Negative perceptions that are shaped by racism put drags on markets that hurt Black people and the communities they live in. Historic discrimination distorts how we value Black people and the assets in Black communities, robbing them of the ability to lift themselves up the social ladder and build stronger neighborhoods. To live out our democratic ideals and to achieve racial equity in the United States, institutions and markets critical to capital flows must give equal access to Black people. This gap jumps to $3.9 billion when comparing highly-rated businesses in Black-majority neighborhoods with highly-rated businesses in other neighborhoods.īusinesses in Black-majority neighborhoods lose $1.3B to $3.9B in revenue per year When all factors are included, the full model of our research suggests a 0.2% percentage point gap between businesses in non-Black-majority neighborhoods and Black-majority neighborhoods, amounting to $1.3 billion in unrealized revenue each year. In Black-majority neighborhoods, poorly rated establishments grow at roughly the same low rate as highly rated establishments-and both perform worse than poorly rated businesses in neighborhoods which are less than 1% Black. Source: Author analysis of merged data from Yelp and National Establishment Time-Series (NETS) Database and 2017 American Community Survey estimates. High Yelp ratings are defined as 4.0 and higher. Note: Low Yelp ratings are defined as below 4.0. Locating in a Black-majority neighborhood eliminates the advantage of being a highly rated business Providing high-quality customer service and products does not result in financial rewards in Black neighborhoods to the same extent as in other neighborhoods. This effect persists after controlling for other neighborhood characteristics such as the level of education of residents, total income in the ZIP code, average commute times to work, and the age of the housing stock. Location in Black-majority neighborhoods eliminates the benefit of being a highly rated establishment. In Black-majority neighborhoods, 7% growth was the norm for both highly rated and poorly rated businesses. In non-Black-majority neighborhoods, businesses with high Yelp ratings grew, on average, between 8.5% and 9% between 20, and poorly rated businesses grew significantly less (between 5% and 7.5%). Source: Author analysis of merged data from Yelp and National Establishment Time-Series (NETS) Database. Groupings of Yelp reviews represent quintiles. Note: Businesses with a single Yelp review were removed from the sample before analysis. Source: Author analysis of merged data from Yelp and National Establishment Time-Series (NETS) Database.īusinesses with more Yelp ratings experience faster revenue growth Yelp sample of businesses in ZIP codes across 86 metro areas, 2016–2019 This compares to growth of just 6.2% for businesses with fewer than four stars.īusinesses with higher Yelp ratings enjoy faster revenue growth Moreover, we find that for every 10 reviews a business receives, it experiences an additional 2 percentage points of revenue growth on average, regardless of the quality of the reviews.īusinesses with four to five stars on Yelp experienced an average growth rate of 8.8% from 2016 to 2019. We estimate that a one-star increase in Yelp reviews predicts an increase in revenue growth of 1 to 2 percentage points over a three-year period.
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