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Moving away from trouble

By Andrew Leigh - posted Monday, 18 February 2008

As the machinery of government passes to Labor, a bevy of new buzzwords has hit Canberra. Less talk of free nations, markets, and efficiencies. More discussion of working families, apologies, and challenges. And among the new terms being bandied about is “social inclusion”. A new Social Inclusion Unit has been established in the Department of the Prime Minister and Cabinet, and the government is presently canvassing for a Social Inclusion Board.

If the example of British Labour’s Social Inclusion Unit is anything to go by, a core focus of the Australian social inclusion initiative will be on neighbourhood disadvantage, and on answering the question that has puzzled social scientists for decades: Would a poor family do better if they lived in a middle-class neighbourhood than if the same family lived in a low-income community?

From a theoretical standpoint, there are good reasons to think that neighbourhoods might matter. If getting a good job depends on informal ties, then it will be easier to find work if most people in your street are employed.


If community norms count for a lot, then poor children who grow up in poor neighbourhoods may find it harder to break out of the poverty cycle. And because low-income communities also tend to have worse public amenities and higher crime rates, living in these places may be bad for your physical and mental health. If these theories hold, then they have major implications for housing policies; suggesting that mixed-income neighbourhood should be the name of the game.

But separating the effects of being poor from living in a poor place turns out to be a tricky research problem. To find good answers, we have to cross the Atlantic to the United States, where an ambitious five-city randomised trial has provided some of the best evidence to date on how neighbourhoods affect individuals’ life chances.

Implemented in 1994, Moving to Opportunity offered families in public housing projects in Baltimore, Boston, Chicago, Los Angeles and New York a voucher that would enable them to rent in a lower-poverty neighbourhood. Because demand outstripped the number of available vouchers, the vouchers were randomly assigned through a lottery. As with a randomised medical trial, this ensured that at the outset, those who moved to lower-poverty neighbourhoods (the treatment group) were identical in all respects to those who stayed (the control group).

In the early-2000s, economists Jeffrey Kling, Jeffrey Liebman, and Lawrence Katz followed up the experiment, to judge how a change of neighbourhood affected those in the treatment group. Contrary to some initial expectations, they found no significant impacts on adults’ employment outcomes. Movers were no more likely to have a job than stayers, nor did movers tend to earn higher wages. Summing up the evidence on earnings, the researchers concluded that “housing mobility by itself does not appear to be an effective anti-poverty strategy”.

But money isn’t all that matters. Asked why they wanted to leave the housing projects, many participants said “to get away from drugs and gangs”. Consistent with this, the follow-up study found that those who moved to a lower-poverty neighbourhood had better mental health. Indeed, the psychological benefits of moving were so large and consistent that they alone could have justified the cost of the program.

Might Moving to Opportunity have implications for Australia? According to a paper by Australian National University researchers Bob Gregory and Boyd Hunter (in my view, the best piece of unpublished economic research in Australia), the economic indicators in Australian neighbourhoods have diverged markedly since the 1970s. If you walked across Australia in the mid-1970s, you would have seen much more similarity in employment and earnings than if you trod the same path today.


This growth in neighbourhood inequality led Gregory and Hunter to warn of the growth of Australian “ghettos”, and to suggest that better understanding patterns of poverty should be placed high on the national agenda. One way of building on this research would be for Australia to conduct its own Moving to Opportunity experiment - offering randomly selected families in large public housing projects the chance to move to a middle-income suburb.

The best way to redress disadvantage is to put our ideas to the test. As 19th century British economist Alfred Marshall once said, we should combine “cool heads and warm hearts”. If the federal government’s social inclusion agenda prioritises evidence and results over ideology and rhetoric, it will be off to a fine start.

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First published in the Australian Financial Review on February 12, 2008.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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