Urban Studies at 50

50(1) 107–127, January 2013

Neighbourhood Income Sorting and the

Effects of Neighbourhood Income Mix on
Income: A Holistic Empirical Exploration
Lina Hedman and George Galster

[Paper first received, March 2011; in final form, March 2012]

Abstract
An econometric model is specified in which an individual’s income and the income
mix of the neighbourhood in which the individual resides are endogenous, thus pro-
viding a holistic model of phenomena that previously have been fragmented into
neighbourhood effects and neighbourhood selection literatures. To overcome the
biases from selection and endogeneity, the parameters of this model are estimated
using instrumental variables in a fixed-effect panel analysis employing annual data on
90 438 working-age males in Stockholm over the 1995–2006 period. Evidence is
found of both neighbourhood effects and neighbourhood selection, but more impor-
tantly, it is found that the magnitudes of these effects are substantially altered when
taking selection and endogeneity biases into account, compared with when only con-
trolling for selection. When taking endogeneity into account, the apparent impact of
neighbourhood income mix on individual income is magnified and the effect of indi-
vidual income on the percentage of high income in the neighbourhood is magnified.

1. Introduction
Two substantial, interdisciplinary literatures
have developed over the past three decades.
One has focused on neighbourhood selection
and sorting by income, building our under-
standing about why and where people move.
The other has focused on neighbourhood
effects, building our understanding about
the degree to which residential context exerts
independent effects on a variety of outcomes
for residents. Unfortunately, they have long
remained artificially segregated from each
other in conceptual and empirical terms
Recently, Galster (2003), Doff (2010) and
Hedman (2011) have provided distinctive

Lina Hedman is in the Institute for Housing and Urban Studies, Uppsala University, Box 785,
Gävle, 80129, Sweden. E-mail: lina.hedman@ibf.uu.se.
George Galster is in the Department of Urban Studies and Planning, Wayne State University,
Detroit, Michigan, USA. E-mail: george.galster@wayne.edu.

