Neighbourhoods, economic incentives and post compulsory education choices

There are large differences in income and education levels, unemployment and ethnic composition between neighbourhoods. An interesting question is whether a neighbourhood's characteristics affect the behaviour of its residents. This paper investigates neighbourhood effects on youths-post primary education choice. Besides including usual variables the paper also includes neighbourhood specific economic incentives. Estimating linear probability models as well as multinomial logit models using Swedish register data, covering the county of Stockholm and the years 1988-1992, I find that both neighbourhood characteristics and economic incentives affect the choice. For the latter the results are quite clear although the size of the effect is small: an increase in the expected income of an alternative increases the probability that this alternative is chosen. For the neighbourhood variables the results differ to some extent depending on the model. The proportion of individuals with at most compulsory education in a neighbourhood does however seem to have a negative effect on applying for a university preparatory programme. The proportion of immigrants in a neighbourhood tend to have a positive effect on immigrants' probability to apply for a university preparatory programme.