Mexican enclaves and the price of culture

Studies of Mexican immigrant earnings consistently find a negative relationship between concentration of Mexicans and earnings. Smith and Newman [Economic Inquiry, 15, 51-66 (1977)] and Yuengert [Journal of Human Resources, 30, 194-204 (1995)], among others, attribute this enclave effect as the compensating differential for culture. However, the existence of a land market suggests that the "price" of culture may also depend on culture's effect on the price of land. Adopting a model developed by Roback [Economic Inquiry, 26, 23-41 (1988)], I first show that the price of Mexican culture is a function of culture's effect on both earnings and rents. Second, using data for California and Texas from the 1990 Census, I estimate the price for Mexican culture. Consistent with the model, culture lowers earnings and increases rents in enclaves with larger concentration of Mexicans. In fact, land's share of the price of culture is as much as 42%. Therefore, studies that attribute the lower earnings in enclaves as the compensating differential for enclave externalities underestimate the value of culture. This paper also tests several predictions implied by the theoretical model. Satisfying the general equilibrium conditions, the earnings of other workers are higher in enclaves. Furthermore, except for Mexican-Americans, the assumption that culture is not an amenity to other workers is supported by the data. (C) 1998 Academic Press.