Neighbourhood effects in large and small neighbourhoods

This paper uses data from a sample of Australian teenagers to test for neighbourhood effects on school dropout rates. The data allow us to test for neighbourhood effects at two different spatial scales. We find that the educational composition of the larger neighbourhood can influence the dropout rate. We argue that this is most likely to reflect the structure of local labour market demand. We also find that the low socioeconomic status of the immediate neighbourhood has an adverse impact on dropout rate. This suggests that government policy may need to consider the socioeconomic composition of quite small geographical areas if it considers interfering in the market to create greater income-mixing within neighbourhoods.