How to improve economic mobility for low-income children

Hovver logoby  Angela Rachidi

girl-crossing-out-impossible-shutterstock-500x293The study on intergenerational mobility by Harvard University’s Raj Chetty and Nathaniel Hendren, and UC-Berkeley’s Patrick Kline and Emmanuel Saez (“Chetty et al”) has received a great deal of attention in academic circles and the media. But a presentation by Dr. Chetty this week at the Brookings Institution shed new light on why the findings are so important and what can be done about it – namely that neighborhoods in which children grow up impact future earnings, and that public policies around housing, education, and family should reflect this fact.

Using federal tax data, the authors were able to compare children’s incomes when they were 30 years old to their parent’s incomes 10 to 15 years prior to estimate the children’s economic mobility. The main finding is that the better the neighborhood environment in which a child grows up, the better the child’s income relative to his or her parents. And that these “better mobility” neighborhoods share some common characteristics: better schools, more two-parent families, more social capital (community cohesiveness, social networks), and less segregation (racial and economic). Their research shows causality, meaning that it is the neighborhood environment that creates better economic mobility rather than something else (for example, income, parent or child ability, parent resourcefulness).

They came to this causal conclusion in a few different ways. First, they found that the longer a child was exposed to a better environment, the better the child’s economic mobility, suggesting that, holding all else equal, length of time in a good neighborhood mattered. Similarly, they found that (on average) the younger of two siblings who moved from a “bad mobility” neighborhood to a “good mobility” neighborhood did better than the older sibling; again suggesting that the length of exposure to the better neighborhood was important. And finally, they reanalyzed data from the US Department of Housing and Urban Development’s Moving to Opportunity experiment, which involved giving randomly selected families a voucher to move out of high poverty areas to low poverty areas. Young children (under 13) who moved out of high poverty areas did much better on a variety of outcomes (even when their parent’s income stayed the same) than their counterparts who did not receive the voucher, suggesting again that the neighborhood environment caused the better outcomes.

The conclusions of the Chetty et al study should not be all that surprising. Kids (including low-income kids) who have access to good schools, live with two married parents, and have strong social networks clearly have advantages over kids without these things. What Chetty et al were able to do was to show that these advantages result in higher economic mobility. They were also able to identify the specific counties where kids have a better chance of moving up the economic ladder — Dupage, IL, Fairfax, VA, and Bergen, NJ rank pretty high; Pima, AZ, Bronx, NY, and Milwaukee, WI rank pretty low. This is a significant contribution to the field and can help federal and local policymakers interested in improving opportunity for children better focus their efforts.

But what can public policy do? Clearly, not all low-income children can move to Dupage, IL or Fairfax, VA, as the Brookings panelists acknowledged. And place-based strategies (e.g., Harlem Children’s Zone, Promise Neighborhoods) are popular, but the evidence of effectiveness is mixed. Another option is to better target effective public policies to neighborhoods with poor economic mobility. One of the most important is improving the quality of schools through school choice (as panelist Margery Turner of Urban Institute suggested), but there are others. Encouraging two-parent families, supporting mixed-income housing policies, and implementing housing voucher programs like the Housing and Urban Development’s Moving to Opportunity are good starts. Ensuring that children have the opportunity to do better than their parents is an important goal. Thanks to Chetty et al we now know more about how to achieve it.

 Angela Rachidi is a research fellow in poverty studies at the American Enterprise Institute (AEI), where she studies the effects of public policy and existing support programs on low-income families, continuing the work she did for the New York City Human Resources Administration for almost a decade.

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