0042-0980 Print/1360-063X Online

Ó 2012 Urban Studies Journal Limited
DOI: 10.1177/0042098012452320
108 LINA HEDMAN AND GEORGE GALSTER
but complementary conceptual models link-
ing these two literatures by illuminating
their numerous mutually causal intercon-
nections.1 They argue that: individual char-
acteristics affect what neighbourhood is
selected when they move; the neighbour-
hood selected affects some individual char-
acteristics; these, in turn; affect whether
that individual remains in the current
neighbourhood and, if not, what different
neighbourhood will be selected; and failure
to recognise these interrelationships leads to
biased statistical estimates. The upshot is
that both neighbourhood selection and
neighbourhood effects literatures would be
enriched by a more holistic, unifying
approach.
Our paper aims to advance such an
approach empirically, building on these
conceptual models. We first summarise the
key empirical challenges a holistic frame-
work raises, and the scant empirical research
advancing such an approach. We then spe-
cify an econometric model in which an indi-
vidual’s income and the income mix of
her neighbourhood are endogenous—i.e.
mutually causal in a structural equation
system. We estimate parameters using both
fixed-effects (i.e. person-specific dummy
variables serving as proxies for unobserved
characteristics) alone and then in combina-
tion with instrumental variables (i.e. exo-
genous variables that serve as proxies for
endogenous ones), employing annual data
on 90 438 working-age males in Stockholm
over the 1995–2006 period. We find strong
support for our empirical approach.
Our paper makes two primary contribu-
tions. First, it represents the first holistic
econometric model to specify endogenous
relationships between an individual’s
income and the income mix of the neigh-
bourhood in which the individual resides.
Secondly, because it uses both instrumental
variables as substitutes for the endogenous
variables and a fixed-effect panel analysis, it
addresses both sources of bias that have been
endemic (although often unrecognised) in
prior neighbourhood effect and neighbour-
hood selection studies: endogeneity and
selection on unobservables. We demonstrate
that these biases can be substantial.
2. Research Challenges from the
Perspective of the Holistic Model
Incorporating neighbourhood selection and
neighbourhood effects into a holistic frame-
work raises several methodological chal-
lenges (Hedman, 2011). In this paper, we
focus on two critical ones: selection on
unobservables (omitted variables) and
endogeneity (mutual causation). In any sta-
tistical study there is likely to be a set of
unobserved individual characteristics that
influence both selection into and out of
neighbourhoods and observed individual
behaviours and outcomes that are not only
of intrinsic interest but may also influence
neighbourhood selection. In these circum-
stances, partial correlations between neigh-
bourhood characteristics and individual
characteristics will not provide unbiased
estimates of the true magnitude of the causal
influence of one on the other, regardless of
which direction of causation is posited. An
illustration of an unobserved characteristic
is the salience given to visible symbols of
prestige; those placing great weight on this
will both work harder to evince higher
incomes and will try to live in prestigious
neighbourhoods. In a model testing the
effect of neighbourhood prestige on individ-
ual income, how much causal impact can be
rightfully attributed to the former with
‘prestige salience’ uncontrolled? The same
can be asked of a model testing the effect of
an individual’s income on what neighbour-
hood prestige will be selected. The selection
on the unobservables problem is well known
in the neighbourhood effects literature (for
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES
example, Jencks and Mayer, 1990; Galster,
2008).2 It should be of equal concern in the
neighbourhood selection literature but has
been largely ignored.
The other challenge is endogeneity. The
selection of neighbourhood is often made
jointly with other decisions, such as dwell-
ing tenure and expected length of stay, and
thus it is challenging to separate the inde-
pendent causal effect of the neighbourhood
on subsequent individual outcomes from
the effects of other interrelated decisions
(Galster, 2003). Moreover, all these interre-
lated decisions are made on the basis of the
individual’s resources, yet arguably these are
also affected in turn by the neighbourhood
that ultimately is chosen, if indeed neigh-
bourhood effects are present. Thus, there are
several dimensions of complex, mutual caus-
ality embedded here. In these circumstances,
the researcher cannot blithely place one
endogenous variable on the right-hand side
of the equation and another on the left-hand
side and claim that the resulting partial cor-
relation provides an unbiased measure of
causation in one direction or the other.
Endogeneity is rarely addressed by the
neighbourhood effect literature, with the
exception of studies of spatial mismatch
where discussions about the simultaneity of
the choices of residential location and (access
to) employment or earnings are relatively
frequent (Ihlanfeldt and Sjoquist, 1998).
Numerous empirical neighbourhood
effects studies have tried to address the
challenge of selection on unobservables by
using one of several methodologies that try
to break the correlation between unob-
served individual characteristics and the
predictor neighbourhood characteristics
and individual outcomes being modelled;
see Galster (2008) and Hedman (2011) for
recent reviews. However, most studies
employ methods that do not tell us any-
thing about selection processes, something
that should be of intrinsic interest to
109
neighbourhood effect scholars (Sampson
and Sharkey, 2008). Only three studies in
this genre to our knowledge have tried to
model neighbourhood selection and then
use this model to correct for selection on
unobservables bias in a subsequent neigh-
bourhood effects model.
Ioannides and Zabel (2008) investigated
how neighbourhood population externalities
affected housing structure demand in US
metropolitan areas. They took a two-stage
approach wherein they first estimated a
nested conditional logit model of neighbour-
hood selected by movers while the second
used these estimates as Heckman-style prob-
abilistic control variables for selection bias
when analysing housing demand. Their first-
stage results showed that US households
move to places inhabited by people similar
to themselves in terms of income, age and
race. Their second-stage results showed that
controlling for selection had large impacts,
in this case strengthening the apparent effects
of neighbourhood characteristics on housing
structure demand. However, given its focus,
this study did not explore potential recipro-
cal causal relationships.
Galster et al. (2007) developed a model
wherein parental housing tenure, expected
length of stay and neighbourhood poverty
rate were endogenous over the first 18 years
of a child’s lifetime and, in turn, jointly
affected their outcomes measured as young
adults. They used two-stage least squares to
obtain instrumental variable (IV) estimates
for: shares of childhood years spent in a
home owned by parents, shares of childhood
years when there were no residential moves,
and mean neighbourhood poverty rate expe-
rienced during childhood, which they
employed in second-stage equations predict-
ing education, fertility and income outcomes.
The results indicated that being raised in
higher-poverty neighbourhoods had a sub-
stantial negative effect on educational attain-
ments and indirectly on incomes.
110 LINA HEDMAN AND GEORGE GALSTER
Sari (2012) developed a two-equation
simultaneous model using 1999 census data
on Paris-region adult males wherein resi-
dence in a deprived neighbourhood or not
was one outcome and being employed or
not was the other, and the two were
mutually causal. Sari employed a bivariate
probit maximum likelihood method with a
family fertility IV to obtain an unbiased
estimate of the effect of deprived neigh-
bourhood residence on an individual’s
employment probability. He found that
residence in a deprived neighbourhood was
associated with substantially lower employ-
ment probabilities. Unfortunately, Sari did
not attempt to estimate the deprived neigh-
bourhood residence equation with an
instrumental variable for employment, so a
holistic empirical portrait is missing.
Thus, in the literature, there is no example
of estimating fully a structural equation
model where neighbourhood characteristics
and the effects of these characteristics on
individuals are endogenous. We advance the
literature by specifying such a model of
income mix of neighbourhood of residence
and individual income.3 For estimating para-
meters of this model we agree with Galster
et al. (2007) and Sari (2012) that the IV strat-
egy holds the greatest potential because, in
principle, estimates based on valid and strong
instruments should overcome biases from
both selection on unobservables and endo-
geneity. Moreover, we extend beyond the
approaches of these aforementioned authors
by employing a fixed-effects panel model in
addition to IV as further a control for time-
invariant unobservables.
3. Data and Empirical Model
3.1 The Swedish Data Files
The variables we employ are constructed
from register data from the GeoSweden
database, containing annual income, educa-
tion, labour market and population infor-
mation on all Swedish residents age 15 and
above. With the collaboration of Roger
Andersson we have created a longitudinal
database including all males who were resi-
dents of Sweden’s largest metropolitan area,
Stockholm, in each year from 1994 to 2006.4
Since we focus on labour earnings as the endo-
genous individual characteristic of interest, we
further confine our analysis to working-age
males (ages 25–49 in 1994). This restriction
means that we analyse a sub-population that
constitutes 58.2 per cent of the age-appropriate
male Stockholm population in 1994 and 54.2
per cent of same in 2006. We emphasise that
our full dataset includes observations of virtu-
ally the entire Stockholm population and thus
we can compute annual population-based
income-mix characteristics of neighbourhoods
with great precision.
We operationalise ‘neighbourhood’ as
the area delineated by a ‘SAMS’ defined by
Statistics Sweden. The SAMS classification
scheme is designed to identify relatively
small, homogeneous areas by taking into
account housing type, tenure and construc-
tion period. In urban areas, they come
relatively close to people’s notion of neigh-
bourhoods (Andersson, 2001). They have
been used as proxies for neighbourhoods in
many previous Swedish studies of neigh-
bourhood effects (for example, Galster
et al., 2008, Galster and Hedman, 2011)
and residential mobility (for example,
Andersson and Bråmå, 2004; Hedman
et al., 2011). The mean population of the
184 SAMS in Stockholm during our analy-
sis period is 4259. Areas with less than 50
inhabitants are excluded from the dataset.
3.2 Our Structural Model of Individual
Income and Neighbourhood Income Mix
Our two outcomes of interest are the
individual’s annual income from work
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES
(‘income’ hereafter, measured in Swedish
kronor, SEK)5 and the income mix of the
neighbourhood. We focus on income from
work since it encapsulates the net impact of
educational credentials, labour force partic-
ipation, employment regularity, hours
worked and hourly compensation. Thus,
any effect of neighbourhood income mix
on individual income can be thought of as
a reduced-form estimate working through
any or all of the above causal paths.
Our choice of income mix as our neigh-
bourhood variable has three reasons. First, it
has been the focal point of several public
policy initiatives in both the US and western
Europe (Murie and Musterd, 2004; Berube,
2005; Briggs, 2005; Musterd and Andersson,
2005; Norris, 2006). Secondly, previous lit-
erature on neighbourhood sorting has
observed powerful patterns related to indi-
vidual income and income mix of the neigh-
bourhood (for example, Jargowsky, 1997;
Andersson, 1998; Andersson and Bråmå,
2004; Musterd, 2005; Sampson and Sharkey,
2008; Hedman et al., 2011). Thirdly, previ-
ous Swedish studies have found neighbour-
hood income mix to be more strongly
correlated with individuals’ subsequent
socioeconomic outcomes than neighbour-
hood mix defined by ethnicity (Urban,
2009), education, ethnicity, family status or
housing tenure (Andersson et al., 2007).
To measure neighbourhood income mix,
we specify the percentages of working-age
(20–64 years) males in the lowest and high-
est 30 per cent of Sweden’s nation-wide male
income distribution; the middle 40 per cent
becomes the excluded reference category.6
For brevity we will subsequently refer to
these groups as low-income, middle-income
and high-income neighbours.
In our model of neighbourhood effects
on income, we model in log-linear form7 the
annual income during year t (current year
t = 0) for individual i residing in neighbour-
hood j as
111


