Excluded by Design: The Effects of Limiting Neighborhood Access on Incumbent Residents

Abstract

Neighbourhoods shape economic and life outcomes. Existing research relies on selective residential moves to identify neighbourhood effects. We study these effects using a plausibly exogenous change in composition induced by the Rotterdam Wet, a policy barring workless individuals with less than six years of residency in the region from moving into selected disadvantaged neighbourhoods. The policy also displaced targeted areas' residents meeting the work and tenure criteria at lease renewal. In targeted neighbourhoods, the policy led to a persistent increase in the share of employed residents and a decrease in welfare recipiency and criminal involvement, driven by changes in the type of entrants. We observe a behavioural response among incumbent residents, who increase their employment, decrease their welfare participation and criminal behaviour. Exploiting the sharp discontinuity in policy applicability at the six-year residency threshold, we show that incumbent residents react to the displacement threat by exiting welfare and informal work to take up formal employment. Future analyses exploiting street-level data will establish the role of local peer composition on labour outcomes and criminal offences.