Economic Impacts of Cultural Diversity in the Netherlands:

Productivity, Utility, and SortingHamilton, April 2012

Jessie Bakens, Peter Mulder, Peter NijkampVU University AmsterdamDepartment of Spatial Economics

Average resultsVariables ln(wage) ln(housing price)

I (all cities)

II (largest )

I(all cities)

II(largest )

Diversity index 0.01 (0.31) 0.89**(0.33)

3.07***(0.37) 2.96***(0.83)

Share of high-educated 5.15***(0.39)

4.92***(0.57)

ln(no jobs in 45 minutes)

1.25***(0.16)

0.54**(0.23)

ln(income per resident) 1.09***(0.06) 0.89***(0.16)

No of observations 176 25 176 25

R2 0.46 0.76 0.61 0.78***significant at 1%, ** at 5%, * at 10%. Heteroskedasticity‐robust standard error in parentheses.Source: own calculations based on CBS(GBA, SSB), NVM, ABF‐Real Estate monitor.

But……….

• Assumption of homogeneous agents

• No role for sorting: spatial selection based on heterogeneous characteristics of residents

• Parallel labour and housing markets

• No role for local amenities

Data• Dutch micro panel-data

• Transaction costs houses (1999-2008)

• Owner/worker characteristics

• Firm characteristics

• Amenities (cultural and other)

• 126,959 observations (of 61,738 individuals)

Research Question•What is the effect of cultural diversity on

productivity and utility of Dutch residents?

Identification strategy step IFramework inspired by Combes et al. (2008)*

• Wage equation (1):

• Housing price equation (2):

*Combes, P., G. Duranton and L. Gobillon (2008). Spatial Wage Disparities: Sorting Matters!, Journal of Urban Economics, no. 63, pp. 723-742.

Variance decomposition (1): resultsEffect labour market

St. Dev. Correlation with ln(wage)

Residuals 0.15 0.37

Individual effects 0.37 0.89

Age effect 0.36 0.34

Sector effect 0.04 0.11

Sector-age effect 0.01 -0.01

Area-year effect 0.04 -0.07

Variance decomposition (2): resultsEffect housing market

St. Dev. Correlation with ln(housing price)

Residuals 0.13 0.43

Individual effects 0.25 0.82

Age effect 0.35 0.19

Maintenance inside outside

0.020.01

0.080.1

Pre-1930 construction 0.01 0.16

House type 0.05 0.28

Area-year effect 0.16 0.50

Identification strategy step II• Labour market area-effect (wage residuals) (3):

• Housing market area-effect (housing price residuals) (4):

Results step IIVariables Area-year effect

labour marketArea-year effect housing market

Area-year effect labour market

-0.25*** (0.07)

Area-year effect housing market

-0.06*** (0.02)

Diversity index 0.03 (0.03) -0.31*** (0.04)

Share of high-educated 0.03 (0.05) 0.79*** (0.07)

ln(no jobs in 45 minutes) 0.16*** (0.01)

ln(population ) -0.01*** (0.004)

Historic centre 0.01 (0.01) 0.07*** (0.02)

Year dummies Yes Yes

No of observations 689 689

R2 0.33 0.67***significant at 1%, ** at 5%, * at 10%. Heteroskedasticity‐robust standard error in parentheses.Source: own calculations based on CBS(GBA, SSB), NVM, ABF‐Real Estate monitor.

Results step II cont’d Variables Area-year effect housing market

Model I Model II Model III Model IVlabour market -0.25***

(0.07)-0.21*** (0.07) -0.23***

(0.07)-0.20*** (0.07)

Diversity index -0.31*** (0.04) 1.05*** (0.32) -0.38** (0.05) -0.09 (0.06)

QoL index 0.13*** (0.02) 0.07*** (0.01)

Interaction term -0.21*** (0.06)

Restaurant ind’tor

0.08*** (0.02) 0.10*** (0.02)

Share of high-educated

0.79*** (0.07) 0.67*** (0.07) 0.71*** (0.07) 0.51*** (0.07)

ln(no jobs in 45 minutes)

0.16*** (0.01) 0.15*** (0.01) 0.17*** (0.01) 0.16*** (0.01)

Historic centre 0.07*** (0.02) 0.05*** (0.01) 0.05*** (0.01) 0.03** (0.02)

Year dummies Yes Yes Yes Yes

No of observations

689 689 689 689

R2 0.67 0.70 0.68 0.71***significant at 1%, ** at 5%, * at 10%. Heteroskedasticity‐robust standard error in parentheses.Source: own calculations based on CBS(GBA, SSB), NVM, ABF‐Real Estate monitor.

Conclusions• Cultural diversity impacts productivity and utility

mainly through sorting. How does this black-box work: Creative class likes multi-culti environment?

• In the housing market, area characteristics also matter

▫Negative effect of cultural diversity on rent residuals

▫Socio-economic effects outweigh migrant induced amenities

Future research

Acknowledgement• Financial support from NORFACE research programme

(MIDI-REDIE project) on Migration in Europe - Social, Economic, Cultural and Policy Dynamics, is acknowledged.

• The data on housing prices used in this research is provided by the Dutch association of real estate agencies: de Nederlandse Vereniging van Makelaars o.g. en vastgoeddeskundigen NVM.

• CBS (Statistics Netherlands) provided data on Dutch residents and firms.

• Ministry of Internal Affairs provided data from the Quality of Living index (Leefbaarometer).

Thank you for your attention!

j.bakens@vu.nl