Neighborhood Deprivation, Life Satisfaction, and Earnings: Comparative Analyses of Neighborhood Effects at Bespoke Scales

Neighborhood socioeconomic disadvantage has a profound impact on individuals’ earnings and life satisfaction. Since definitions of the neighborhood and research designs vary greatly across studies, it is difficult to ascertain which neighborhoods and outcomes matter the most. By conducting parallel analyses of the impact of neighborhood deprivation on life satisfaction and earnings at multiple scales, we provide a direct empirical test of which scale matters the most, and whether the effects vary between outcomes. Our identification strategy combines rich longitudinal information on individual characteristics, family background and initial job conditions for England and Wales with econometric estimators that address residential sorting bias, and we compare results for individuals living in choice-restricted social housing with those living in self-selected privately rented housing. We find that the effect of neighborhood deprivation on life satisfaction and wages is negative for both outcomes and largely explained by strong residential sorting on both individual and neighborhood characteristics rather than a genuine causal effect. We also find that the results overall do not vary by neighborhood scale.