How to Move Mil­lions up the In­come Lad­der

Rotman Management Magazine - - CONTENTS - By Debby Bielak and Devin Mur­phy

A look at five in­ter­ven­tions that can pos­i­tively im­pact eco­nomic mo­bil­ity in our so­ci­ety go­ing for­ward.

Five in­ter­ven­tions have the po­ten­tial to sig­nif­i­cantly im­pact eco­nomic mo­bil­ity.

is not unique to Amer­ica. Par­ents the world THE AMER­I­CAN DREAM over har­bour the hope that if their chil­dren work hard and build their skills, they can climb the in­come lad­der and at­tain a higher stan­dard of liv­ing. How­ever, the odds that chil­dren will rise above their life’s station are more promising in many in­dus­tri­al­ized na­tions than they are in the U.S.: Ac­cord­ing to the Eco­nomic Pol­icy In­sti­tute, Canada, Den­mark, Nor­way, Fin­land and Aus­tralia of­fer the great­est op­por­tu­ni­ties for up­ward mo­bil­ity. Mean­while, the UK and the U.S. lag be­hind, just a cou­ple of notches above coun­tries with much smaller economies like Slove­nia and Chile.

In their 2016 study, “The Fad­ing Amer­i­can Dream,” Stan­ford Econ­o­mist Raj Chetty et al. re­vealed that the prob­a­bil­ity of chil­dren earn­ing more than their par­ents has been de­clin­ing for more than 70 years. What’s more, ac­cord­ing to the Pew Char­i­ta­ble Trusts’ Eco­nomic Mo­bil­ity Project, seven out of 10 Amer­i­cans who are born to par­ents in the bot­tom 40 per cent of the in­come scale will never make it to the mid­dle class.

Sta­sis at the bot­tom of the in­come lad­der has im­pli­ca­tions for every­one — not just those strug­gling to im­prove their lot. A strong mid­dle class bol­sters eco­nomic growth and sta­bil­ity in myr­iad ways. When fam­i­lies in­vest in chil­dren and com­pa­nies in­vest in work­ers, they lift the pop­u­la­tion as a whole, in­cu­bate fu­ture gen­er­a­tions of en­trepreneurs and strengthen in­sti­tu­tions. With­out these in­vest­ments, pipe­lines for growth and sta­bil­ity are com­pro­mised.

Putting Kids on an Up­ward Path

The Brook­ings In­sti­tu­tion’s So­cial Genome Project shows that, if they are to im­prove their chances at up­ward mo­bil­ity, chil­dren and young peo­ple must sur­pass a se­ries of mile­stones as they grow. These range from be­ing born to par­ents who are fi­nan­cially pre­pared to raise them to at­tain­ing a col­lege de­gree or a fam­ily in­come of $45,000 by their late 20s.

The project fol­lowed the lives of chil­dren from 1986 through 2010 and used its So­cial Genome Model (SGM) to pre­dict where those chil­dren will land on the in­come lad­der by age 40. The SGM al­lows an­a­lysts to ex­am­ine how cir­cum­stances and ac­tions at cer­tain life stages echo through a per­son’s life — and ei­ther help or hin­der fu­ture suc­cess. To­day, just 17 per cent of low­in­come chil­dren meet ev­ery bench­mark; but for those who do, their chances of be­com­ing ‘mid­dle class by mid­dle age’ are al­most as high as their bet­ter-off peers.

Draw­ing from a year-long re­search ef­fort, we have iden­ti­fied five op­por­tu­ni­ties where $1 bil­lion of tar­geted pri­vate fund­ing would have a chance to pro­vide low-in­come in­di­vid­u­als with an equal op­por­tu­nity to im­prove their life tra­jec­to­ries. We will discuss each in turn, cat­e­go­rized by stage of life.

1. BIRTH: Im­prove Ac­cess to Con­tra­cep­tives

Un­in­tended preg­nan­cies — those that are ei­ther un­wanted or ill­timed — can lead to in­ter-generational cy­cles of poverty. Of­ten, these preg­nan­cies oc­cur be­fore the par­ents have com­pleted their ed­u­ca­tions. Un­planned in­fants are more likely than other ba­bies to have low birth weights, ac­cord­ing to the Guttmacher In­sti­tute, and moth­ers in these cir­cum­stances are twice as likely to suf­fer from post­par­tum de­pres­sion, which may lead them to drop out of high school or col­lege.

