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A view of the Gillette, Wyoming, U.S. suburbs is seen from Overlook Park May 31, 2016. REUTERS/Kristina Barker - HT1ED1R085F3E

Achieving the American Dream may depend on where you live

Editor’s note: The economists Nathaniel Hendren and Raj Chetty have co-authored studies on social mobility and income inequality. Hendren, who teaches at Harvard University, and Chetty, who teaches at Stanford University, recently spoke with PBS NewsHour’s Paul Solman for Thursday’s Making $ense segment. Here is an excerpt of their conversation, which was edited for length and clarity.


PAUL SOLMAN: So, what is the state of inequality research at the moment?

NATHANIEL HENDREN: We know over the last several decades we’ve had an increase in income inequality and the relative stagnation of median wages. Our work has focused on the implications of this for thinking about the opportunities for your children relative to previous generations.

PAUL SOLMAN: So the commonplace observation that kids aren’t going to earn as much as their parents is now
actually true?

RAJ CHETTY: Yeah, I would say basically it’s a coin flip at this point. Are you going to do better than your parents? It’s a 50-50 chance, whereas if you were born in the 1940s or 1950s, [you had] more than a 90 percent chance you were going to do better than your parents. So basically almost a guarantee for most kids that you were going to achieve the American Dream of doing better than your parents did. Today, that’s certainly no longer the case.

PAUL SOLMAN: What did you find in studying social mobility, or the lack of it in America?

RAJ CHETTY: One big picture finding from our research on social mobility is that there’s this large aggregate decline in the U.S. in your chances of achieving the American Dream of earning more than your parents. But I think where the story becomes more interesting and maybe a more optimistic one is that there are pockets of America, even today, where children from low-income families have significant chances of rising up in the income distribution. This finding of tremendous geographic variation is an encouraging one because it shows that even today there are places where we see the American Dream thriving and we simply need to understand how can we replicate those successes elsewhere throughout the country.

PAUL SOLMAN: And what are the factors [at play] here?

RAJ CHETTY: The first is residential segregation – places that are more segregated by race or by income tend to have lower levels of upward mobility. The second is income inequality. The third and fourth are social capital and family structures. [The] sorts of places with strong communities tend to have higher levels of upward mobility. And finally the fifth factor, as you might expect, is the quality of local public schools. Places with better public schools tend to have higher levels of upward mobility as well.

I think it’s [also] important to note that absolute mobility is strongly related to the growing inequality in the U.S. We calculate that something like one third of the decline in your chances of doing better than your parents is due to lower growth rates in the past few decades, relative to what we had in the 1950s and 1960s in the U.S. That makes sense. But the much bigger force, something that explains about two thirds of what’s going on, is the growth in inequality, the fact that virtually all of the gains in GDP that have occurred have gone to people at the very top of the income distribution, the top 1 percent or the top 0.1 percent.

NATHANIEL HENDREN: One thing that’s potentially reassuring on this front is that – and maybe depressing at the same time – is that the U.S. does seem to be unique in the degree to which growth is unequally distributed across the income distributions. [But] if we had an allocation of growth that’s similar to a lot of countries, say, in Western Europe, we would actually see a higher fraction of kids earning more than their parents.

PAUL SOLMAN: But do you think there’s any chance of that happening?

RAJ CHETTY: I think our view, from looking at this variation across areas, is that the solution lies in creating better childhood environments for kids growing up, especially in low income families. And so what we mean by that is thinking about things like schools, thinking about things like the quality of neighborhoods. If you think about what’s gone on in Baltimore, it’s a place of tremendous concentrated poverty. People aren’t really seeing a path forward and I think revitalizing places like that can have a huge impact, even in the face of globalization and changes in technology.

PAUL SOLMAN: So the idea is that you should try to get your kid out to the suburbs as fast as possible?

RAJ CHETTY: It could be the suburbs. In fact, there’s very good evidence from a number of studies we and others have done which show now that where you grow up and the age at which you move to the suburbs or to a neighborhood that in general seems to have better conditions can really dramatically affect a child’s outcomes.
What you find is that the kids who moved at young ages are dramatically better as adults. They’re earning 30 percent more, they’re 27 percent more likely to go to college, something like 30 percent less likely to have a teenage pregnancy, relative to the kids who stayed in the high poverty public housing projects. And so there’s clear scientific evidence that you can dramatically change kids’ outcomes just based on where they grow up.

PAUL SOLMAN: It sounds like the best thing you can do for a kid is get him or her out of the neighborhood into which he or she has been segregated.

RAJ CHETTY: You can’t move everyone out of Baltimore. You’ve got to make Baltimore a place that produces better outcomes for its kids.

PAUL SOLMAN: But that’s a rather depressing thing to hear, because people have been trying for decades to make places like Baltimore, inner city Baltimore, a better place to live. And according to your data, it isn’t working at all.

NATHANIEL HENDREN: That’s true and I think that’s certainly a depressing fact. I think the more optimistic side of this is that there are places in the U.S. that tend to have really high outcomes for kids in low-income backgrounds. [These] kind of variations [across] geographies can help us to understand what we want to do to places to help them improve the opportunities they’re providing for their kids.

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