ln Itij = a + b(PItij ) + g(PIij )
+ u(Mtij ) + m(Lt ) + eIti ð1Þ
where, Itij = annual income from work
earned by individual i during year t; PItij =
personal characteristics in year t for indi-
vidual i that affect income and can vary
over time (such as level of education);
PIij = personal characteristics for individual
i that affect income but do not vary over
time (such as year of birth); Mtij = average
income mix of neighbourhood j where
individual i resides during year t (percen-
tages of low- and high-income males); Lt =
macroeconomic characteristics during year
t (a set of year dummy variables); and eIti =
a random error term associated with the
individual income equation. (Note that
Greek symbols represent parameters to be
estimated.)
Neighbourhood selection, our second
outcome of interest, is modelled with two
equations operationalising neighbourhood
income mix (Mtij ) as the average percen-
tages of high-income males and low-income
males in the neighbourhood over the period
t - 1 to t, with the generic form
Mtij = s + v(It1i ) + c(PMti ) + ∂(PMi ) + eMti
ð2Þ
where, PMti = other characteristics in year t
for individual i that affect residential selec-
tion and can vary over time (such as family
size); PMi = personal characteristics for
individual i that affect residential selection
and cannot vary over time (such as year of
birth); and eMti = a random error term
associated with neighbourhood income mix
equation. (All other symbols as before.)
To clarify the timing notation, we specify:
in equation (1), that the average neighbour-
hood income mix (mean of observations
from December t - 1 and December t) affects
income earned during the same period
112 LINA HEDMAN AND GEORGE GALSTER
(measured at December of t); in equation (2),
that the income measured in December t - 1
affects average neighbourhood income mix
experienced during the next year. Since we
measure income as lagged, we only employ
data from 1995 to 2006 in the analysis.
We operationalise the personal charac-
teristics of individuals PIt and PI in equa-
tions (1) and (2) with a set of variables
describing their individual demographic
and household characteristics, educational
attainments and features of their employ-
ment status. We also include a series of year
dummies to measure unspecified macroeco-
nomic conditions. We also have a number
of variables that are exclusive to either equa-
tion. These variables and the exclusion
restrictions are discussed further in what
follows, given their importance in the IV
specification. The full set of control vari-
ables and their descriptive statistics are pre-
sented in Table 1.
3.3 Considerations of Potential
Estimation Bias
We model income and neighbourhood
income mix as endogenous for straightfor-
ward reasons. Individual income may affect
what neighbourhood status can be afforded
and/or preferred for reasons of status and
quality of life. We recognise that selection
may not be based on income mix per se, but
on its many visible correlates. Nevertheless,
powerful geographical patterns of income
sorting have been observed (Andersson and
Bråmå, 2004; Ioannides and Zabel, 2008;
Hedman et al., 2011). The income mix of
the neighbourhood of residence may affect
the income earned by individual residents.8
Income mix may serve as a proxy for a vari-
ety of potential endogenous and correlated
neighbourhood effect processes affecting
earnings (see Galster, 2012).
Endogeneity and the aforementioned chal-
lenge of potential selection on unobservables
may both produce biased estimates. The direc-
tion of bias on measured neighbourhood
effect size from selection on unobservables is
generally thought to be upward, although it
may depend on the outcome under investiga-
tion (see Galster et al., 2008; and Ludwig et al.,
2001). The direction of bias on measured indi-
vidual income effect size from selection on
unobservables is likely to be the same, but has
never been investigated.
The direction of bias imparted by endo-
geneity is less straightforward and can be
explored with the aid of a simplified thought
experiment portrayed in Figure 1. Imagine
that four individuals who are identical
except for income (AL and BL lower income;
CH and DH higher income) are randomly
assigned to two neighbourhoods (AL and CH
to a higher-income neighbourhood; BL and
DH to a lower-income neighbourhood).
Now consider various possibilities involving
assumed neighbourhood effects on income
and sorting across neighbourhoods on the
basis of income. First, if there is neither
effect, all four individuals will remain at
their initial positions in Figure 1 and there
would be no statistical association indicated
by the scatter of these four observations.
Secondly, assume that there is a linear neigh-
bourhood effect whereby income is inversely
related to the percentage of lower-income
neighbours by the factor b, but there is no
sorting by income. In this case, residents BL
and DH in the lower-income neighbourhood
would see their incomes fall ceteris paribus
(to B0L and D0H ), while the incomes of resi-
dents AL and CH in the higher-income
neighbourhood would rise (to A0L and C0H ).
The researcher would observe an inverse
linear relationship being the best OLS fit and
would correctly deduce that a neighbour-
hood effect was being measured. Things get
decidedly less clear when sorting is assumed.
If we assume only sorting, no independent
neighbourhood effect, we should see the
‘misallocated’ individuals AL and DH move
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES 113

Table 1. Descriptive statistics

Mean S.D. Minimum Maximum

Income (measured in 100 SEK) 2 751.902 2 878.812 1 294 950

Percentage low-income neighbours 31.9351 9.031033 5.833333 93.75
Percentage high-income neighbours 37.39921 12.56275 0 75.46895
Received pre-retirement benefits during year 0.0657651 0.2478712 0 1
Received parental leave benefits during year 0.1812605 0.385234 0 1
Received sick leave benefits during year 0.1005191 0.3006911 0 1
Swedish–Swedish couple (ref = single)a 0.354415 0.4783359 0 1
Swedish–foreign couple (ref = single)a 0.0487784 0.2154044 0 1
Foreign–Swedish couple (ref = single)a 0.0290328 0.1678985 0 1
Foregn–foreign couple (ref = single)a 0.0687976 0.2531097 0 1
Swedish–Swedish couplea 3 number of children 0.5079474 0.9097447 0 10
Swedish–foreign couplea 3 number of children 0.0498297 0.3150832 0 7
Foreign–Swedish couplea 3 number of children 0.0422103 0.3006143 0 9
Foregn–foreign couplea 3 number of children 0.105295 0.5063653 0 10
Swedish–Swedish couplea 3 partner’s income 759.2669 1 407.12 0 230 166
(lagged, 100 SEK)
Swedish–foreign couplea 3 partner’s income 68.29545 447.0276 0 37 000
(lagged, 100 SEK)
Foreign-Swedish couplea 3 partner’s income 55.23246 402.9153 0 37 782
(lagged, 100 SEK)
Foregn–foreign couplea 3 partner’s income 69.08856 394.0547 0 13 991
(lagged, 100 SEK)
Couple (ref = single) 0.5010237 0.4999992 0 1
Couple to single status change in last year 0.0158663 0.1249583 0 1
(ref = no change)
Single to couple status change in last year 0.0216474 0.1455295 0 1
(ref = no change)
Partner’s income (measured in 100 SEK) 10420.342 15730.807 0 230166
(zero if no partner)
Number of children in ages 0–5 0.2266599 0.5412706 0 5
Number of children in ages 6–12 0.3090626 0.6392266 0 5
Number of children in ages 13–18 0.2047075 0.5162915 0 5
Received student allowances during year 0.0282072 0.1655643 0 1
Education 12-13 years (ref = LT 12 years) 0.1619544 0.3684092 0 1
Education 14 years (ref = LT 12 years) 0.1689362 0.3746957 0 1
Education 15+ years (ref = LT 12 years) 0.2513757 0.4338043 0 1
N (90 438 individuals * 12 years each) 1 085 256
a
First ethnicity listed refers to male in sample, second to partner.

