How Your Neighborhood Affects Your Paycheck

“[A] as I check off my list of privileges, I won’t forget the biggest of them all: my passport,” economist Tim Harford wrote recently in the Financial Times. He's not wrong: In today’s increasingly spiky world, where financial and social advantage is clustered and concentrated in specific places, the country in which you’re born obviously affects the opportunities you will be presented with later in life. But it’s not just the country—or even the city—in which you’re born that matters, according to a growing body of research. Neighborhood matters just as much, if not more.

A city is not a single, unitary thing, but a collection of neighborhoods. And we know that the outcomes among children who grow up in poor neighborhoods, those with under-performing schools, under-prepared peers and less access to high-quality libraries or museums, are often very different than those who grow up in wealthier areas. These early differences can not only contribute to inequality in terms of wages and income, but also what Stanford University economist Rebecca Diamond calls “inequality of well-being,” where neighborhoods that house high shares of high-skilled workers not only have more money, but also better amenities, like grocery stores and schools. Diamond’s well-being inequality gap, she finds, is 20 percent higher than what can be explained by the wage gap between college and high school grads.