The Equal­ity of Op­por­tu­nity Project

Rotman Management Magazine - - FROM THE EDITOR - by Karen Chris­tensen

‘The Amer­i­can Dream’ means dif­fer­ent things to dif­fer­ent peo­ple. Pro­fes­sor Raj Chetty, who heads up Stan­ford Univer­sity’s Equal­ity of Op­por­tu­nity Project, dis­tills it into a sim­ple statis­tic: The prob­a­bil­ity that a child born to par­ents in the bot­tom-fifth of the in­come dis­tri­bu­tion will make the leap to the top fifth — the clas­sic no­tion of ‘rags-to-riches’.

To­day, ac­cord­ing to Prof. Chetty, a child is more likely to at­tain the Amer­i­can Dream if she lives in Canada or Swe­den. Based on the most re­cent data, in the U.S., a child has a 7.5% chance of mov­ing from the bot­tom quin­tile to the top com­pared to 9% in the United King­dom, 11.7% in Den­mark, 12% in Swe­den and 13.5% in Canada. Prof. Chetty and his re­search team, led by Har­vard Pro­fes

sor Nathaniel Hen­dren and Brown Univer­sity Pro­fes­sor John Fried­man, have found that rates of up­ward mo­bil­ity vary even more within the U.S. Us­ing tax records for 10 mil­lion kids born be­tween 1980 and 1982 — ba­si­cally, ev­ery Amer­i­can child born in the early 1980s — they cal­cu­lated up­ward mo­bil­ity for ev­ery metro and ru­ral area in the coun­try; then, they looked at the in­comes for these same in­di­vid­u­als in 2012 — when they were in their early 30s.

What they found was star­tling: In the cen­tre of the coun­try, rates of up­ward mo­bil­ity ex­ceed 16.8 per cent — higher than the rate for Canada, Den­mark or Swe­den; but, at the other end of the spec­trum, in cities like At­lanta and Char­lotte, North Carolina, the num­bers were lower than for any coun­try in the study. The pat­terns were dra­matic: The south east had much lower rates of up­ward mo­bil­ity than the cen­tre of the coun­try; and the west coast had higher num­bers: San Jose came in at 12.9% and Salt Lake City at 10.8%; but the rate for Chicago was much lower, at 6.5%.

Prof. Chetty and his team were able to de­ter­mine that the crit­i­cal driver of these dif­fer­ences is child­hood en­vi­ron­ment. The team came up with five char­ac­ter­is­tics of mo­bil­ity dif­fer­ences be­tween ar­eas.

1. Seg­re­ga­tion vs. In­te­gra­tion. Not sur­pris­ingly, places that are more seg­re­gated by in­come or race tend to have lower lev­els of up­ward mo­bil­ity. Prof. Chetty refers to this as ‘res­i­den­tial seg­re­ga­tion’. Re­gard­less of how you mea­sure it, At­lanta is an in­cred­i­bly-seg­re­gated city, and as a re­sult, At­lanta and places that look like it tend to have the low­est rates of up­ward mo­bil­ity in the U.S. In con­trast, if you look at Sacra­mento — which ac­tu­ally has the same share of Blacks and His­pan­ics as At­lanta — you find that there is much more res­i­den­tial in­te­gra­tion — and con­sis­tent with that, Sacra­mento has much higher rates of up­ward mo­bil­ity.

2. In­come In­equal­ity. The sec­ond pat­tern de­tected by the re­searchers was that places with more in­come in­equal­ity also tend to have lower lev­els of in­ter-generational mo­bil­ity. That is, if you have a smaller mid­dle class in a par­tic­u­lar area, you also tend to have less mo­bil­ity, and in­so­far as there is a causal link be­tween those two things, that is po­ten­tially con­cern­ing: If in­equal­ity rises over time, we might see an ero­sion in the rates at which peo­ple move up across gen­er­a­tions, as well.

3. Sin­gle-par­ent Homes. The team found that ar­eas with more sin­gle par­ents have lower rates of up­ward mo­bil­ity, and com­mu­ni­ties with more two-par­ent house­holds have higher up­ward mo­bil­ity. As a re­sult, you might con­clude that ‘grow­ing up in a two-par­ent house­hold has ben­e­fi­cial ef­fects rel­a­tive to grow­ing up in a one-par­ent house­hold’. That is part of the story, says Prof. Chetty, but it’s not all of it: Even when the re­searchers looked at the sub­set of chil­dren whose own par­ents were mar­ried, if they were grow­ing up in an area with lots of sin­gle par­ents, they were less likely to move up in the in­come dis­tri­bu­tion. In short, it’s not about whether your own par­ents are mar­ried or not: There is a com­mu­nity-level fac­tor in­volved.

4. So­cial Cap­i­tal. This brings to mind the old adage that, ‘It takes a vil­lage to raise a child’. Even if you’re not do­ing well,

some­one else in your com­mu­nity might be able to help you out. Salt Lake City, Utah — with its vast Mor­mon Church fol­low­er­ship — is a clas­sic ex­am­ple of a city with a lot of such ‘so­cial cap­i­tal’, and the re­searchers found that it also has very high rates of up­ward mo­bil­ity.

5. Qual­ity Pub­lic Schools. On this point, the re­searchers found clear ev­i­dence of causal ef­fects. While the first four el­e­ments can be help­ful in terms of where to fo­cus pol­icy in­ter­ven­tions, in this case, Prof. Chetty et al. defini­tively say that im­prov­ing the qual­ity of pub­lic schools in spe­cific ways can make a ma­jor dif­fer­ence. In par­tic­u­lar, they found that pro-ac­tively en­sur­ing ‘teacher qual­ity’ — mea­sured by on­go­ing im­prove­ment in stu­dents’ grades, year over year — is im­per­a­tive to chang­ing these pat­terns.

For more on this on­go­ing re­search, visit equal­ity-ofop­por­tu­ Raj Chetty is a Pro­fes­sor of Eco­nom­ics at Stan­ford Univer­sity and Co-di­rec­tor of the Pub­lic Eco­nom­ics group at the Na­tional Bu­reau of Eco­nomic Re­search. This ar­ti­cle is based on his pre­sen­ta­tion at Stock­holm Univer­sity’s In­sti­tute for In­ter­na­tional Eco­nomic Stud­ies.

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