from their initial assignments into more
appropriate neighbourhoods (to A00L and
D00H ). Now an OLS fit of the four-person
scatterplot produces a line with slope b00
and the researcher is tempted to conclude
erroneously that a neighbourhood effect
exists.
However, this is not a general conclu-
sion. Assume that there is a linear neigh-
bourhood effect of the aforementioned
114 LINA HEDMAN AND GEORGE GALSTER
INDIVIDUAL INCOME
CH’ Slope = β’’ [if all sorng by income]
CH DH’’ DH Slope = 0 [if no sorng
or neigh’d. effect]
Slope = β’
D H’
[if all neigh’d. AL’
effect]
AL AL’’ BL
BL’
Figure 1. Illustration of potential biases cre-
ated by neighbourhood sorting by income
and neighbourhood effects on income.
magnitude b, but also neighbourhood sort-
ing by income. In this case, it is impossible
to predict a priori how the observed scatter
of observations in Figure 1 will manifest
itself, as both individuals AL and DH are
‘moving’ in uncertain ways. Whether the
resulting estimate of b will be biased
upwards or downwards will depend on the
relative magnitudes of the two effects and,
with more than one observation each of
type AL and DH, on the shares of each type
of individual that sort and the speed at
which neighbourhood effects manifest
themselves compared with the speed of
sorting. Analogous arguments yielding the
equivalent conclusions can be made when
neighbourhood income mix is considered
the dependent variable.
Empirically, is endogeneity a concern in
equations (1) and (2)? Indeed, Hausman
tests show convincingly that it is. When the
residuals of the first-stage equations pre-
dicting percentages of low- and high-
income neighbours are added to equation
(1) along with the suspected endogenous
measures of these variables, their coeffi-
cients prove highly statistically significant
(p values of 0.000 and 0.007 respectively).
When the residuals of the first-stage equa-
tions predicting individual income are
added to equation (2), along with the
suspected endogenous measure, its coeffi-
cient proves highly statistically significant
(p value of 0.000), although it does not in
the equation predicting the percentage of
low-income neighbours.
3.4 Our Econometric Strategies
% LOWER-
INCOME
NEIGHBOURS
We address these concerns over bias with
both fixed effects and instrumental vari-
ables strategies. Our fixed-effect strategy
essentially adds a set of individual-specific
dummy variables to each equation esti-
mated over a 12-year panel. This procedure
controls for any time-invariant unobserved
characteristics of individuals that may be
correlated with income and neighbourhood
selection, and thus removes the potentially
biasing impact of these omitted unobserva-
bles (but not time-varying ones).
Our IV strategy employs the well-known
two-stage procedure for generating instru-
ments. In the first stage, the endogenous
variable is regressed on exogenous variables
that are its predictors but are excluded from
the equation predicting the other endogen-
ous variable.9 The predicted values from
this first stage, which by construction will
be uncorrelated with the error term in the
second-stage equation, are then used in
place of the actual endogenous variables
individual income and neighbourhood
income mix in the second stage where the
parameters of equations (1) and (2) are esti-
mated.10 In principle, these IV estimates
should therefore avoid both sources of bias
and produce consistent estimates of the
effects of neighbourhood income mix on
individual income and of individual income
on neighbourhood income mix respectively.
To be an appropriate and efficacious
technique, instrumental variables must be
both valid and strong (Murray, 2006). To
be valid, IVs must: be uncorrelated with the
error term; be correlated with the endogen-
ous variable; and, not be otherwise included
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES
in the given equation. We posit that there
are three variables that only affect individ-
ual income, not neighbourhood income
mix other than through income (ceteris par-
ibus), and thus serve as indentifying
instruments—whether the individual was:
on sick leave during the year; on parental
leave during the year; and/or receiving pre-
retirement benefits. Taking sick leave
should affect annual income but not neigh-
bourhood income mix once income is con-
trolled, because being ill is usually an
exogenous, transitory event. Similarly,
being in pre-retirement status will affect
income but should have no impact upon
income mix once individual income, age
and other family life-cycle characteristics
are controlled. The same can be argued for
taking parental leave, controlling for the
characteristics of children in the household.
Analogously, we posit that four sets of
variables will affect neighbourhood income
mix observed during year t but not the indi-
vidual’s income earned during that year
(ceteris paribus): individual–partner ethnic
combination; individual–partner ethnic
combination interacted by number of chil-
dren; individual–partner ethnic combina-
tion interacted by partner income; and
proportion of males in each of three age
categories of children in the household.
These first three sets of variables may serve
as proxies for the preferences to live with
various ethnic combinations of neighbours,
which are highly correlated with neighbour-
hood income profile. They may also be
related to limitations in residential options
due to discriminatory barriers. However,
controlling for the individual’s ethnicity,
the number of children in each age category
and the partner’s income, neither the ethni-
city of the partner nor this ethnicity inter-
acted by that total number of children or
partner’s income should affect the individu-
al’s income. Similarly, we think it unlikely
115
that, controlling for total number of chil-
dren in each age category, the gender mix of
children will affect the individual’s income.
Parents may, however, have special con-
cerns about neighbourhood environmental
influences when more of their children are
of a specific gender.
The strength of the IVs is the degree to
which they are correlated with the endo-
genous variable for which they stand in.
Our first-stage regressions results show that
we have acceptably strong instruments,
using conventional standards (Table 2). In
all three equations, we obtain F-statistics
well above Stock–Yogo critical values. The
IVs for the percentage of low-income
neighbours pass the Sargan exclusion test.
However, our IVs for income and the per-
centage of high-income neighbours do not
completely meet the standard exclusion cri-
teria. The R2 values that we obtain when
regressing the residuals from our second-
stage regressions on our IVs are very low
(0.0001) as desired, but still exceed the crit-
ical chi-squared values due to the extraor-
dinarily large number of observations.11
We nevertheless argue for the validity of
our IVs, based on logic and these empirical
tests.
4. Findings
The current methodological standard in
neighbourhood effect studies using non-
experimentally generated data is to employ
fixed-effect models on longitudinal datasets
of individuals and their residential circum-
stances, in an effort to circumvent bias from
selection on unobservables (for example,
Musterd et al., 2012). We therefore estimate
such a model to obtain parameters of equa-
tions (1) and to (2) and serve as a baseline
comparison for results from our more ambi-
tious model where we add IVs.12
116 LINA HEDMAN AND GEORGE GALSTER

