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Thursday, April 23, 2009

Inequality and Residential Segregation

According to this research, inequality raises residential segregation. This is worrisome in part because the increase in segregation can cause problems that feedback to both amplify and perpetuate the inequality:

Inequality and the Measurement of Residential Segregation by Income In American Neighborhoods, by Tara Watson,  NBER Working Paper No. 14908, April 2009: Abstract American metropolitan areas have experienced rising residential segregation by income since 1970. One potential explanation for this change is growing income inequality. However, measures of residential sorting are typically mechanically related to the income distribution, making it difficult to identify the impact of inequality on residential choice. This paper presents a measure of residential segregation by income, the Centile Gap Index (CGI) which is based on income percentiles. Using the CGI, I find that a one standard deviation increase in income inequality raises residential segregation by income by 0.4-0.9 standard deviations. Inequality at the top of the distribution is associated with more segregation of the rich, while inequality at the bottom and declines in labor demand for less-skilled men are associated with residential isolation of the poor. Inequality can fully explain the rise in income segregation between 1970 and 2000. ...

... Why is economic segregation across neighborhoods important? Income sorting affects the distribution of role models, peers, and social networks. Sociologists such as Wilson (1987) hypothesize that the lack of neighborhood exposure to mainstream middle-class role models and social networks is a major contributor to urban joblessness and social problems. A number of empirical papers also suggest that the characteristics of one’s neighbors and peers in school affect outcomes (Case and Katz (1991), Cutler and Glaeser (1997), Hoxby (2000)), though the issue is far from settled (e.g., Oreopoulos (2003), Kling, Liebman, and Katz (2005)). Residential decisions have implications for commuting behavior and the allocation of public goods. If residential choice is sensitive to the income distribution, economic policies that moderate or amplify income inequality may shape the cities in which we live.

The importance of income segregation in metropolitan areas is heightened by the rapid urbanization of the world’s poor. As noted by Doug Massey in the 1996 presidential address to the Population Association of America, “[the] hallmark of the emerging spatial order of the twenty-first century will be a geographic concentration of affluence and poverty. Throughout the world, poverty will shift from a rural to an urban base; within urban areas poor people will be confined increasingly to poor neighborhoods, yielding a density of material deprivation that is historically unique and unprecedented” (p.399). The issue addressed in this paper is also important because of the high and rising levels of income inequality found in many countries. Machin (2008) reports that male wage inequality grew substantially between 1980 and 2000 in Australia, Germany, Italy, Japan, the Netherlands, New Zealand, Sweden, the U.K, and the U.S., for example. ...

... Although this paper has not explored the effect of income segregation on individual outcomes, a number of researchers believe that neighbors matter. A widening of the income distribution affects the prices of housing and neighborhood attributes, making it more costly for low-income families to live near high-income families. Through this price externality, housing markets amplify the effect of income inequality on the well-being of different socioeconomic groups. If neighbors particularly affect the outcomes of children, this mechanism may also strengthen the link between equality in the income distribution and intergenerational mobility.

    Posted by on Thursday, April 23, 2009 at 03:52 PM in Academic Papers, Economics, Housing, Income Distribution | Permalink  TrackBack (0)  Comments (23)

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