Neighborhood Economic Change in an Era of Metropolitan Divergence

By Jared N. Schachner (University of Chicago)

Why do some neighborhoods change rapidly in race and class composition, while others do not? Despite a growing consensus among scholars that neighborhood sociodemographics shape residents’ life chances and societal inequities, the key drivers of neighborhood change – especially gentrification – remain hotly contested. Most research examines salient neighborhood characteristics rather than metropolitan area characteristics, precluding a complete picture of neighborhood change from emerging.

This oversight may be especially problematic in the present “Great Divergence” era, marked by U.S. metropolitan areas’ economic, social, and political conditions moving further and further apart. If metros are diverging in ways that affect their constitutive communities, then the metro may pay an increasingly important role in explaining neighborhood change.   

In my Urban Affairs Review article, I set out to clarify the metropolitan area’s contemporary role in shaping neighborhoods’ income trajectories. Relevant studies from the 1980s and 1990s implicated two key metro-level processes: deindustrialization and racial segregation. Researchers showed that disadvantaged neighborhoods were particularly vulnerable to the metro-wide manufacturing declines precipitated by macroeconomic restructuring. Because the manufacturing sector historically provided stable employment and income to disadvantaged, Black households, neighborhoods in more racially segregated, manufacturing-dominated metropolitan areas were more likely to endure eroding average incomes over time. 

However, in the decades since, manufacturing employment declines and racial segregation levels have both moderated, especially in the most historically segregated and manufacturing-dominated metropolitan areas. Thus, we have reason to believe other metro-level factors may drive neighborhood economic change today.

Toward a Twenty-First Century Account

What could those other metropolitan characteristics be? A growing body of research documents the increasing spatial segregation of highly-skilled and affluent households both between and within metropolitan areas. Urban scholars often implicate agglomeration economies in driving between-metro segregation. In this view, highly-skilled workers spatially cluster in a select few “superstar cities” to capitalize on lucrative opportunities for employment and entrepreneurship facilitated by dense knowledge-sharing networks of individuals and organizations.

The increased spatial clustering of affluent, skilled households between metros has been paralleled by increased neighborhood-based clustering of this same demographic within them. In short, residential income segregation levels have risen in recent decades, as well. The sharpening clustering of household income within and between metropolitan areas may have important but poorly understand consequences for their neighborhoods.

Whether via agglomeration, segregation, or other processes, metros may shape neighborhoods’ income trajectories through three key mechanisms: (1) the size and race/class composition of residential mobility flows into, and out of, the metro; (2) long-term metro residents’ rates of income growth; and (3) the degree to which long-term metro residents spatially segregate themselves along race and class lines. Below, I specify how metro agglomeration and income segregation may operate through these three channels.

Metro Agglomeration and Neighborhood Change

Starting with skill agglomeration, metropolitan areas containing both denser concentrations of residents and larger pools of highly-educated workers drive higher rates of income growth among long-term residents and their neighborhoods. This higher rate of growth stems from the superior knowledge sharing opportunities provided by the close proximity of people, especially highly-educated people, which fuels higher labor market productivity and thus elevated worker wages.

Another possibility is that metros with denser concentrations of highly-skilled workers distribute their income gains across a larger swath of neighborhoods over time due to the tendency of “superstar metros” to disproportionately attract the development of new or rehabilitated housing units, especially in historically disadvantaged neighborhoods. However, these predicted neighborhood income gains could be fully offset if gentrification-induced displacement merely redistributes lower income households elsewhere.

A less ambiguous mechanism whereby metro agglomeration dynamics boost neighborhood incomes is through larger residential mobility flows of highly-educated workers into the metropolitan’s neighborhoods from outside of it. This demographic appears to be disproportionately attracted to “superstar cities” in order to access the higher wages and dense concentrations of cultural amenities they desire.

Metro Income Segregation and Neighborhood Change

Whereas metro skill agglomeration dynamics may boost neighborhood incomes, metro income segregation may depress them. Recent research suggests metro race and class segregation levels erode economic growth in general and wage growth, in particular, perhaps due to a more pronounced spatial mismatch between low-income households and well-paying jobs in more segregated metros. Thus, long-term residents of more segregated metros, and their neighborhoods, may see weaker income growth over time.

Highly-segregated metros also appear to dampen the future income prospects of children who grow up in them. If true, then as children of segregated metros grow up and move into new neighborhoods within the metro, they will bring lower incomes into their destination neighborhoods than they otherwise would have.

Another possibility is that highly-segregated metros deter high-skilled and high-income individuals from moving in from other places. This hypothesized link could reflect highly-educated individuals’ preferences specifically for diverse neighborhoods or a desire to avoid places marked by racial tensions, inequitable school funding, and high crime, all of which correlate with segregation levels.

Analysis and Results

To test these possibilities, I constructed a dataset tracking change in all U.S. metropolitan neighborhoods’ average family incomes from 2000 through the mid-2010s. I link this census tract-level dataset, drawn from the U.S. census and American Community Survey, to an array of data sources capturing a wide range of metro-level variables. These sources include Opportunity Insights data and the National Transit database, among others.

Multilevel models largely reinforce the hypotheses outlined above. Metro-level population density and educational attainment (proxies for agglomeration dynamics) both significantly predict growth in neighborhood average family incomes over time, whereas a proxy for metro-level income segregation predicts neighborhood income decline. These findings hold even when controlling for neighborhood characteristics often identified as key drivers of change, such as communities’ housing stock and race/class compositions.

Importantly, alternative accounts of metropolitan effects on neighborhoods’ trajectories are not supported. The historically emphasized factors– manufacturing exposure and racial segregation– appear less important during the time period examined, as do emerging accounts implicating metropolitan differences in housing market conditions, international and domestic migration flows, transit/connectivity, and crime/social capital.

I conclude that the metropolitan area in general, and agglomeration and segregation, in particular, are important contemporary drivers of neighborhood economic change. Future research should build on these insights to paint a richer picture of how communities’ conditions and social inequalities are reproduced. This agenda promises to improve neighborhood needs targeting, risk assessment, and policy interventions in an era when regional disparities within countries are increasing around the globe and regional approaches to stem spatial inequality are on the rise.

Read the full UAR article here.

Photo by Baron Cole on Unsplash

Author Biography

Jared N. Schachner is a postdoctoral scholar and Mansueto Fellow at the University of Chicago, where he is affiliated with the Department of Sociology and Mansueto Institute of Urban Innovation. Prior to UChicago, Jared completed a Ph.D. in Sociology & Social Policy at Harvard University and received fellowships from Harvard’s Multidisciplinary Program in Inequality and Social Policy and the Joint Center for Housing Studies. Drawing on interests in urban sociology, sociology of education, social stratification, public policy, and spatial analysis, his research examines whether and how neighborhoods, schools, and childcare settings mediate the intergenerational transmission of skills, health, and status.