Abstract

When explaining the evolution of gentrification, measured as the aggregate status rise of a neighborhood, a key role is the influx of high-status, i.e., well-earning and -educated, individuals. However, self-selection and reversed causality in residential choices of high-status individuals complicate causal analyses on gentrification. This paper isolates the effect of inflowing high-status individuals on neighborhood gentrification by using highly reliable administrative data on half a million 500m×500m neighborhoods from Germany. Recognizing sorting patterns, we instrument the inflow of highstatus individuals with prior inflowing bohemians for a causal estimation approach. These creative workers follow a different pattern in sorting themselves into rather poor neighborhoods but attract high-status individuals in the medium to long run. Because selection biases are likely to differ between cities with high cultural capital and other major cities, we focus in our sample on the German top-eight cities. First findings show that an increase of the status of inflowing individuals leads to a neighborhood’s probability to gentrify by up to 11.8 percentage points in these cities.