Composite Indicator: Economic Opportunity

What is a Composite Indicator?

In order to better understand how neighborhood environments contribute to resident well-being and social mobility, the Price Center for Social Innovation created two custom indicators.  These indicators were developed by combining specific variables to create comprehensive measurements of two key dimensions of neighborhood opportunity: Economic Opportunity and Risk & Vulnerability.

About the Economic Opportunity Index

The level of economic opportunity in a community is typically measured using the income or poverty level of that community. However, this approach addresses the outcomes of opportunity, rather than the conditions that create it and the processes through which individuals and communities benefit from it.
For this reason, the Price Center has developed an Economic Opportunity Index focused on the underlying conditions that lead to economic opportunity – a process-based view, rather than one focused exclusively on outcomes. The Economic Opportunity Index is created by taking into account five key areas of opportunity at the neighborhood level: EducationEmployment, Financial InstitutionsSocial Capital, and Transportation.
The index is measured from 0 to 1, with 0 indicating that an area has low economic opportunity, and 1 meaning that an area has high economic opportunity.
(Data Download and Explore Your Neighborhood functions coming soon!)

Economic Opportunity in Los Angeles County

Economic Opportunity Index by Census Tract

About the Creation Method

Through a systematic review of academic contributions on economic opportunity, a number of variables were identified at the neighborhood level. These variables were then analyzed through a statistical technique called factor analysis, which was conducted for census tracts with a population greater than 1,000.
This analysis yielded a smaller group of variables that ‘loaded’ together - that is, presented the highest degree of correlation with the underlying factor of economic opportunity, and thus could be grouped into an index to measure it. The variables selected for the index fall into five main categories: Education, Employment, Financial Institutions, Social Capital, and Transportation. 

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Risk & Vulnerability