Experimental Design Details
Research Approach (More Detailed).
We plan to proceed in four steps. The first part is a largely descriptive study of the evolution and patterns of segregation over the last two decades. We measure segregation in terms of key labor market outcomes, e.g., wages, employment status, and welfare participation. To clarify the importance of different potential trends driving this evolution, we will decompose changes in segregation into shifts in the earnings distribution, urbanization, and residential relocation of workers.
The second part of the project is devoted to a causal analysis of the effects of gentrification and housing booms. The focus will be on identifying the importance of housing market developments on the location of workers, i.e., on studying the displacement/lock-in effects of gentrification and the implications for neighborhood composition and socio-economic segregation. To this end, we follow the methodology in Charles, Hurst, and Notowidigdo (2018) and estimate structural breaks in the development of housing and land prices over time. We establish causality by exploiting variation in the timing and intensity of the trend break across neighborhoods. Using event study methods, we can then estimate how increasing housing costs affect workers’ residential location and hence the socio-economic mix within and between neighborhoods.
The third part of the proposed project is concerned with the labor market and welfare implications of these changes in spatial segregation and its drivers, and to develop optimal policy reactions for (local) governments and employment agencies. Here, the aim is to understand how segregation and gentrification alter employment outcomes. Based on these insights, we aim to quantify and discuss the effectiveness and welfare implications of different potential policy reactions such as stricter rent regulation, more generous in-work benefits, the expansion of housing allowances, regionally differing minimum wages, or higher investment in public housing using a structural spatial equilibrium model (Kline and Moretti, 2014).
The final step of our analysis is to explore the importance of experienced segregation and economic inequality for the formation of political preferences. To do this, we merge city-level measures of socioeconomic segregation with data from the German Socio-Economic Panel Study (GSOEP), which is an annual survey asking respondents about their attitudes. We also plan to combine these aggregate segregation measures with voting outcomes to study the effect on party preferences.
Research Questions and Hypotheses:
- How has spatial segregation evolved over the past decades?
- What are the driving forces behind this development? Have rising housing costs led to the displacement of current residents and fostered spatial segregation of individuals by income and status? Or do housing booms lead to lock-in effects in affected neighborhoods? (Null hypothesis: Housing booms do not affect individuals' location decisions and employment status.)
- Who are the winners and losers of this process, which groups were forced to move/stay? Where did they move to? Which workers benefit from new jobs in gentrified areas? (Null hypothesis: The individual effects of housing booms do not differ by education, socio-economic status, gender, age, or nationality.)
- What are the consequences for employment outcomes, disposable income, and individual well-being? (How) should governments (optimally) react to these developments?
- How do experienced local segregation and inequality affect political preferences? (Null hypothesis: Experienced segregation does not affect individuals' political preferences.)
- Bayer, Patrick, Stephen L. Ross, and Giorgio Topa (2008). “Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes”. In: Journal of Political Economy 116.6, pp. 1150–1196.
- Charles, K., E. Hurst, and M. Notowidigdo (2018). “Housing Booms and Busts, Labor Market Opportunities, and College Attendance”. In: American Economic Review forthcoming.
- Chetty, Raj, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez (2014). “Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States”. In: Quarterly Journal of Economics 129.4, pp. 1553–1623.
- Chetty, Raj, Nathaniel Hendren, and Lawrence F. Katz (2016). “The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment”. In: American Economic Review 106.4, pp. 855–902.
- Kline, Patrick and Enrico Moretti (2014). “People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs”. In: Annual Review of Economics 6.1, pp. 629–662.