Human Capital in the Inner City Dionissi Aliprantis∗ Federal Reserve Bank of Cleveland February 15, 2013 Abstract: Black males in the United States are exposed to tremendous violence at young ages: In the NLSY97 26 percent report seeing someone shot by age 12, and 43 percent by age 18. This paper studies how this exposure to violence and its associated social isolation affect education and labor market outcomes. I use Elijah Anderson’s ethnographic research on the “code of the street” to guide the specification of a model of human capital accumulation that includes street capital, the skills and knowledge useful for providing personal security in neighborhoods where it is not provided by state institutions. The model is estimated assuming either selection on observables or dynamic selection with permanent unobserved heterogeneity. Counterfactuals from these estimated models indicate that exposure to violence has large effects, decreasing the high school graduation rate between 6.1 and 10.5 percentage points (20 and 35 percent of the high school dropout rate) and hours worked between 3.0 and 4.0 hours per week (0.15 and 0.19 σ). Keywords: Code of the Street; Interpersonal Violence; Human Capital; Race; Propensity Score Match- ing; Dynamic Selection Control JEL Classification Numbers: I21, J15, J24, O15, O18, Z13 ∗Address: Federal Reserve Bank of Cleveland, Research Department, PO Box 6387, Cleveland, OH 44101-1387, USA. Phone: (216)579-3021. E-mail:
[email protected]. I thank Ken Wolpin, Petra Todd, Elijah Anderson, Becka Maynard, Michela Tincani, Francisca Richter, Jon James, Hanming Fang, Janice Madden, Charlie Branas, Rhonda Sharpe, Mark Schweitzer, Bill Blankenau, Angela Duckworth, Andrew Clausen, Valerie Lundy-Wagner, Lisa Nelson, and numerous seminar participants for helpful comments, and Steve McClaskie for his help with the NLSY data.