Here’s the good news: From 2008 to 2011, un­in­tended preg­nan­cies dropped by 18 per cent in the U.S., reach­ing their low­est level in decades. Thanks in part to pop­u­lar TV shows like MTV’S 16 and Preg­nant and Teen Mom, in­ter­est in con­tra­cep­tion is high.

To­day, there are far more ef­fec­tive op­tions than were once avail­able — and with the ex­pan­sion of pub­lic health­care, many of them are avail­able for free. Long-act­ing re­versible con­tra­cep­tive (LARC) meth­ods — specifically, in­trauter­ine de­vices (IUDS) and hor­monal im­plants — re­quire al­most no daily ef­fort, last for three to 10 years, and have less than a one per cent fail­ure rate. How­ever, less than half of low-in­come women are able to ac­cess any sort of fam­ily plan­ning ser­vices from pub­licly-funded clin­ics.

With ac­cess and in­for­ma­tion, ev­ery­thing changes. In 2009, the state of Colorado of­fered 30,000 free LARC de­vices to women. Within four years, birth rates among teens and 20- to 24-yearold women dropped pre­cip­i­tously. Med­i­caid also avoided nearly $79 mil­lion in birth-re­lated costs, mak­ing the ini­tia­tive’s re­turn on in­vest­ment $5.85 for ev­ery dol­lar spent. Colorado il­lus­trates that when clin­ics in­crease ac­cess to LARCS, un­in­tended preg­nancy be­comes an al­most en­tirely solv­able prob­lem.

Ap­ply­ing the ‘Colorado ef­fect’ would po­ten­tially ROI ON $1 BIL­LION: re­sult in up to 124,000 more prop­erly-timed preg­nan­cies. Us­ing SGM’S es­ti­mate of in­creased life­time earnings for the re­sult­ing ba­bies, the cal­cu­lated re­turn is be­tween $3.2 bil­lion and $6.4 bil­lion in to­tal in­creased earnings for these chil­dren.

2. EARLY CHILD­HOOD: Use Tech­nol­ogy to Im­prove Early Learn­ing

Last Septem­ber, when chil­dren across the coun­try en­tered kin­der­garten, more than one mil­lion of them weren’t ready to be there. Some lacked the cog­ni­tive skills re­quired to do the work; oth­ers hadn’t de­vel­oped the emo­tional ma­tu­rity that would help them make it through long hours at school. Even more failed to meet the req­ui­site health in­di­ca­tors (such as phys­i­cal well-be­ing and age-ap­pro­pri­ate mo­tor skills) to par­tic­i­pate ef­fec­tively in classes. These kids will likely strug­gle to over­come their lim­i­ta­tions in kin­der­garten and be­yond.

Ex­perts now have a bet­ter un­der­stand­ing of how early de­vel­op­ment and school readi­ness in­flu­ences a child’s pro­gres­sion. The Brook­ings In­sti­tu­tion’s Cen­tre on Chil­dren and Fam­i­lies re­ports that 82 per cent of chil­dren who en­ter kin­der­garten ‘de­vel­op­men­tally ready’ will mas­ter ba­sic skills by the third grade — an im­por­tant in­di­ca­tor of continued suc­cess in mid­dle school and high school.

Re­search shows that a child’s de­vel­op­ment is sig­nif­i­cantly in­flu­enced by life ex­pe­ri­ences—es­pe­cially in­ter­ac­tions with adults. By equip­ping par­ents and other care­givers with the right tools, we can fos­ter de­vel­op­ment dur­ing the crit­i­cal birth-tokinder­garten years. This is where dig­i­tal tech­nol­ogy — in the form of apps and com­puter pro­grams — comes into play. For starters, tech tools can help par­ents and care­givers as­sess chil­dren for kin­der­garten-readi­ness and link them with the right ser­vices to get them ready for school. For ex­am­ple, there are ‘nudge tech­nolo­gies’ like the tex­t4baby app, which sends new moms free text mes­sages with per­son­al­ized health and de­vel­op­men­tal in­for­ma­tion from birth through the baby’s first year. Moth­ers can set up re­minders for doc­tor’s ap­point­ments and re­ceive mes­sages that de­scribe baby’s key de­vel­op­men­tal mile­stones.

