The Effect of Neighborhood Characteristics on Young Adult Outcomes: Alternative Estimates

Objective. Since the influential work of William Julius Wilson, there has been much research examining the effect of neighborhood and peer characteristics on adolescents' and young adults' social and economic outcomes. Still uncertain, however, are the independent effects of neighborhoods and families. This paper uses an innovative methodology to examine this issue and to isolate these two effects. Methods. In addition to a "standard" model that includes controls for family background, we estimate fixed-effect family models that allow us to also control for unobservable family characteristics that are constant within a family and that may affect young adult outcomes. To do this, we use a sample of sisters drawn from the Panel Study of Income Dynamics, and relate their outcomes to the different neighborhoods in which they lived. Results. In models that control for observed family background only, we find evidence of neighborhood effects consistent with other recent work. Fixed-effect models, however, reveal no statistically significant effects that are consistent with standard hypotheses about neighborhood effects. The findings suggest that one should be cautious about accepting findings of significant neighborhood effects derived from models that do not account for the possible selection of neighborhood.