Lower income households are happier in higher income neighborhoods
How does your neighbor’s income affect your happiness? Do you feel worse off if you have less income than most of your neighbors? The “Keeping up with the Joneses” theory of happiness would suggest that if people live in a neighborhood with people who have more income than they do that they will be less happy than if their neighbors have a similar income.
One indisputable fact about gentrification is that it brings inequality into sharper focus: low income people suddenly find that they have higher income neighbors. Anecdotally, we’re told that this increases social and cultural friction, and we might think, lowers the well-being of long time, lower income residents. While that’s plausible, and certainly true for some individuals, does having high income neighbors generally make lower income people less happy?
Economists Abel Brodeur and Sarah Flèche have a new paper that looks at the self-reported happiness of residents of different neighborhoods to assess how neighborhood income affects well being. This work is part of the burgeoning field of happiness research that uses survey data to tease out the connections between a range of socioeconomic factors, behaviors and experiences and life satisfaction. Their study uses data from the Center for Disease Control’s Behavior Risk Factors Surveillance Survey (BRFSS), looks at variations in reported well-being at the zip code level.
The study finds that regardless of household income level, people who live in higher income neighborhoods are, on balance, happier than otherwise similar people who live in low income neighborhoods. This result holds after controlling for other factors that have been widely shown to affect happiness (age, income, educational attainment, etc).
And the effect is sizable: an increase in the average income of one’s neighbors has about one-quarter the positive effect on self-reported well-being as an equivalent increase in one’s own income. Put another way: an increase in your neighborhood’s average income of 40% has roughly the same impact on your self-reported well being as an increase of 10% in your own household’s income.
The effect is actually stronger for households with lower incomes. For low income households, an increase in average neighborhood income increases self-reported well-being by about one-half of the positive effect of an increase on one’s own income.
There’s no question that neighborhood change often produces cultural conflict, as the habits and expectations of newer residents clash with those of long-time residents. But acknowledging that fact does nothing to answer the question of whether, on net, people are happier if their neighbors are better off. (Admittedly, this study is cross-section rather than looking at change over time, so it may not fully answer this question).
So why don’t people with richer neighbors feel worse, as the “Keeping up with the Joneses” theory predicts? Brodeur and Flèche find that it isn’t the rich neighbors that influence people’s well-being directly, but rather that overall neighborhood amenities are higher:
. . . richer ZIP code neighbors have a positive effect on residents’ well-being not because they are rich per se but because they bring public goods and amenities that are valuable
On balance, the positive effects of living in a nicer neighborhood (less crime, lower unemployment, more job opportunities and so on) appear to more than offset any sense of relative deprivation from having higher income neighbors.
This study provides some indirect support for the importance of neighborhood level economic integration, especially in terms of its benefits for the subjective well-being of poor households. It’s broadly consistent with the findings of Jacob Vigdor’s study of gentrifying neighborhoods that the improvements in the quality of the neighborhood more than compensated for the higher rents that residents had to pay.
Neighborhood change is always hard. For many neighborhood residents, an influx of new population will affect their sense of well-being, and for some these effects will be negative. But these data suggest that on balance, an influx of higher income people into a low income neighborhood, aka gentrification, is likely to be associated with increased levels of self-reported well being for lower income residents.
Abel Brodeur (Department of Economics, University of Ottawa, Ottawa, ON) ; Sarah Flèche (Aix-Marseille School of Economics, Marseille, France), Neighbors’ Income, Public Goods and Well-Being, December, 2017.