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Boston Fed considers ways to bridge income gaps

Eric Rosengren, Boston Federal Reserve Bank chief, spoke of programs to aid those in poverty. Jessica Rinaldi For The Boston Globe/Boston Globe

The Federal Reserve Bank of Boston has long taken an interest in the economic well-being of low- and moderate-income citizens through ground-breaking research and forward-looking initiatives and, at its first conference devoted to income inequality, the bank demonstrated that it plans to continue.

The Boston Fed’s Working Cities Challenge program, launched last year, could become a model for struggling cities across the country, Eric S. Rosengren, the Boston Fed president, told the conference Saturday. The program challenged officials, nonprofits, and business leaders in midsize Massachusetts cities with poverty rates above the median to collaborate on three-year plan to help transform their neighborhoods.

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In January, six cities, including Chelsea, Lawrence, and Somerville, were awarded a total of $1.8 million.

The Boston Fed is looking into other efforts to help disadvantaged residents, including a matched savings program for low-income Massachusetts community college students that puts money toward college expenses. The project is being conducted by the Midas Collaborative, an Allston-based network of nonprofits helping low- and moderate-income residents in the state build financial security.

Fed researchers also are watching an initiative funded by the Harold Alfond Foundation in Maine that gives every baby in the state a $500 grant for college – an initiative that’s as much about setting an expectation of higher education as it is paying for it, Rosengren noted.

“Some of the other reserve banks focus just on economic issues or just on banking issues,” Rosengren said in an interview after the conference. “We’re a little bit more eclectic.”

The Boston Fed has a long history of tackling issues beyond interest rates and banking practices. In the 1990s, it produced ground-breaking studies that detailed racial discrimination in mortgage lending, leading to changes in bank practices and expanded credit to poor and minority neighborhoods. During the recent foreclosure crisis, the Boston Fed sponsored workshops to bring together lenders and troubled borrowers to help people keep their homes.

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Other areas of research dealing with disadvantaged populations include education, minority business development, jobs, and welfare reform.

The conference, “Inequality of Economic Opportunity,” focused on family circumstances rather than income, Rosengren said, because even economists can agree that everybody deserves a fair chance.

“It’s less controversial to talk about children,” he said. “In some sense everybody can agree that a disadvantaged child is not a good thing.”

Education and early intervention were topics of much discussion at the conference, which kicked off Friday with a speech by Federal Reserve Chair Janet Yellen. As the divide between rich and poor has grown, so has the importance of education, several researchers said. And higher income families have been devoting more money than ever to their children’s development, widening the gap with less wealthy households unable to keep up.

Between the early 1970s and the mid-2000s, the richest 20 percent of families increased their annual spending on their children’s enrichment by more than 150 percent, to $9,384 a year, said Richard Murnane, professor of education and society at Harvard University. The poorest 20 percent of families, on the other hand, increased such spending by just 58 percent, to $1,391.

The increased resources invested by top wage earners likely gave their children even more of a leg up than in the past, Murnane said, noting that the gap in SAT scores between rich and poor has grown.

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Another source of the widening divide between the rich and poor is the increasingly isolated nature of society, said Robert Putnam, a public policy professor at the Harvard John F. Kennedy School of Government and author of “Bowling Alone,” a renowned book on social disconnection. Compared to the late 1960s, people today give less to charity and belong to fewer social and civic groups, leading to a greater separation between people of different income levels.

This class segregation leads to less understanding of what low-income families need, Putnam said, and less of a likelihood that affluent communities will support policies to help struggling families.

“Poor kids in America are more and more isolated from everybody,” Putnam said.

Several presenters noted that economists attending the conference were probably in higher income brackets than the groups they are studying. One noted the lack of people of color.

Angela Glover Blackwell, chief executive of PolicyLink, an Oakland, Calif., research institute devoted to economic and social equity, said she was “shocked” to see how white the room was, given that much of the research related directly to minorities, who tend to be on the lower end of the income scale.

“We are living in a nation in which the majority of people will soon be people of color,” she said. “We need to bring a racial and ethnic lens to everything we do.”


Johnston can be reached at katie.johnston@globe.com. Follow her on Twitter @ktkjohnston.