IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp10694.html
   My bibliography  Save this paper

Incorporating Neighbourhood Choice in a Model of Neighbourhood Effects on Income

Author

Listed:
  • van Ham, Maarten

    (Delft University of Technology)

  • Boschman, Sanne

    (Utrecht University)

  • Vogel, Matt

    (University at Albany)

Abstract

Studies of neighbourhood effects often attempt to identify causal effects of neighbourhood characteristics on individual outcomes, such as income, education, employment, and health. However, selection looms large in this line of research and it has been repeatedly argued that estimates of neighbourhood effects are biased as people non-randomly select into neighbourhoods based on their preferences, income, and the availability of alternative housing. We propose a two-step framework to help disentangle selection processes in the relationship between neighbourhood deprivation and earnings. We first model neighbourhood selection using a discrete choice framework and derive correction components to adjust parameter estimates in a subsequent neighbourhood effects model for the unequal probability that an individual 'chooses' to live in a particular area. Applying this technique to administrative data from the Netherlands, we find significant interactions between personal and neighbourhood characteristics in the selection model. This confirms individual differences in neighbourhood preferences; individuals non-randomly select into neighbourhoods. The baseline neighbourhood effects model reveals a significant effect of average neighbourhood income on individual income. When we include correction components for the differential sorting of individuals into specific neighbourhoods, the effect of neighbourhood income diminishes, but remains significant. These results suggest that researchers need to be attuned to the role of selection bias when assessing the role of neighbourhood effects on individual outcomes. Perhaps more importantly, the strong, persistent effect of neighbourhood deprivation on subsequent earnings suggests that neighbourhood effects reflect more than the shared characteristics of neighbourhood residents; place of residence partially determines economic well-being.

