referrals do not seem to lower the overall black employment rate-their effect
appears to be limited to the sorting of black workers among different types of firms. This
finding suggests that, as a whole, black workers in these four cities are not socially isolated
from job networks that lead to information and help in obtaining work. Obviously, this
result does not preclude the possibility that some black workers are isolated from job
networks; indeed, one of the shortcomings of the data presented in this article is that
complete information is lacking on the networks of the workers who were hired through
employee referrals and of those who were not hired (or did not even hear about the jobs
because of their isolation from job networks). If a large number of black workers are
isolated from job networks as a whole, then the results in Models 1 and 2 suggest that some
black workers are hurt and other black workers are aided by the use of employee referrals
to fill vacancies. However, in the aggregate, what seems to be the most salient is not the
lack of job contacts, but the segregation of job networks. Evidence on the social networks
13. An anonymous reviewer suggested that a dynamic model of the effect of referrals on segregation,
where the probability of hiring a black worker in a given period is an increasing function of the proportion of
black workers in the firm at the start of the period, might result in complete segregation in equilibrium. A
mathematical depiction of such a dynamic model, however, indicates that complete firm-level segregation is
possible only if friendships are perfectly segregated. Details are available on my web site (http://www.unc.edu/
-tedmouw/papers) or by request.
Interfirm
Racial
Segregation
527
of black and white workers in Atlanta, Boston, and Los Angeles was presented in Table 1.
It seems that black workers in the MCSUI data are just as likely as white workers to use
contacts to find work (about 50% of both black and white workers used contacts)-the key
difference is that 86.9% of the job contacts of white workers are white, whereas 86.1% of
the contacts of black workers are black. In other words, it is not that black workers as a
whole lack job contacts, but that job contacts in these urban areas are highly racially
segregated.
In conclusion, I have presented the first empirical evidence of the effect of employee
referrals on interfirm segregation. In the metropolitan areas in the study, the combination
of high levels of racial social segregation and the informal organization of the labor market results in the transmission of a substantial amount of job information along segregated social networks. As a result, when employers hire through employee referrals, they
tend to reproduce the current racial composition of their workforce. The results presented
here suggest that employee referrals in predominately white firms reduce the chance of a
black worker being hired by about 75% in these four cities. Moreover, despite the attention that has been paid to the role of residential segregation and the decentralization of
employment in creating black-white labor market inequalities, this article has shown that
the effect of social segregation is also important. The role of employee referrals and segregated job networks is just as important as is spatial segregation in causing employment
segregation between white and black workers-both increase the predicted level of interfirm segregation by about 10%-i 3%.
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Are Black Workers Missing the Connection?

The Effect of Spatial Distance and Employee

ARE BLACK WORKERS MISSING THE CONNECTION?

Kasinitz and Rosenberg's (1996) qualitative study of hiring practices in an industrial

Hill, NC 27599-3210; E-mail: tedmouw@email.unc.edu.

Demography, Volume 39-Number 3, August 2002: 507-528 507

508 Demography, Volume 39-Number 3, August 2002

process of employment segregation. The MCSUI employer data contain information on

tial pattern of neighborhoods. In an extreme case, if a metropolitan area were composed

510 Demography, Volume 39-Number 3, August 2002

An alternative possibility is that segregated job networks generate employment seg-

Kasinitz and Rosenberg (1996) presented a dramatic illustration of the importance of

512 Demography, Volume 39-Number 3, August 2002

Table 1. Social Segregation in Networks and Job Searches Among

the same race as the respondent 0.875 0.922

Contact is the same race as the respondent? 0.869 0.861

Contact lives in the same neighborhooda 0.328 0.391

Note: The number of cases for each variable is shown i

Social Network Segregation

segregation is simply an extension of residential segregation. In that case, the problems

The Employer Survey

City 0-0.5% 0.5-10% 10-25% 25-50% 50-100% Total N

Los Angeles 36.9 29.1 21.0 8.6 4.4 100 621

514 Demography, Volume 39-Number 3, August 2002

Map 1. Racial Composition of Each Firm's Workers Supen

< 9 1 ~ ~ ~ ~lu-o lOblar k Emlye

Percentage Black in Census Tract

Map 2. Race of the Last Worker Hired: Detroit Metropolitan Area

0 ecntg lcki esu rc

Table 3. Recruitmen Method That Generated the Most Rcent Hire ( l Pc a

XgSs 9 \ 9 ~ ~Percentage Black in Fisu rmc

Percentage Black in Firm Tac

Rberuitm e. n Recruit Method P 0ha.5%e0era5-10% h10-2s5 2-n5 Hire50 % Total

Acquaintances and other 16.3 9.8 10.7 7.5 7.0 11.7

516 Demography, Volume 39-Number 3, August 2002

pers" on my web site (http://www.unc.edu/-tedmouw/papers).

Acquaintances and other .021 .095 .145 .083 .634 .104

Measuring the Spatial Location of the Firm

518 Demography, Volume 39-Number 3, August 2002

p; Lm is the number of workers in n

local labor force for firm m to be: N

where Bp is the number of black work

520 Demography, Volume 39-Number 3, August 2002

Recruitmentb: Sign -0.164 -0.132 -0.176

(0.114) (0.115) (0.116)

(0.097) (0.098) (0.099)

Institutional 0.453** 0.447** 0.444**

Acquaintance or other -0.095 -0.102 -0.100

Other Method -0.021 -0.004 0.010

0-0.5% -0.418** -0.351** -0.363**

10-25% 0.341** 0.354** 0.345**

25-50% 0.690** 0.641** 0.616**

(0.090) (0.092) (0.102) (0.104)

Los Angeles -0.370** -0.197* -0.098 -0.087

(0.106) (0.139) (0.146) (0.149)

(0.114) (0.114) (0.117)

(0.096) (0.096) (0.099)

(0.103) (0.103) (0.105)

Spatial Segregation (% Black) 2.175** 2.117** 2.330**

Geographic Identifier Missing 0.417** 0.395** 0.457**

Three-Digit Occupation (% Black) 1.329** 1.319**

Model 1 Model 2 Model 3 Model 4a

Notes: Standard errors are shown in parentheses. All models also

Institutional 0.453 0.447 0.444**

0-0.5% -0.418 -0.351 -0.363**

10-25% 0.341 0.354 0.345**

25-50% 0.690 0.641 0.616**

Spatial Segregation (% Black) 2.175 2.117 2.330**

Geographic Identifier Missing 0.417 0.395 0.457**

Three-Digit Occupation (% Black) 1.329 1.319

Employee -0.076 -0.690 0.372 -0.087 0.564