Early move can lead to income rise

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Where you grow up has a direct impact on how much you’ll earn as an adult, your odds of going to college, and how likely you are to become a single parent. And the more of your childhood you spend in a good area — as measured by the outcomes of other kids living there — the better off your own future outcomes are likely to be.

These were a few of the findings of a new study of neighborhoods’ impact on upward mobility. Authors Raj Chetty and Nathaniel Hendren, both economists at Harvard, had previously found substantial differences in rates of upward mobility among different areas of the United States. In the new study, they analyzed how neighborhoods affect people’s outcomes by looking at families who had moved.

Chetty and Hendren analyzed
income tax records for more than
5 million children whose families moved across counties between 1996 and 2012. They found that each year spent in a “better” or “worse” area affected their income and other outcomes as adults. Consider a place in which children of low-income families earn an average of $23,000 per year in young adulthood, versus a place in which those same kids average $29,000. Children who moved from the first to the second place at the age of 9 or 10 had annual incomes of roughly $26,000 as adults — around half the difference between the two places. Children who moved at later ages saw smaller improvements compared to kids who moved when they were younger.

Chetty and Hendren also estimated how much more or less a child might earn by living in different counties across the country. DuPage County, Ill., ranked highest among the 100 largest counties for lower-income children; each year spent there compared to an average place raised income in adulthood by around 0.76 percent, or roughly $197. Baltimore City ranked lowest; each year spent there reduced income in adulthood by 0.86 percent, or roughly $226. (Among Massachusetts counties, Norfolk ranked best. Every year spent there translated to roughly a 0.54 percent bump in income, or around $141.)

The researchers identified five characteristics of places that seem to improve upward mobility. Compared to surrounding areas, they have less segregation by income and race, lower levels of income inequality, better schools, lower violent crime rates, and a larger share of two-parent households.

Of course, high rents can be an obstacle to moving to lower-poverty areas. Providing subsidized housing vouchers to move to better areas is one way to address this, the researchers write. (In a companion paper, Chetty, Hendren, and Lawrence Katz, also of Harvard, show that the Moving to Opportunity experiment of the 1990s — which randomly assigned families to receive subsidized vouchers to move to low-poverty areas — significantly improved outcomes over time for children who moved at young ages.)

“If you help families move to a better place, we found that not only the current generation [of children] benefits, but that those effects will ultimately help their children as well,” Chetty says.

While moving families may not always be feasible, policies that reduce segregation and concentrated poverty and improve public schools may also help to improve mobility, the authors write.

Learn more about the research at the Equality of Opportunity Project website, www.equality-of-opportunity.org