Place and Economic Activity: Key issues from the area effects debate Nick Buck ISER, University of Essex

Area differentials in economic activity Clear evidence of substantial and persistent spatial differentials in unemployment, economic inactivity and other dimensions of economic activity Differentials persist at various spatial scales: –Region –Metropolitan area, TTWA –Components of metropolitan areas (e.g. inner city) –Neighbourhoods Are these differentials reflections of spatial effects? Of what sorts? At what scales?

Demand deficiency? Explanations in terms of labour demand (e.g. spatial pattern of job loss and industrial restructuring) are salient at larger scales but increasingly implausible at smaller spatial scales Spatial adjustment processes are relatively strong at urban scale through commuting and migration (so local job creation aimed at pockets of unemployment rather ineffective). Spatial mismatch – advanced as an argument for larger scale intra-urban variation in US – not much research or evidence in Europe (because of urban scale or overlay of race issues in US?)

Composition and contextual effects At smaller scales differentials appear to be about characteristics of populations living in different areas. Is this simply compositional (e.g. sorting through housing markets)? Or, are there contextual effects – employment prospects of individual in deprived area are worse than those of similar individual in non- deprived area

Variations in population composition: housing market sorting Sorting in the housing market will always be present –based on e.g. job access, school access, quality of built (and natural) environment, distance from poorer people Based also on heterogeneous tastes – structured e.g. by life stage. Not just price mechanisms e.g. racial discrimination or housing allocation policies – may be based on measurable characteristics – e.g. family type but may also be based on less measurable features – record as problematic tenants. Important to understand the basis of sorting mechanisms, since it may provide some added understanding of basis of contextual effects

Contextual and other areas effects Most research has focused on whether an area effect can be identified, rather than which of many possible causal pathways are in operation It is often rather difficult to separate these, but may be important for policy design. Much of the thinking (mainly US) on hypothesised causal pathways has focussed on effects on children

Causal pathways Socialisation into labour market (positive – role models etc, or negative – problematic peer influence) Network or social capital - access to information, support Perceptions of opportunities Quality of local institutions Barriers to access, physical distance and isolation Exposure to crime and violence Discrimination based on place of residence

Methodological issues raising problems of identification Quality and relevance of measures - especially at neighbourhood-level - omitted context variable problem - problems of identification Allowing for the possibility of simultaneous influences between individuals and their contexts; Avoiding bias from unobservable characteristics of individuals that influence both choice of neighbourhood and outcomes; Consideration of ways in which individuals mediate and moderate neighbourhood influences;

Other Methodological Issues Neighbourhood size Threshold values - non-linearities Samples with sufficient variability in neighbourhood conditions Longitudinal models Multilevel models –Appropriate structure, influences at individual and area level –Issue of appropriateness given selection –Not a solution to identification problems

Summary of Main Findings, Buck 2001 Linear effects, OR change with 1 SD increase in area deprivation Non-linear effectsSpatial Scale of Deprivation Effects Quadratic form significant? Cubic form significant? Do not expect to start work in next year 1.19No (marginal decreasing effect) NoIncrease with distance and population No close friends employed 1.05Marginal (increasing) effect Steep decline with distance, population effects weaker Do Not Start work between waves 1.14NoMarginal (increasing) effect Weak decline with distance, no population effect Do Not Exit from poverty 1.12NoSignificant (increasing) effect Weak population effects, declines at longer distances Enter poverty1.10No Weak population effects, declines at longer distances

More recent findings Qualitative evidence on weak networks out of more deprived neighbourhoods in Glasgow and Edinburgh Burgess, Propper et al find no strong evidence for neighbourhood effects on longer term income dynamics They find some evidence for employment effects in most deprived neighbourhoods

Solutions to the methodological problems? Experimental designs ? Better data at both individual and area level - to separate out level effects Longitudinal data for transition models Better data about selection processes - e.g. migration, and preference data Other identification strategies – groups with less choice? But perhaps the problem is in part really a conceptual one - can we really separate individual data from area data - it depends on underlying model

Four Main Accounts of Neighbourhood Effects Sorting - the effects are essentially compositional Culture of poverty - learning (mainly in childhood) pathological norms and behaviour Transitory model of neighbourhood contextual effects Capital acquisition model (human, social, cultural, financial) - childhood and adult - incremental effects of neighbour disadvantage on the personal assets which influence life chances