Suggested Citation

  • van Ham, Maarten & Boschman, Sanne & Vogel, Matt, 2017. "Incorporating Neighbourhood Choice in a Model of Neighbourhood Effects on Income," IZA Discussion Papers 10694, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10694
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp10694.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anne Bolster & Simon Burgess & Ron Johnston & Kelvyn Jones & Carol Propper & Rebecca Sarker, 2007. "Neighbourhoods, households and income dynamics: a semi-parametric investigation of neighbourhood effects," Journal of Economic Geography, Oxford University Press, vol. 7(1), pages 1-38, January.
    2. Sanne Boschman & Maarten van Ham, 2015. "Neighbourhood selection of non-Western ethnic minorities: testing the own-group effects hypothesis using a conditional logit model," Environment and Planning A, , vol. 47(5), pages 1155-1174, May.
    3. Lina Hedman & Maarten van Ham & David Manley, 2011. "Neighbourhood Choice and Neighbourhood Reproduction," Environment and Planning A, , vol. 43(6), pages 1381-1399, June.
    4. Maarten van Ham & David Manley, 2010. "The effect of neighbourhood housing tenure mix on labour market outcomes: a longitudinal investigation of neighbourhood effects," Journal of Economic Geography, Oxford University Press, vol. 10(2), pages 257-282, March.
    5. Florent Sari, 2012. "Analysis of Neighbourhood Effects and Work Behaviour: Evidence from Paris," Housing Studies, Taylor & Francis Journals, vol. 27(1), pages 45-76.
    6. Ioannides, Yannis M. & Zabel, Jeffrey E., 2008. "Interactions, neighborhood selection and housing demand," Journal of Urban Economics, Elsevier, vol. 63(1), pages 229-252, January.
    7. Galster, George, 2002. "An economic efficiency analysis of deconcentrating poverty populations," Journal of Housing Economics, Elsevier, vol. 11(4), pages 303-329, December.
    8. Philip Oreopoulos, 2003. "The Long-Run Consequences of Living in a Poor Neighborhood," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1533-1575.
    9. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    10. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    11. Saul Hoffman & Greg Duncan, 1988. "Multinomial and conditional logit discrete-choice models in demography," Demography, Springer;Population Association of America (PAA), vol. 25(3), pages 415-427, August.
    12. William Clark & Valerie Ledwith, 2007. "How much does income matter in neighborhood choice?," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 26(2), pages 145-161, April.
    13. Maarten van Ham & David Manley, 2012. "Neighbourhood Effects Research at a Crossroads. Ten Challenges for Future Research Introduction," Environment and Planning A, , vol. 44(12), pages 2787-2793, December.
    14. Maarten van Ham & David Manley, 2012. "Neighbourhood Effects Research at a Crossroads: Ten Challenges for Future Research," RatSWD Working Papers 204, German Data Forum (RatSWD).
    15. John Logan & Richard Alba, 1993. "Locational returns to human capital: Minority access to suburban community resources," Demography, Springer;Population Association of America (PAA), vol. 30(2), pages 243-268, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maarten Ham & Sanne Boschman & Matt Vogel, 2018. "Incorporating Neighborhood Choice in a Model of Neighborhood Effects on Income," Demography, Springer;Population Association of America (PAA), vol. 55(3), pages 1069-1090, June.
    2. David Manley & Maarten van Ham, 2011. "Living in deprived neighbourhoods in Scotland. Occupational mobility and neighbourhood effects," ERSA conference papers ersa10p547, European Regional Science Association.
    3. Gundi Knies & Patricia C Melo & Min Zhang, 2021. "Neighbourhood deprivation, life satisfaction and earnings: Comparative analyses of neighbourhood effects at bespoke scales," Urban Studies, Urban Studies Journal Limited, vol. 58(13), pages 2640-2659, October.
    4. Zwiers, Merle & Bolt, Gideon & van Ham, Maarten & van Kempen, Ronald, 2014. "Neighborhood Decline and the Economic Crisis," IZA Discussion Papers 8749, Institute of Labor Economics (IZA).
    5. Patrick Bayer & Stephen L. Ross, 2006. "Identifying Individual and Group Effects in the Presence of Sorting: A Neighborhood Effects Application," Working papers 2006-13, University of Connecticut, Department of Economics, revised Jan 2009.
    6. Florence Goffette-Nagot & Claire Dujardin, 2005. "Neighborhood effects, public housing and unemployment in France," Working Papers 0505, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    7. Emily M Miltenburg & Tom WG van der Meer, 2018. "Lingering neighbourhood effects: A framework to account for residential histories and temporal dynamics," Urban Studies, Urban Studies Journal Limited, vol. 55(1), pages 151-174, January.
    8. Petrović, Ana & Manley, David & van Ham, Maarten, 2018. "Freedom from the Tyranny of Neighbourhood: Rethinking Socio-Spatial Context Effects," IZA Discussion Papers 11416, Institute of Labor Economics (IZA).
    9. Lina Hedman & David Manley & Maarten van Ham & John Östh, 2015. "Cumulative exposure to disadvantage and the intergenerational transmission of neighbourhood effects," Journal of Economic Geography, Oxford University Press, vol. 15(1), pages 195-215.
    10. Lina Hedman & George Galster, 2013. "Neighbourhood Income Sorting and the Effects of Neighbourhood Income Mix on Income: A Holistic Empirical Exploration," Urban Studies, Urban Studies Journal Limited, vol. 50(1), pages 107-127, January.
    11. Steven N. Durlauf & Yannis M. Ioannides, 2010. "Social Interactions," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 451-478, September.
    12. Nieuwenhuis, Jaap & van Ham, Maarten & Yu, Rongqin & Branje, Susan & Meeus, Wim & Hooimeijer, Pieter, 2016. "Being Poorer than the Rest of the Neighbourhood: Relative Deprivation and Problem Behaviour of Youth," IZA Discussion Papers 10220, Institute of Labor Economics (IZA).
    13. van Ham, Maarten & Manley, David, 2013. "Occupational Mobility and Living in Deprived Neighbourhoods: Housing Tenure Differences in 'Neighbourhood Effects'," IZA Discussion Papers 7815, Institute of Labor Economics (IZA).
    14. Giulio Zanella, 2004. "Discrete Choice with Social Interactions and Endogenous Memberships," Department of Economics University of Siena 442, Department of Economics, University of Siena.
    15. Ad Coenen & Pieter-Paul Verhaeghe & Bart Van de Putte, 2019. "Ethnic Residential Segregation: A Family Matter? An Integration of Household Composition Characteristics into the Residential Segregation Literature," European Journal of Population, Springer;European Association for Population Studies, vol. 35(5), pages 1023-1052, December.
    16. Dujardin, Claire & Goffette-Nagot, Florence, 2010. "Neighborhood effects on unemployment?: A test à la Altonji," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 380-396, November.
    17. Liebman, Jeffrey & Katz, Lawrence & Kling, Jeffrey, 2004. "Beyond Treatment Effects: Estimating the Relationship Between Neighborhood Poverty and Individual Outcomes in the MTO Experiment," Working Paper Series rwp04-036, Harvard University, John F. Kennedy School of Government.
    18. van Ham, Maarten & Manley, David, 2012. "Neighbourhood Effects Research at a Crossroads: Ten Challenges for Future Research," IZA Discussion Papers 6793, Institute of Labor Economics (IZA).
    19. de Vuijst, Elise & van Ham, Maarten & Kleinhans, Reinout, 2015. "The Moderating Effect of Higher Education on Intergenerational Spatial Inequality," IZA Discussion Papers 9557, Institute of Labor Economics (IZA).
    20. Shuyang Sheng & Xiaoting Sun, 2023. "Social Interactions with Endogenous Group Formation," Papers 2306.01544, arXiv.org.

    More about this item

    Keywords

    selection bias; income; neighbourhood choice; neighbourhood sorting; neighbourhood effects; discrete choice; longitudinal data;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp10694. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.