Are males' incomes influenced by the income mix of their male neighbors? Explorations into nonlinear and threshold effects in Stockholm

We investigate the degree to which neighborhood income composition affects the subsequent income of individual male residents, and test the degree to which these effects are characterized by nonlinear, threshold-like relationships. We specify a fixed-effects model to reduce potential bias arising from unmeasured individual characteristics affecting neighborhood selection and income. We employ annual data on 124 000 working-age males residing in Stockholm over the 1991-2006 period to estimate parameters for innovative variables measuring the sequence, duration, and intensity of neighborhood exposures. We find that two thresholds—one above 20 per cent and the other above 40 per cent—best describe the strong inverse relationship between consistent exposure to higher percentages of low-income male neighbors and subsequent earnings of individual male residents. We draw implications for potential causal mechanisms behind this relationship and formulating public policy towards places of concentrated disadvantage.