Table 2. Estimated coefficients (standard errors), first-stage regressions with instrumental vari-
ables (N = 1 085 256)
Dependent variable
Individual Percentage of Percentage of
income low-income high-income
neighbours neighbours

Instrumental variable
Received parental leave benefits during year 10.51877
(8.557545)
Received sick leave benefits during year 8.549466
(5.15439)
Received pre-retirement benefits during year 2774.2868
(12.48773)***
Swedish–Swedish couple (ref = single)a 20.491728 1.131418
(0.0491908)*** (0.150987)***
Swedish–Foreign couple (ref = single)a 20.4527389 0.6544031
(0.1099564)*** (0.1549472)***
Foreign–Swedish couple (ref = single)a 20.7866322 0.6865547
(0.2120022)*** (0.2804926)*
Foregn–foreign couple (ref = single)a 0.2723618 20.2266381
(0.150671) (0.155254)

Swedish–Swedish couplea 3 number of children 20.6310559 0.7827561

(0.021205)*** (0.0329014)***
Swedish–foreign couplea 3 number of children 20.3753642 0.5904009
(0.0613388)*** (0.0905092)***
Foreign–Swedish couplea 3 number of children 20.4626777 0.3877604
(0.0841064) *** (0.1082599)***
Foregn–foreign couplea 3 number of children 0.0184823 20.0297809
(0.0693435) (0.0701678)
Swedish–Swedish couplea 3 partner’s income 26.15e-06 0.0006058
(lagged, 100 SEK) (7.66e-06) (0.0000727)***
Swedish–foreign couplea 3 partner’s income 23.92e-06 0.0007295
(lagged, 100 SEK) (0.0000319) (0.0000557)***
Foreign–Swedish couplea 3 partner’s income 20.000119 0.0008139
(lagged, 100 SEK) (0.0000462)* (0.000076)***
Foregn–foreign couplea 3 partner’s income 20.0006925 00.0009779
(lagged, 100 SEK) (0.0000605)*** (0.0000672)***
Share of children age 0–5 being male 20.2958943 0.007909
(0.0403545)*** (0.0610977)
Share of children age 6–12 being male 20.4533736 0.8241233
(0.0377739)*** (0.0526931)***
Share of children age 13–18 being male 0.0339875 0.3987193
(0.0345379) (.0491464)***

R2 0.0533 0.0544 0.0988

F 1328.92 182.41 274.31
a
First ethnicity listed refers to male in sample, second to partner.
Notes: * = p \ 0.05; ** = p \ 0.01; *** = p \ 0.001.
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES
4.1 Control Variables
In all variants of our models, the control
variables generally perform as expected in
equations (1) and (2); results from the fixed-
effect model are reported in the Appendix
(Table A1). All the subsequent results
should be interpreted in the context of
models containing these control variables.
Incomes are greater for those who:
have better educational credentials, recently
changed their civil union status from
couple to single, and have more children
age 6–18. Younger children have a negative
effect on income. Income is also positively
correlated with being on sick or parental
leave which is most likely to indicate that
individuals who make use of these benefits
are often employed. We also find a positive
correlation between personal income and
partner’s income. Receiving pre-retirement
benefits, studying or changing civil status
from single to couple are associated with
lower incomes. The coefficients of our year
dummies signal a business cycle with the
years around the turn of the millennium
being the most prosperous.
As for the two neighbourhood income
mix equations, living in areas with greater
percentages of high-income neighbours is
positively correlated with higher educational
credentials, going from couple to single
status and number of children of all ages,
while negatively correlated with being a stu-
dent and going from single to couple status.
When regressing the same variables on the
percentage of lower-income neighbours, the
opposite results are found. Couples with
two or one Swedish-born persons are less
likely than couples with two foreign-born
individuals to reside in areas with high per-
centages of low-income people, a relation-
ship that pertains when interacted with
number of children in household. However,
when interacting the ethnic combinations of
couples with partner’s income, we find the
117
opposite correlation—partner’s income has
the greatest effect on sorting for couples
with two foreign-born individuals. The
share of children being males is negatively
correlated with the percentage of low-
income neighbours. Results are more or less
the reverse when modelling the percentage
of high-income neighbours as the depen-
dent variable.
4.2 Fixed-effects Model Results
We estimate parameters of equations (1)
and (2) using the generalised least squares
(GLS) algorithm in STATA IC-11 for the
estimation of fixed-effect panel models.
Results for the endogenous explanatory
variables are reported in the left panel of
Table 3. In overview, they provide strong
evidence that neighbourhood income mix
and individual resident income are mutually
causal.
The individual income equation indicates
that, across the entire spectrum of working-
age Stockholm males, middle-income
neighbours generally provide the most salu-
tary economic environment. Decreasing the
low-income share by one standard deviation
(and implicitly increasing the middle-
income share correspondingly) is associated
with a 12.6 per cent income increase. In line
with previous studies (Galster et al., 2008),
decreasing the high-income share by one
standard deviation (and implicitly increas-
ing the middle-income share correspond-
ingly) is associated with a 6.9 per cent
income increase. Higher shares of low-
income neighbours may reduce residents’
employment and income prospects due to,
for example, anti-work socialisation effects,
resource-poor networks and/or area-based
stigmatisation. Higher shares of either
middle-income or high-income males may
engender the opposite causal processes, but
only the middle-income ones may have suf-
ficiently close social distances to all resident
 118

Table 3. Estimated coefficients (standard errors) for endogenous variables in neighbourhood effects and neighbourhood sorting linear models
(comparing fixed-effects and fixed-effects instrumental variables specification) (N = 1 085 256)
Endogenous explanatory variable Fixed-effect model dependent variable Fixed-effect-IV model dependent variable
Individual Percentage of Percentage of Individual Percentage of Percentage of
Income low-income high-income Income low-income high-income
LINA HEDMAN AND GEORGE GALSTER

neighbours neighbours neighbours neighbours

Percentage of low-income neighbours 20.0140352 20.0629898

(0.001341)*** (0.0147896)***
Percentage of high-income neighbours 20.0054859 20.0170836
(0.0009573)*** (0.0073197)*
Individual income (lagged) 20.0000354 0.0001199 20.0000558 0.0008278
(4.00e-06)*** (8.53e-06)*** (.0000921) (.0001053)***
R2 0.3437 0.0652 0.1209 0.3366 0.0680 0.1614
F 690.08 958.52 1574.22 691.47 955.52 1575.21

Notes: * = p \ 0.05; ** = p \ 0.01; *** = p \ 0.001.