Then there’s the Water­ford In­sti­tute’s UP­START, a com­puter pro­gram that aims to close the kin­der­garten-readi­ness gap for four-year olds. Chil­dren, and im­por­tantly, their par­ents or care­givers, spend 15 min­utes a day us­ing the soft­ware, which uses songs and games to teach things like the al­pha­bet, spell­ing and count­ing. A study in Utah showed that chil­dren who used the pro­gram for one year saw “last­ing pos­i­tive re­sults” on stan­dard­ized tests.

ROI on $1 bil­lion: If ap­prox­i­mately 350,000 to 700,000 more chil­dren en­ter kin­der­garten with a greater ca­pac­ity to learn, we es­ti­mate their cu­mu­la­tive life­time earnings will in­crease by $5.5 bil­lion to $11 bil­lion.

3. MID­DLE CHILD­HOOD: Im­prove Schools and Neigh­bour­hoods in High-poverty Ar­eas

Where we are born has a lot to do with our lot in life. For in­stance, ac­cord­ing to re­search from the Equal­ity of Op­por­tu­nity Project, chil­dren born in Salt Lake City, Utah and Pittsburgh, Penn­syl­va­nia have a dra­mat­i­cally bet­ter shot of achiev­ing a bet­ter eco­nomic life than those born in At­lanta and Char­lotte.

When em­ploy­ers eval­u­ate can­di­dates based on their com­pe­ten­cies rather than their pedi­grees, the tal­ent pool gets a lot big­ger.

In 2010, more than 77 mil­lion peo­ple lived in con­cen­trated poverty neigh­bor­hoods — ar­eas where at least 20 per­cent of the res­i­dents live be­low the fed­eral poverty level. One way to im­prove their chances of be­com­ing up­wardly mo­bile is to give fam­i­lies with chil­dren the chance to move to eco­nom­i­cally-di­verse neigh­bor­hoods.

Con­sider Bal­ti­more, Mary­land, where a child who grows up in a low-in­come fam­ily goes on to earn less than chil­dren grow­ing up in any of the 100 largest U.S. coun­ties. In re­sponse to the chal­lenges they saw, pub­lic of­fi­cials and com­mu­nity lead­ers in Bal­ti­more de­vel­oped a promising pro­gram for mov­ing peo­ple up and out of poverty. Since 2003, the Bal­ti­more Hous­ing Mo­bil­ity Pro­gram has moved roughly 3,200 African Amer­i­can fam­i­lies out of highly-seg­re­gated neigh­bour­hoods into low-poverty, racially-mixed neigh­bour­hoods with low crime rates, high-qual­ity schools and em­ploy­ment cen­tres.

The Bal­ti­more pro­gram is mod­eled af­ter the 1990’s Mov­ing to Op­por­tu­nity for Fair Hous­ing (MTO) ex­per­i­ment, which ran­domly se­lected fam­i­lies liv­ing in high-poverty hous­ing projects in five U.S. cities to re­ceive hous­ing coun­sel­ing and vouch­ers. Kids who moved when they were 13 or younger went on to earn in­comes nearly one-third higher than their peers who stayed be­hind. At the same time, hous­ing ad­vo­cates are work­ing to cre­ate op­por­tu­ni­ties for peo­ple to bet­ter their own blighted com­mu­ni­ties — by im­prov­ing hous­ing, hous­ing poli­cies, and so­cial ser­vices—even as they help peo­ple move to op­por­tu­nity.

ROI on $1 bil­lion: Pro­vid­ing hous­ing vouch­ers to the fam­i­lies of 45,000 to 85,000 chil­dren will lead to po­ten­tial life­time fam­ily-earnings re­turns of be­tween $4.5 bil­lion and $8.5 bil­lion, ac­cord­ing to our es­ti­mates.

