The American dream doesn’t exist in many neighbourhoods

By C.K. | WASHINGTON, DC

IT IS a bipartisan cliché in America that all children should have the opportunity to succeed. Last year, President Donald Trump said “we want every child in America to have the opportunity to climb the ladder to success” as he lauded school choice. Last month, while savaging Mr Trump’s economic policies, Barack Obama suggested that “every child should have opportunity”. But a new paper by Raj Chetty an economist at Harvard and his colleagues underlines how far the United States is from offering opportunity to all—and how much where a child is born can reinforce the inequalities that stem from to whom they are born.

The researchers combine census and tax data covering 20.5m people born between 1978 and 1983—about 96% of the total number of children born in that period. They study the impact of both parental and neighborhood characteristics on the outcomes these children enjoyed as adults, focusing on America’s 74,000 “census tracts” subdivisions containing a few thousand people each.

Their data demonstrate inequality of opportunity from birth. On average, people born into the bottom 1% of American families in terms of incomes reach the 30th income percentile as adults—far below the 50th percentile that would be expected if there was no relationship between incomes across generations. Parental incomes are also a strong predictor of other outcomes: education levels, incarceration rates and the likelihood among women of being a single mother. People born into the bottom 1% of American families in terms of income between 1978 and 1983 had a 6% chance of being in jail on April 1st 2010, compared to a 0.1% chance among those born into the top 1% of incomes. Race and gender play additional roles: black men born into the poorest 1% of families grow up to reach only the 23rd income percentile themselves and had a 21% chance of being in jail on April 1st 2010.

The researchers’ analysis suggests that where a person is born is another important factor that determines life chances. Children of the same race and gender born to families with similar incomes but living in different neighborhoods see very different probabilities of finishing high school, staying out of jail and enjoying a high income as an adult. The neighborhood that matters is small—areas a mile away do not influence outcomes. And nearby neighborhoods can foster dramatically different outcomes. Some 44% of black men who grew up in the lowest-income families in the Watts neighborhood of Los Angeles between 1978 and 1983 were in jail on April 1st 2010. Only 6% of black men who grew up in the lowest-income families in Compton, a little more than two miles from Watts, were in jail on the same date. Poor black boys from Watts grew up to live in households with an average income of $7,300 in 2015 compared to a $19,100 average for male black kids from Compton.

Those results suggest that families who move to a neighborhood better at fostering opportunity can have a considerable impact on their children’s future. A policy experiment called Moving to Opportunity that gave randomly selected families living in high-poverty housing projects vouchers to support the expense of moving to lower-poverty neighborhoods demonstrates that effect. It led to large increases in the adult earnings of children who moved. Mr Chetty and colleagues found that children in their study who moved from low-opportunity to high-opportunity neighborhoods achieved better adult outcomes the earlier in childhood that they relocated.

Many of the factors that promote opportunity for children from a neighborhood are also associated with higher incomes amongst their parents: employment rates and numbers of college graduates, teen birth rates and numbers of single parent households. Compare the top and bottom 1,000 census tracts country-wide in terms of median household income. In 2016, the poorest neighborhoods saw a median income of $13,183 compared to the richest where it was above $178,616. The share of single parent households was 10% in the richest communities compared to 65% in the poorest. The proportion of employed adults was 65% compared to 40% and the proportion with a college education 73% compared to 15%.

Unsurprisingly, high income areas are more expensive to live in. The monthly rent for a two bedroom apartment or house averaged $2,042 in the richest census tracts compared to $564 in the poorest. But the researchers suggest there are many communities across the country which foster opportunity and yet have affordable rents. Hyde Park and Alsip in Chicago both had median rents of $1,000 a month in 1990. But as adults, people who had grown up in Alsip had incomes $24,000 higher on average than those from Hyde Park.

The researchers also found that neighborhoods that fostered opportunities for the last generation are likely to be more successful for the next generation as well. That suggests programmes that help low income families move from low-rent low-opportunity areas to low-rent higher-opportunity areas could have a significant payoff—and be a step on the road towards long-promised equal opportunity for children.