 NEIGHBOURHOOD AND INDIVIDUAL INCOMES
income groups to become effective peers,
role models and transmitters of employ-
ment information resources through local
networks.
Fixed-effect model coefficients for the
endogenous individual income variable in
the two neighbourhood mix equations (2)
indicate that income is associated with
neighbourhood sorting as expected, but
effect sizes are small. A one standard devia-
tion increase in individual income is associ-
ated with a 0.10 percentage-point decrease
in the percentage of low-income neigh-
bours and a 0.33 percentage-point increase
in high-income neighbours, on average
over the next year.
4.3 Fixed Effects: IV Model Results
The second set of parameters, reported in
the right-hand panel of Table 3, estimates
equations (1) and (2) in a similar fixed-
effects panel data approach, but replaces the
respective endogenous variables of neigh-
bourhood income mix and individual
income with their respective instruments
whose estimates are presented in Table 2. In
overview, this approach substantially affects
the size of the endogenous variables’ coeffi-
cients (the control variables perform simi-
larly to the baseline fixed effects model).
The results of the individual income
model show that the negative coefficients of
low-and high-income neighbour share IVs
remain highly statistically significant and
are magnified by a power of 10 when endo-
geneity is controlled, compared with the
fixed-effects model when only selection on
time-invariant unobservables is controlled.
Roughly the same magnification occurs for
the coefficient of individual income IV in
the high-income neighbour equation. The
only exception to this pattern is that the IV
for individual income becomes considerably
smaller and statistically insignificant in the
equation predicting share of low-income
119
INDIVIDUAL INCOME
CH’’’
DH’’’
CH DH
Slope = β’’’ [measured neigh’d.
Slope = β’ effect with differenal sorng]
[true neigh’d. AL’’’
effect]
AL BL
% LOWER-
BL’’’ INCOME
NEIGHBOURS
Figure 2. Illustration of downward endo-
geneity bias in measured neighbourhood
effect from differential income sorting.
neighbours. Thus, it appears that endogene-
ity arising from mutual causality results in
substantially downward-biased estimates
for both neighbourhood selection of high-
income residential areas and neighbour-
hood mix effects on income, even when
using state-of-the-art, fixed-effect panel
models.
One potential explanation for this is dif-
ferential sorting by income producing selec-
tive neighbourhood effects; see Figure 2.
Referring again to the thought experiment
introduced in Figure 1, the ‘true’ neigh-
bourhood effect measured in the absence of
sorting would be b0 . Yet suppose that (con-
sistent with our results) high-income
person DH quickly sorted into a much-
higher-income neighbourhood than ini-
tially assigned, thereby minimising the
exposure to a low-income environment and
obviating its negative impact. High-income
person CH may eventually sort into an
even-higher-income neighbourhood, but
perhaps not before reaping some positive
effect from the initial neighbourhood. By
contrast, low-income individuals have
fewer sorting options. AL already lives in a
high-income neighbourhood, most likely
because the neighbourhood has mixed
tenure or because AL bought her dwelling
when prices were lower. Even though
AL may benefit from her high-income
120 LINA HEDMAN AND GEORGE GALSTER

7 Fixed-Effects Model,
Income (Logged)

%Low-Income Neighbours
6

5 Instrumental Variable
Model, %Low-Income
4 Neighbours
3 Fixed-Effects Model,
%High-Income Neighbours
2

1 Instrumental Variable
Model, %High-Income
0 Neighbours
0 10 20 30 40 50 60 70 80 90 100
% Low or High Income Neighbours

Figure 3. Results from the neighbourhood effects model (dependent variable = income).

neighbours, her initially low income makes
it unlikely that she will be able to translate
income gains into an even-higher-income
neighbourhood. Low-income person BL
who lives in a low-income neighbourhood
may, however, persistently incur a negative
neighbourhood effect (in situ) or be forced
to move into an even-lower-income neigh-
bourhood if her income is eroded. The net
result of this income-differentiated mobility
is a scatter of observations (denoted by the
triple apostrophes in Figure 2) potentially
yielding a substantial underestimate of the
‘true’ neighbourhood effect.
Results from the fixed-effects and fixed-
effects instrumental variable models of
both neighbourhood effects and neigh-
bourhood sorting are shown graphically in
Figures 3 and 4. In Figure 3, the neighbour-
hood effect model is plotted. As shown in
the figure, individual income (shown on
the vertical axis) varies extensively with the
share of low-income neighbours (solid
lines) or percentage of high-income neigh-
bours (dotted lines), regardless of the
model. Yet, there are clear differences
between the two models, where the instru-
mental variable model controlling for
endogeneity (Black line) yields much larger
estimates than the fixed-effects model
(grey line) when the percentage of high-
income earners in the neighbourhood
increases.
In Figure 4, the corresponding results
are shown for the neighbourhood selection
model, where neighbourhood income mix
(either percentage low- or high-income
neighbours) on the vertical axis varies
according to both model used and individ-
ual income (on the horizontal axis). As
shown in Figure 4, the differences in results
between the fixed-effects (grey line) and the
fixed-effects instrumental variable (Black
line) models are very small when the per-
centage of low-income neighbours is the
dependent variable (solid lines). However,
when modelling the selection according to
the percentage of high-income neighbours
(dotted lines), there are substantial differ-
ences between the two models. The change
in percentage of high-income neighbours
associated with an increase in individual
income is much larger in the fixed-effects
instrumental variable model controlling for
endogeneity compared with the fixed-
effects model.
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES 121

50

% Low or High Income Neighbours

45
Fixed-Effects Model,
40 %Low-Income Neighbours

Instrumental Variable
35 Model, %Low-Income
Neighbours
30 Fixed-Effects Model,
%High-Income Neighbours
25
Instrumental Variable
3 std 2 std 1 std mean 1 std 2 std 3 std Model, %High-Income
dev dev dev dev dev dev N i hb
Neighbours
below below below above above above
mean mean mean mean mean mean
Income

Figure 4. Results from the neighbourhood selection model (dependent variable = neighbour-
hood income mix).