4. ADOLESCENCE: De­crease Rates of In­car­cer­a­tion

The U.S. is home to five per cent of the world’s pop­u­la­tion, yet it houses roughly 22 per cent of its pris­on­ers. Over-crim­i­nal­iza­tion has be­come a na­tion­wide pat­tern that af­fects young peo­ple — and dis­pro­por­tion­ately, African Amer­i­cans — in mul­ti­ple ways. Chil­dren with at least one in­car­cer­ated par­ent are more likely to have lower fam­ily in­come and in­creased dif­fi­culty in school, both of which will af­fect their abil­ity to climb the lad­der to the mid­dle class.

It’s not just par­ents who are crowd­ing jails. Overly-puni­tive mea­sures are fun­nel­ing chil­dren — es­pe­cially black chil­dren — into the school-to-prison pipe­line. Given that re­search shows that any in­ter­ac­tion with the crim­i­nal jus­tice sys­tem pro­duces neg­a­tive out­comes for in­di­vid­u­als, it fol­lows that pre­vent­ing brushes with the law is crit­i­cal for de­creas­ing over-crim­i­nal­iza­tion.

School is a nat­u­ral start­ing place. To com­bat the over-in- carcer­a­tion of stu­dents, sev­eral states are re­con­sid­er­ing ze­ro­tol­er­ance poli­cies that sus­pend or ex­pel stu­dents for sin­gle in­frac­tions. For ex­am­ple, Ohio—hav­ing seen how zero-tol­er­ance poli­cies have con­trib­uted to eco­nomic and racial dis­par­i­ties—is pro­mot­ing so­cial and emo­tional learn­ing and build­ing stu­dent sup­port teams to re­spond early to dis­rup­tive be­hav­iour.

An­other no­table ef­fort is the Safety + Jus­tice Chal­lenge’s work to sup­port al­ter­na­tives to jail­ing peo­ple who are nei­ther a threat to the pub­lic nor a flight risk. Backed by the Macarthur Foun­da­tion, Safety + Jus­tice is part­ner­ing with 40 ju­ris­dic­tions to demon­strate al­ter­na­tives to ‘in­car­cer­a­tion as usual’ prac­tices and cre­ate mod­els for re­duc­ing the un­nec­es­sary use of jail. In Texas’ Har­ris County, which in­cludes one of the na­tion’s largest de­ten­tion fa­cil­i­ties, of­fi­cials are us­ing a $2 mil­lion Safety + Jus­tice grant to ex­pand pre-trial diver­sion pro­grams and to reimag­ine a sys­tem that makes it eas­ier for de­fen­dants to gain re­lease with­out post­ing bail. The goal is to safely cut the county’s jail pop­u­la­tion by 21 per cent within three years.

ROI $1 bil­lion: If be­tween 185,000 and 375,000 in­di­vid­u­als avoid crim­i­nal con­vic­tions, we es­ti­mate that the re­sult­ing in­crease in their life­time earnings will be be­tween $4.3 bil­lion and $8.6 bil­lion.

5. TRAN­SI­TION TO ADULT­HOOD: Es­tab­lish Clear and Vi­able Path­ways to Ca­reers

An es­ti­mated 5.5 mil­lion 16- to 24-year-olds in the U.S. are nei­ther in school nor work­ing. These young peo­ple have been called ‘op­por­tu­nity youth’ for their po­ten­tial value to com­mu­ni­ties and the econ­omy. Half have been dis­con­nected from work and school since the age of 16.

Mean­while, nearly six mil­lion en­try-level jobs that are suit­able for young peo­ple — in­clud­ing those who lack a col­lege de­gree — are be­ing cre­ated across a range of in­dus­tries. And labour ex­perts es­ti­mate that dur­ing this decade, the econ­omy will gen­er­ate 25 mil­lion open­ings for mid­dle-skills jobs in com­puter tech­nol­ogy, nurs­ing and other fields that re­quire more tech­ni­cal ed­u­ca­tion than high school, but less than a four-year col­lege de­gree.

