May 15, 2014

Improving Opportunities for Social Mobility in the United States

By: Raj Chetty
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The “American” Dream?

The United States is often hailed as the “land of opportunity,” but opportunities for upward income mobility in the U.S. are actually lower than in other countries (Corak 2013).  A child born to parents in the bottom fifth of the income distribution has a 7.5% chance of reaching the top fifth of the income distribution in the U.S., far lower than peer developed countries.

Improving the rate of upward income mobility is an important issue for policy makers not just because it is one of the core principles of American society but also because improving mobility can have substantial implications for overall economic development.  Children from disadvantaged backgrounds naturally benefit directly from higher levels of upward mobility, but affluent individuals benefit as well, because upward mobility contributes to economic growth both directly and indirectly, for example by reducing transfer payments.

Data from the Equality of Opportunity Project offer new information on how to improve social mobility in the United States.  The results – based on anonymous earnings records – reveal that mobility has been low in the U.S. relative to other developed countries for the past several decades.  While mobility has been stagnant over time, there is substantial geographic variation in mobility within the U.S., with some areas offering rates of upward mobility comparable to the most mobile countries in the world, such as Denmark.  The large differences in mobility across communities within the U.S. suggest that mobility can in fact be improved.  Based on this evidence, we can begin to think about a set of policies – including place-based initiatives and investments in improving the quality of primary education – that can increase upward mobility.

Geography of Mobility

In our research, we characterize geographical variation in intergenerational mobility across the U.S. (Chetty et al. 2014b).  We construct measures of intergenerational mobility for 741 “commuting zones” (CZs) – which are analogous to metropolitan areas – and assign children to a CZ based on their location at age 16 (no matter where they live as adults), so that their location represents where they grew up.   When analyzing local area variation, we rank both children and parents based on their positions in the national income distribution to provide a measure of how well children do relative to those in the nation as a whole rather than those in their own particular community. 

Looking at the probability that a child who grew up in a bottom-quintile income family reaches the top-quintile of the income distribution across areas of the U.S., we find substantial variation across regions.  In some parts of the U.S. – such as the Southeast and the Rust Belt – children in the bottom quintile have less than a 5% chance of reaching the top quintile.  In other areas, such as the Great Plains and the West Coast, children in the bottom quintile have more than a 15% chance of reaching the top quintile.

There is substantial variation in upward mobility even among large cities that have comparable economies and demographics.  Cities such as Salt Lake City and San Jose have rates of mobility comparable to Denmark and other countries with the highest rates of mobility in the world.  Other cities – such as Charlotte and Milwaukee – offer children very limited prospects of escaping poverty.  These cities have lower rates of mobility than any developed country for which data are currently available.

In ongoing work, we find that if a child moves from a city with low upward mobility (such as Milwaukee) to a city with high upward mobility (such as Salt Lake City), her own income in adulthood rises in proportion to the time she is exposed to the better environment.  This finding shows that much of the difference in upward mobility across areas is driven by a causal effect of differences in the local environment rather than differences in the characteristics of the people who live in different cities.

The variation in economic mobility across cities in the U.S. is reason for optimism. If we can make every city in America have mobility rates like San Jose or Salt Lake City, the United States would become one of the most upwardly mobile countries in the world.  This naturally leads to the next question: what makes some places in America have much higher rates of upward mobility than others?

Determinants of Mobility

To begin to understand the determinants of mobility, we explore the correlations between upward mobility and various factors that have been discussed in prior work by sociologists and economists (Chetty et al. 2014b).  We find that segregation, income inequality, education, social capital, and family structure are all strongly correlated with mobility.

While we find upward income mobility to be significantly lower in areas with larger African-American populations, white individuals in areas with large African-American populations also have lower rates of upward mobility, implying that racial shares matter at the community rather than individual level. One mechanism (among many others) for such a community-level effect of race is segregation. We find a strong negative correlation between standard measures of racial and income segregation and upward mobility.

CZs with larger Gini coefficients (measure of income inequality) have less upward mobility, consistent with the “Great Gatsby curve” documented across countries (Krueger 2012, Corak 2013). In contrast, top 1% income shares are not highly correlated with intergenerational mobility both across CZs within the U.S. and across countries. Although one cannot draw definitive conclusions from such correlations, they suggest that the factors that erode the middle class hamper intergenerational mobility more than the factors that lead to income growth in the upper tail.

Proxies for the quality of the K-12 school system are also correlated with mobility. Areas with higher test scores (controlling for income levels), lower dropout rates, and smaller class sizes have higher rates of upward mobility. In addition, areas with higher local tax rates, which are predominantly used to finance public schools, have higher rates of mobility.  These findings are consistent with results from other research on the long-term impacts of education (Chetty et al. 2011, Chetty, Friedman, and Rockoff 2014) which demonstrate that improvements in the quality of education have large causal effects on upward mobility.

Social capital indices (Putnam 1995) – which are proxies for the strength of social networks and community involvement in an area – are very strongly correlated with mobility. For instance, high upward mobility areas tend to have more religious individuals and greater participation in local civic organizations.

Measures of family structure such as the fraction of single parents in the area also matter. Once again this operates at the community rather than the individual level. Children of married parents also have higher rates of upward mobility if they live in communities with fewer single parents. 

These correlations suggest that differences in local policies and community structures are important for mobility; nonetheless, findings cannot be interpreted as causal effects. Though we cannot draw policy lessons directly from these correlations without further research into causal pathways, the evidence discussed above does shed light on the types of policies that can influence mobility. Combined with other evidence from research, the results summarized above can help target areas to focus policy to improve upward mobility and help revitalize struggling communities. The important conclusion from this is that local policies and community structures matter a great deal for life opportunities for all.

ABOUT THE AUTHOR

Raj Chetty is William Henry Bloomberg Professor of Economics at Harvard University. This article is adapted from a talk he gave on May 12, 2014 at Reinventing Older Communities: Bridging Growth & Opportunity, The Federal Reserve Bank of Philadelphia's biennial conference, co-sponsored by Penn IUR, and held in Philadelphia, PA. This article is being expanded into a book chapter that will be included in a book under development as part of the City in the 21st Century Book Series, published by Penn IUR and Penn Press.

REFERENCES

Chetty, Raj, John N. Friedman, Nathaniel Hilger, Emmanuel Saez, Diane Whitmore Schanzenbach, and Danny Yagan. 2011. “How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project Star.” The Quarterly Journal of Economics, 126 (4): 1593-1660.

Chetty, Raj, John N. Friedman, and Jonah E. Rockoff. 2014. “Measuring the Impacts of Teachers II: Teacher Value-Added and Student Outcomes in Adulthood.” Forthcoming, American Economic Review.

Chetty, Raj, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner. 2014a. “Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility.” Forthcoming, American Economic Review Papers and Proceedings.

Chetty, Raj, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez. 2014b. “Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.” NBER Working Paper 19843, National Bureau of Economic Research, Inc.

Corak, Miles. 2013. “Income Inequality, Equality of Opportunity, and Intergenerational Mobility.” Journal of Economic Perspectives, 27(3): 79-102.

Krueger, Alan. “The Rise and Consequences of Inequality in the United States.” Speech at the Center for American Progress, Washington D.C. on January 12, 2012.

Putnam, Robert D. 1995. “Bowling Alone: America's Declining Social Capital.” Journal of Democracy, 6(1): 65-78.

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