Firm Racial Segregation and Affirmative Action in the Highway Construction Industry

In this paper I document that highway construction firms in California, particularly those owned by Blacks and Asians, exhibit considerable racial segregation in that they are disproportionately located in zip codes with the greatest concentration of own-race residents. I find that segregated firms serve a larger market than minority-owned firms that are not segregated, and this effect is concentrated in Black-owned firms. I next exploit the segregation of firms to examine the effect of affirmative action on the success of minority-owned firms. Following the significant curtailment of affirmative action in California due to a direct statewide ballot initiative, the number of highway construction establishments located in zip codes with the highest concentrations of Black and Asian residents fell relative to the rest of the state, even conditional on the number of non-construction establishments. This suggests that affirmative action policies may play a role in the net survival rates of minority-owned firms. 1 Email: [email protected]. I appreciate the helpful comments of Rob Fairlie, Maggie Levenstein, and participants of the Research Conference on Minorities and Women in Entrepreneurship. Funding from the UC Institute for Labor and Employment and UNC Kenan Flagler Institute is gratefully acknowledged.