Key to match­ing op­por­tu­nity youth with path­ways to ca­reers is to fo­cus on the skills and ap­ti­tudes that are needed to do a giv- en job. While col­lege de­grees will al­ways be de­sir­able, com­pa­nies that main­tain them as pre­req­ui­sites for jobs po­ten­tially screen out un­em­ployed youth who could do the work, if only they were given a chance.

When em­ploy­ers eval­u­ate can­di­dates based on their com­pe­ten­cies rather than their pedi­grees, the tal­ent pool gets a lot big­ger. New Mex­ico-based In­no­vate+ed­u­cate found that while just one per­cent of the state’s un­em­ployed young adults met cri­te­ria for jobs that re­quired a col­lege de­gree, 33 per cent were qual­i­fied when mea­sured by sheer skill.

CVS Health is one com­pany at the fore­front of the shift to skills-based hir­ing. The phar­macy chain hires 1,000 en­try-level work­ers per week to keep its more than 9,600 re­tail lo­ca­tions fully staffed. Work­ing with Jewish Vo­ca­tional Ser­vices and other or­ga­ni­za­tions, CVS’S work­force-de­vel­op­ment team reaches deep into com­mu­ni­ties to find over­looked tal­ent. Their ef­forts in­clude a train­ing store at the Greater Low­ell Tech­ni­cal High School in the Tyn­gs­bor­ough, Mas­sachusetts area, where three-quar­ters of the stu­dents are low in­come.

In ad­di­tion, part­ner­ships be­tween high schools, col­leges and lo­cal cor­po­ra­tions are ex­pand­ing to en­tire re­gions, such as the

Na­tional Academy Foun­da­tion’s Naf­track ca­reer pro­gram, which thus far has se­cured 13 ma­jor cor­po­rate part­ners, in­clud­ing JP Mor­gan Chase, Hewlett-packard, Ver­i­zon and Len­ovo. These en­deav­ours rep­re­sent a grow­ing set of ex­em­plars of ef­fec­tive ca­reer path­ways that are ripe for repli­ca­tion.

ROI on $1 bil­lion: If be­tween 66,000 and 132,000 in­di­vid­u­als earn a cre­den­tial with labour mar­ket value — such as a cer­tifi­cate for com­plet­ing a skills-based course — we es­ti­mate the over­all se­ries of in­vest­ments will lead to a cu­mu­la­tive in­crease in their life­time in­come of $7.3 bil­lion to $14.7 bil­lion.

In clos­ing

Re­vers­ing a half-cen­tury of de­clin­ing eco­nomic mo­bil­ity won’t hap­pen overnight. And while the in­ter­ven­tions we’ve iden­ti­fied have the po­ten­tial to help mil­lions up the eco­nomic lad­der, even that num­ber is dwarfed by the scale of the need.

That said, we are now armed with a deeper un­der­stand­ing of what young peo­ple must do to get on an up­ward tra­jec­tory, and we are poised to in­ter­vene in tan­gi­ble ways. Each of the in­ter­ven­tions de­scribed herein are built on in­no­va­tions that are al­ready de­liv­er­ing re­sults. With $1 bil­lion of cap­i­tal be­hind them, they might gain more trac­tion against seem­ingly-in­tractable chal­lenges — and point the way for both cor­po­ra­tions and pub­lic agen­cies to do much more.

Restor­ing eco­nomic mo­bil­ity is far too es­sen­tial not to bet on it. But we can be smart about it and pro­ceed in ways that are backed by data and ev­i­dence — so that peo­ple who are crowded in the econ­omy’s base­ment stand a fight­ing chance of at­tain­ing the dream of a bet­ter life.

Debby Bielak is a part­ner in The Bridges­pan Group’s San Fran­cisco of­fice. Devin Mur­phy is a man­ager in the same of­fice. They are co-authors, with Jim Shel­ton, head of the Chan Zucker­berg Ini­tia­tive’s ed­u­ca­tion di­vi­sion, of the re­port, Bil­lion Dol­lar...

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