Five-star reviews, one-star profits: The devaluation of businesses in Black communities

In 2018, research from the Brookings Metropolitan Policy Program (Brookings Metro) and Gallup showed that homes in Black-majority neighborhoods experience devaluation due to racial bias at a rate of 23% on average, when compared to similar homes in otherwise similar white neighborhoods. Now, in a related study, the authors offer evidence for the devaluation of businesses. The report, titled “Five-star reviews, one-star profits: The devaluation of businesses in Black communities”, finds that highly rated businesses in Black neighborhoods (measured by Yelp ratings) experience slower revenue growth than poorly rated businesses in otherwise similar neighborhoods. This unrealized growth results in a total devaluation of more than $1.3 billion in lost revenue annually.

On Wednesday, February 19, Brookings Metro hosted an event exploring the report findings and implications. Following a presentation on the research, thought leaders on two panels, including investors and business owners, examined how racial segregation and discrimination can distort markets; in particular, the practices and policies that cause the devaluation of businesses.