5. Discussion percentage of low-income or high-income

neighbours, but the differences between the
Both the fixed-effects and the fixed-effects two models are substantially larger when we
with IV models indicated a statistically look at the percentage of low-income neigh-
and economically significant relationship bours. Our findings thus suggest that virtu-
between the percentage of low-income or ally all previous statistical studies (that do
high-income neighbours and an individual’s not control for endogeneity bias) may have
income. As previously discussed in the underestimated neighbourhood effects, as
paper, higher shares of low-income neigh- also suggested by Ludwig et al. (2001).
bours may reduce residents’ employment Although we urge caution in emphasising
and income prospects through a number the precise magnitudes of neighbourhood
of potential transition mechanisms—for effects (and implicit bias) estimated by our
example, poor local networks, socialisation fixed-effect IV model, the patterns across
and/or area-based stigmatisation. High- the models are dramatic and suggestive.
income neighbours, on the other hand, may Unlike the neighbourhood effects litera-
be too socially distant to become effective ture, which clearly is cognisant of the
role models or bridges to (parts of) the statistical bias problems confronted in this
labour market. These results challenge those paper, a similar discussion seems to be
who claim that there is no important, inde- more or less missing in the neighbourhood
pendent effect of neighbourhood context on selection literature. Nevertheless, neigh-
economic outcomes (see Smolensky, 2007; bourhood sorting processes appear strongly
Cheshire, 2007). Furthermore, our results affected by selection on unobservables
suggest that this relationship becomes sub- (Ioannides and Zabel, 2008). Moreover, we
stantially larger when endogeneity is find that endogeneity leads to a substantial
addressed statistically. This finding holds downward bias of the measured effect of
true regardless of whether we look at the individual income on the high-income
122 LINA HEDMAN AND GEORGE GALSTER
share of the neighbourhood in which one
resides. Thus, conclusions about income
sorting based on conventional, point-in-
time correlations between income and
neighbourhood characteristics risk being
seriously erroneous.
Our results suggest that marginal gains in
income have a much stronger impact on
obtaining more high-income neighbours
than fewer low-income neighbours. One ele-
ment of explanation could be the relative dis-
persal of lower-income males, as evinced by
the lack of ‘disadvantaged’ neighbourhoods in
Stockholm. Only 10 per cent of neighbour-
hoods exceeded 40 per cent low-income males
in 2006, and only six neighbourhoods exceeded
60 per cent.13 Another potential part of the
explanation is the geography of tenure mix
that, coupled with non-market aspects of the
Swedish rental housing regulations, often
makes it possible to stay in a neighbourhood
despite a decrease in income. Conversely,
moving into homeownership is costly and
homeownership areas tend to be the most
homogeneous in terms of tenure and (higher)
income. The positive correlation between
income and share of high-income neighbours
may thus be partly explained by housing career
aspirations.
6. Conclusion
In this paper, we argued for a holistic
approach when empirically estimating
neighbourhood effect and neighbourhood
selection models to avoid two sources of
bias: selection on unobservables and endo-
geneity. We estimated a structural equation
system wherein neighbourhood income mix
and individual resident income are specified
as mutually causal—individual income
affects the income mix of the neighbour-
hood (through neighbourhood selection)
and income mix of the neighbourhood
affects individual income. Statistical tests
verified the endogenous nature of these pre-
dictors. By adopting a fixed-effects model
with instrumental variable proxies of the
endogenous predictors, we addressed both
sources of bias.
We found that both selection on unob-
servables and endogeneity are empirically
important sources of potential bias in stud-
ies of neighbourhood effects and neigh-
bourhood selection. Our IV approach
produced substantially larger coefficients
compared with a conventional fixed-effects
model (with the exception of income
predicting low-income neighbour share),
implying that endogeneity generally biased
measured neighbourhood effect and neigh-
bourhood income sorting processes down-
wards. In other words, our results suggest
that previous research not controlling for
endogeneity may have underestimated the
true neighbourhood effect. Similarly, indi-
vidual income and marginal increases in
such may have a stronger effect on type of
neighbourhood chosen than suggested by
previous research, especially in terms of the
share of high-income residents in the
neighbourhood.
We close by acknowledging that our
results may not necessarily be generalised,
produced as they were with a specific set of
endogenous variables generated in one met-
ropolitan area embedded in a particular
social welfare state structure. We thus urge
replication in other contexts. Nevertheless,
we think our findings are sufficiently pro-
vocative to warrant concluding that endo-
geneity bias (not just bias from selection on
unobservables) needs to be taken into con-
sideration by studies empirically estimating
neighbourhood effects and/or neighbour-
hood selection processes.
Notes
1. Ioannides and Zabel (2008), van Ham and
Manley (2010), Hedman and van Ham
 NEIGHBOURHOOD AND INDIVIDUAL INCOMES
(2012) and Hedman et al. (2011) argue that
one must uncover neighbourhood selection
processes to accurately assess neighbour-
hood effects. They do not, however, extend
the argument conceptually or empirically to
consider how neighbourhood effects may
alter neighbourhood selection.
2. As Gennetian et al. (2011) show, these
biases can be substantial enough to seri-
ously distort conclusions about the magni-
tude and even the direction of
neighbourhood effects.
3. We do not model neighbourhood selection
directly, but do so indirectly in two ways.
First, given that neighbourhoods typically
do not change their income mix radically
over short periods, neighbourhood selec-
tion decisions made by relatively recent in-
movers will still be reflected in their current
neighbourhood income mix. Moreover, to
the extent that these in-movers failed to
predict future, unanticipated changes in
income mix, these errors should be random
and not bias the relationship between their
current income and the current neighbour-
hood income mix. Secondly, current
income mix should also reflect the selection
of longer-term residents in as much as they
would have moved out if the mix had
turned unsatisfactory. Thus, the correlation
between individuals’ incomes and the
income mix in locations they occupy does
tell us something about how income affects
both moving into and out of neighbour-
hoods of particular income mixes.
4. More precisely, our analysis populations are
drawn from the metro Stockholm municipa-
lities of Stockholm, Solna and Sundbyberg,
which together roughly constitute the urban
core.
5. Formally, income from work is computed
here as the sum of: cash salary payments,
income from active businesses and tax-
based benefits that employees accrue as
terms of their employment (sick or parental
leave, work-related injury or illness com-
pensation, daily payments for temporary
military service or giving assistance to a dis-
abled relative).
123
6. We choose a nation-wide standard for
income groups, just as the US has adopted
a nation-wide poverty standard. The
Stockholm population is slightly overrepre-
sented among both high- and low-income
earners compared with the nation-wide dis-
tribution. In year 2000, the cut-off points
for low-income were SEK 99 000 in
Stockholm and SEK 118 000 nation-wide.
Correspo-nding values for high-income
were SEK 296 220 (Stockholm) and SEK
261 600 (nation-wide).
7. The log-linear transformation is not only
appropriate given the positive skew of the
income distribution, but also has sound
grounding in economic theory, implicitly
suggesting that income is a multiplicative
(not additive) function of personal, neigh-
bourhood and labour market characteristics.
8. We recognise that by specifying contem-
poraneous (M) we are suggesting that
neighbourhood income mix has a rapid
effect on individual income. There are sev-
eral causal processes that make this possible
(Galster, 2008) and new evidence indicates
that short-term effects occur, although sus-
tained exposures may be more powerful
(Musterd et al., 2012).
9. Since we are employing panel data, we also
use fixed effects as exogenous predictors in
this first stage. In preliminary trials we
also experimented with the classic 2SLS
procedure and regressed the endogenous
variables on all the exogenous variables in
the three-equation system: PIt , PI, PMt ,
PM, and Lt . These IV estimates proved
extremely unreliable and are not reported.
10. We constrained all predicted values to the
range of actual values.
11. Sargan test results are available upon
request.
12. In a companion paper (Galster and
Hedman, 2011), we estimate neighbour-
hood effect models with a wide range of
alternative statistical models and compare
results.
13. Most studies with an ‘avoidance of disad-
vantage’ perspective focus on the most
deprived areas.
124 LINA HEDMAN AND GEORGE GALSTER
Funding Statement
This research received no specific grant from any
funding agency in the public, commercial or not-
for-profit sectors.
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Appendix
Table A1. Parameter estimates for exogenous variables in both neighbourhood effect and sorting models in fixed-effect models (N = 1 085 256)
126

