Where is the land of opportunity?

How much do children's social and economic opportunities depend on parents' income and social status? This is a politically correct way of asking: How doomed are children from poor parents?. The answer is essential to analyze policies that try to make every kids chances more equal. As always, a first step is to analyze what the data has to say about this. Fortunately, Chetty, Hendren, Kline and Saez (economists at Harvard and Berkley) are currently doing some beautiful analysis on this matter. Since opportunities are hard to measure, they focus primarily on income (although they also study education, crime or pregnancy) differences. 

Using tax-income data on 40 million children born between 1980 and 1982 and their parents, they are going to rank people according to their income level. Parents are going to be ranked in groups from 1 to 100, according to how they do income-wise relative to other parents. Similarly, children are going to be ranked according to their incomes when they are 30-32 years old relative to the other children. Then, they are going to focus on two measures of intergenerational mobility:
1) Relative Mobility: What are the outcomes of children from low-income families relative to those from high-income ones?
Example: If my parents income increases by one ranking point, how much is my income rank expected to increase?
(The problem with this measure is that higher mobility may be due to richer people doing worse, not poor ones doing better. Hence, the second measure might be more useful.)
2) Absolute Mobility: What are the outcomes of children from families of a given income level in absolute terms?
For example, what is the mean income of a child born from parents in the 25th percentile?

The chart below shows the national statistics of the rank-rank (relative mobility) relationship in 3 countries: Canada, Denmark and US. The slope in the US is 0.341, while the other two are half that much. This suggests that increasing one percentage point in parent rank, increases child mean rank by 0.341 percentage points. The fact that Canadian and Danish data suggest higher relative mobility should be taken with caution since this could be due to worse outcomes from the rich, rather than better ones from the poor. Interestingly, this strong correlation with parents income rank is also observed in children's college (attendance and quality) and teenage pregnancy, suggesting differences emerge well beyond the labor market. This is consistent with evidence from my previous post.

The previous chart suggests that the rank-rank relationship is highly linear. Hence, the authors are going to take advantage of this when analyzing the intergenerational mobility across different areas in the US. The question now is: Is mobility the same across the US? Or are some regions better for children to make the jump forward? Given the issues with relative mobility, we can now focus on absolute mobility: What is the mean income of a child born from parents in the 25th percentile? The heat map below shows that the Southeast shows the lowest mobility in the country, while the Great Plains, West Coast and Northeast display much higher mobility levels (the map should be read the map as darker is worse mobility). While in some regions children of parents in the 25th percentile tend to remain in the same percentile when they grow up, in other areas similar children do twice as better (in income rank terms). This pattern seems robust to controlling for children moving to other areas and cost of living or demographic reasons like marriage differences. 

The obvious next question is why are regions' mobility so different from each other? Why children in some areas seem to be born with more opportunities than those in other ones? This question is not directly addressed by the authors, but they provide some correlations with local characteristics. Given econometric issues like selection and endogeneity (also explained in a previous post!), the following should NOT be interpreted as causes.* However, they show interesting descriptive information.

1) Race and Segregation: The higher the share of African-Americans, the lower the mobility observed. However, the data suggests that this holds true for the white people in those areas as well. Hence, it is not that black people tend to remain stagnant. Segregation in the area seems to be correlated with everyone's mobility. Particularly, segregation of poverty seems to be the strongest reason (isolation of rich people does not seem to be behind). Some potential reasons could be: successful role models are not present for the poorest children; worse public goods provision; or access to jobs might be harder in such areas.

2) Income: The average income level is not correlated with mobility (i.e. it is not that richer areas do better or worse). However, areas with higher income inequality show lower degrees of mobility. Interestingly, the inequality in the upper tail is not correlated with mobility. Hence, it is not about the existence of some extremely rich people. It is more about the size of the middle class. The bigger the middle class, the higher the mobility.

3) School Quality: Better schools are associated with higher mobility.

4) Social Capital: Social participation in elections, census or even religious events is positively correlated with mobility.

5) Family Structure/Stability: The higher the number of single parents, the lower the mobility. Once again, this effect extends to children who are born from parents who remained together, suggesting that the effect is not at the individual level but at the social environment one. Regions with more divorce somehow have lower mobility.

To summarize, parents income seems to be very important on children opportunities. However, there is substantial variation across different areas in the US. Some areas seem to fit much better than others the concept of "Land of Opportunity." A child raised in the Great Plains has much better chances of making a leap forward than one born in the Southeast. Segregation, inequality and family structure are highly correlated with mobility. Unfortunately, why remains a mystery.  

* Families choose where they live and what institutions they support. So we can imagine that families that prefer to live in areas with better education systems or less income inequality are intrinsically different than those that prefer to live in the more segregated South of the US.

Based on an article by Chetty, Hendren, Kline and Saez. Extra information and some very nice figures and summary reports are available here.