Economic Scene; The long-term consequences of the race riots in the late 1960's come into view.
By Virginia Postrel
Published: December 30, 2004
AS an economic historian, Robert A. Margo has long wanted to study the 1960's. But, he says, ''for the longest time people would say, 'That's too close to the present.'''
Not so anymore. The 1960's are as distant from today as the Great Depression was from the 1960's, and economic historians, including Professor Margo, of Vanderbilt University, are examining the decade's long-term effects.
Consider the wave of race riots that swept the nation's cities. From 1964 to 1971, there were more than 750 riots, killing 228 people and injuring 12,741 others. After more than 15,000 separate incidents of arson, many black urban neighborhoods were in ruins.
As soon as the riots occurred, social scientists began collecting data and analyzing the possible causes. Until recently, however, few scholars looked at the riots' long-term economic consequences.
In two recent papers, Professor Margo and his Vanderbilt colleague, William J. Collins, do just that by estimating the impact on incomes and employment and on property values.
The riots not only destroyed many homes and businesses, resulting in about $50 million in property damage in Detroit alone, but far more significantly, they also depressed inner-city incomes and property values for decades.
(The papers, ''The Labor Market Effects of the 1960's Riots'' and ''The Economic Aftermath of the 1960's Riots: Evidence from Property Values,'' are available at www.vanderbilt.edu/Econ/wparchive/working03.html and www.vanderbilt.edu/Econ/wparchive/working04.html.)
The economists start with sociologists' findings on the riots' causes: whether a city had a riot was essentially unpredictable, assuming the city was outside the South (where few riots occurred) and had a substantial African-American population. The sociologists' research, Professor Margo says, suggests that ''there was so much racial tension in the air in the 1960's that a riot could happen almost anywhere, anytime.''
That unpredictability is bad news for sociologists looking for causes but good news for economists analyzing consequences. It creates a natural experiment, dividing otherwise similar places into those that had riots and those that did not.
In cities with major riots, the economists find that the median black family income dropped by about 9 percent from 1960 to 1970, compared with similar cities without severe riots. This impact on the labor market may have actually been more severe in the long run.
From 1960 to 1980, male employment in cities with severe riots dropped four to seven percentage points, compared with otherwise similar cities.
The impact on property values is even more striking. In cities with severe riots, Professors Collins and Margo found, the median value of black-owned homes dropped 14 percent to 20 percent, compared with cities that experienced little or no rioting, from 1960 to 1970. The median value of all central-city homes, regardless of owner, dropped 6 percent, to 10 percent.
The racial difference is not surprising, because both riot damage and the perceived risk of future riots were concentrated in predominately black neighborhoods.
Again, these numbers reflect not just immediate property damage but long-term declines. If it is more expensive or less desirable to live or work in a particular neighborhood, property prices will drop.
''This effect,'' the economists write, ''could work through any number of the channels that feed into the net benefit stream: personal and property risk might seem higher; insurance premiums might rise; taxes for redistribution or more police and fire protection might increase, and municipal bonds may be more difficult to place; retail outlets might close; businesses and employment opportunities might relocate; friends and family might move away; burned-out buildings might be an eyesore; and so on.''
In a second statistical test, Professors Collins and Margo identify two factors that separate cities with riots from those without riots: whether the local government used a city manager (which lessened the chances of a riot) and how much rain fell in April 1968, the month that Martin Luther King Jr. was assassinated.
''If you have a lot of rain, people don't go out in the streets and riot,'' Professor Margo notes. So the same national event had different effects in cities that were otherwise similar. Here, too, the two economists find that cities without riots did significantly better economically over the long run.
These results help address an important economic puzzle. Since World War II, the incomes of black and white Americans have begun to converge. But racial differences in wealth, or net worth, have remained enormous, even for people with similar incomes and family configurations.
In 1998, the median income for African-American households was $20,000, or 54 percent of the median white household income of $37,000, according to calculations by Edward N. Wolff of the Jerome Levy Economics Institute. But the median net worth of black families was only $10,000, a mere 12 percent of the median white net worth of $81,700.
Wealth reflects history as well as current economics. And while there are many reasons for the wealth gap, it certainly does not help that the 1960's riots destroyed much of the accumulated wealth of many of the most prosperous African-Americans, those who had left the South for the greater economic opportunity of industrial cities.
A home is the most important asset for most American families, and home ownership is even more significant for African-Americans, who historically have had held little wealth in financial securities or business equity.
In 1940, black-owned homes were worth only 37 percent as much as white-owned homes, as against 62 percent in 1970 -- still a significant gap, but a much smaller one. From then on, however, the gap barely budges, with the ratio reaching only 65 percent by 1990.
The riots help explain why. These numbers include all houses nationwide. In inner cities, the trend actually reversed, and the gap in home value began to widen instead of narrow.
From 1940 to 1970, the value of homes owned and occupied by blacks in central cities jumped to 69 percent of the value of urban homes owned and occupied by whites, from 51 percent. (Home values were rising over this period as well.) By 1990, however, the ratio was down to a mere 53 percent, nearly as low as in 1940.
''That's a really startling number,'' Professor Margo says.
Photo: The structure of a store that burned in the 1968 Detroit riots was standing several decades later. A study says the riots depressed incomes and property values for years. (Photo by Michele V. Agins/The New York Times)