Dependent variable

Individual income Percentage of low-income Percentage of high-income

neighbours neighbours

Coefficient S.D. Coefficient S.D. Coefficient S.D.

Endogenous explanatory variables

Income 20.0000354 4.00e-06*** .0001199 8.53e-06***
Percentage of low-income neighbours 20.0140352 0.001341***
Percentage of high-income neighbours 20.0054859 0.0009573***

Control variables
Received parental leave benefits during year 0.287972 0.0070303***
Received sick leave benefits during year 0.0915299 0.0096982***
LINA HEDMAN AND GEORGE GALSTER

Received pre-retirement benefits during year 220.580728 0.0342994***

Swedish–Swedish couple (ref = single)a 20.6929599 0.0582339*** 1.128994 0.1005458***
Swedish–foreign couple (ref = single)a 20.7201906 0.1139049*** 1.416327 0.1574599***
Foreign–Swedish couple (ref = single)a 210.059124 0.214801*** 1.41956 0.2675944***
Foregn–foreign couple (ref = single)a 0.0485903 0.155384 0.018098 0.1609953
Swedish–Swedish couplea 3 number of children 20.1340699 0.0450558 0.1772196 0.0622839**
Swedish–foreign couplea 3 number of children 0.1195239 0.0711345 20.3209014 0.1000892**
Foreign–Swedish couplea 3 number of children 0.0449637 0.0927058 20.2778965 0.1186231*
Foreign–foreign couplea 3 number of children 0.50356 0.079005*** 20.6986093 0.0889678***
Swedish–Swedish couplea 3 partner’s income (lagged) 4.72e-06 8.25e-06 0.0001846 0.000029***
Swedish–foreign couplea 3 partner’s income (lagged) 0.0000191 0.0000321 0.0001661 0.0000487**
Foreign–Swedish couplea 3 partner’s income (lagged) 20.0000983 0.0000461* 0.0002474 0.0000638***
Foreign–foreign couplea 3 partner’s income (lagged) 20.0006915 0.0000605*** 0.0004 0.0000655***

Share of children age 0–5 being male 20.1066714 0.0444472* 0.1104623 0.061111
Share of children age 6–12 being male 20.1455107 0.0407227*** 0.2248434 0.0543422***
Share of children age 13–18 being male 20.1145137 0.0380955** 0.1503267 0.049495**

Education LT 12 years ref ref ref ref ref ref

Education 12–13 years (ref = LT 12 years) 0.1788842 0.0468036*** 20.1130686 0.1082484 0.1642298 0.1451767
Education 14 years (ref = LT 12 years) 0.1227967 0.0479508* 0.0899579 0.1292638 0.0223536 0.1590932
(continued)
Table A1. (Continued)

Dependent variable

Individual income Percentage of low-income Percentage of high-income

neighbours neighbours

Coefficient S.D. Coefficient S.D. Coefficient S.D.

Education 15 + years (ref = LT 12 years) 0.5465274 0.0514116*** 20.5374361 0.1462849*** 0.9080442 0.178993***
Received student allowances during year 210.501609 0.0205862*** 0.2945304 0.0459671*** 20.132617 0.0546008*
Couple (ref = single) 0.0196793 0.0164013
Couple to single status change in last year (ref = no change) 0.0739207 0.0145647*** 20.5772914 0.0413568*** 1.125563 0.0534598***
Single to couple status change in last year (ref = no change) 20.0256898 0.0112921* 0.4402551 0.0397079*** 20.6298747 0.0654057***
Number of children in ages 0–5 20.0544885 0.0072132*** 20.3255037 0.0456738*** 1.038368 0.0668365***
Number of children in ages 6–12 0.016932 0.0060452** 20.6200522 0.0461365*** 1.139469 0.0626323***
Number of children in ages 13–18 0.068196 0.0059027*** 20.3255037 0.0456738*** 0.6416061 0.0619553***
Partner’s income (zero if no partner) 0.0000334 4.76e-06***

1995 20.2794951 0.0097379*** 0.096797 0.0280313** 22.586324 0.0389578***

1996 20.2403834 0.0094307*** 0.2257006 0.02708*** 22.592476 0.0370322***
1997 20.212018 0.0091542*** 20.2467092 0.025708*** 22.066332 0.0346313***
1998 20.1441218 0.0087189*** 20.4980049 0.0241044*** 21.338301 0.0322431***
1999 20.0515887 0.0082558*** 20.778838 0.0224548*** 20.2024204 0.0298709***
2000 0.0362725 0.0077194*** 21.159504 0.0203002*** 0.9819188 0.0272276***
2001 0.1022521 0.0073453*** 21.356924 0.0178867*** 2.078161 0.0244864***
2002 0.0719113 0.0070603*** 20.9842613 0.0161188*** 2.123741 0.0218771***
2003 0.0108264 0.006731 20.2874107 0.0141406*** 1.237263 0.0188368***
2004 20.0513358 0.0062124*** 0.3261692 0.0113082*** 0.359626 00.0148806***
2005 20.0516593 0.0050995*** 0.4221166 0.0065132*** 20.0791159 00.0086206***
2006 ref ref ref ref ref ref

Constant 7.414354 0.0801599*** 33.29678 0.0747411*** 35.53857 0.0961439***

NEIGHBOURHOOD AND INDIVIDUAL INCOMES

R-squared 0.3437 0.0652 0.1209

F 690.08 958.52 1574.22
127

a
First ethnicity listed refers to male in sample, second to partner.
Notes: * = p \ 0.05; ** = p \ 0.01; *** = p \ 0.001.