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Raj Chetty

Stanford University

Improving Economic Opportunity in America�New Evidence and Policy Lessons

Photo Credit: Florida Atlantic University

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The American Dream?

Odds that a child born to parents in the bottom fifth of the income distribution reaches the top fifth:

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Odds that a child born to parents in the bottom fifth of the income distribution reaches the top fifth:

Canada

Denmark

UK

USA

13.5%

11.7%

7.5%

9.0%

Blanden and Machin 2008

Boserup, Kopczuk, and Kreiner 2013

Corak and Heisz 1999

Chetty, Hendren, Kline, Saez 2014

The American Dream?

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Odds that a child born to parents in the bottom fifth of the income distribution reaches the top fifth:

🡪 Chances of achieving the “American Dream” are almost � two times higher in Canada than in the U.S.

Canada

Denmark

UK

USA

13.5%

11.7%

7.5%

9.0%

Blanden and Machin 2008

Boserup, Kopczuk, and Kreiner 2013

Corak and Heisz 1999

Chetty, Hendren, Kline, Saez 2014

The American Dream?

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Differences across countries have been the focus of policy discussion

But upward mobility varies even more within the U.S.

We calculate upward mobility for every metro and rural area in the U.S.

Use anonymous earnings records on 10 million children born between 1980-1982

Differences in Opportunity Within the United States

Source: Chetty, Hendren, Kline, Saez 2014: The Equality of Opportunity Project

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The Geography of Upward Mobility in the United States

Odds of Reaching the Top Fifth Starting from the Bottom Fifth by Metro Area

San

Jose

12.9%

Salt Lake City 10.8%

Atlanta 4.5%

Charlotte 4.4%

Denver 8.7%

Note: Lighter Color = More Upward Mobility

Download Statistics for Your Area at www.equality-of-opportunity.org

Boston 10.4%

Chicago

6.5%

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Marin

Sonoma

Contra Costa

San Mateo

Santa Clara

Alameda

San Francisco

San Francisco: 18.5%

Alameda: 11.4%

San Mateo: 17.4%

Santa Clara: 17.7%

Note: Lighter Color = More Upward Mobility

Download Statistics for Your Area at www.equality-of-opportunity.org

The Geography of Upward Mobility in the Bay Area

Odds of Reaching the Top Fifth Starting from the Bottom Fifth by County

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Most of the variation in upward mobility across areas is caused by differences in childhood environment

Demonstrate this by studying 5 million families that move between areas in the U.S.

Why Does Upward Mobility Differ Across Areas?

The Importance of Childhood Environments

Source: Chetty and Hendren 2015

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0%

20%

40%

60%

80%

100%

10

15

20

25

30

Age of Child when Parents Move

Effects of Moving to a Different Neighborhood

on a Child’s Income in Adulthood by Age at Move

Children whose families move from Oakland to San Francisco when they are 9 years old get 54% of the gain from growing up in San Francisco from birth (they earn about $35,000)

Percentage Gain from Moving to a Better Area

Oakland (avg. earnings of $30,000)

San Francisco (avg. earnings of $40,000)

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0%

20%

40%

60%

80%

100%

10

15

20

25

30

Age of Child when Parents Move

Effects of Moving to a Different Neighborhood

on a Child’s Income in Adulthood by Age at Move

Percentage Gain from Moving to a Better Area

San Francisco (avg. earnings of $40,000)

Oakland (avg. earnings of $30,000)

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What are the Characteristics of High-Mobility Areas?�Five Strongest Correlates of Upward Mobility

Less residential segregation

Larger middle class

More stable family structure

Greater social capital

Better school quality

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Tax records

Earnings, College Attendance, Teen Birth

Education Policy: Using Big Data to Study Teachers’ Impacts

School district records

2.5 million children

18 million test scores

Source: Chetty, Friedman, Rockoff 2014a,b

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One prominent measure of teacher quality: teacher value-added

Measuring Teacher Quality: Test-Score Based Metrics

How much does a teacher raise her/his students’ test scores on average?

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50

52

54

56

‘93

‘94

‘95

‘96

‘97

‘98

Scores in 4^th Grade

Scores in 3^rd Grade

School Year

Average Test Score

Entry of Teacher

with VA in top 5%

A Quasi-Experiment: Entry of High Value-Added Teacher

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51

52

53

54

55

‘93

‘94

‘95

‘96

‘97

‘98

Scores in 4^th Grade

Scores in 3^rd Grade

School Year

Average Test Score

Entry of Teacher

with VA in bottom 5%

A Quasi-Experiment: Entry of Low Value-Added Teacher

50

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Teacher Quality (Value-Added) Percentile

5th

95th

Median

The Value of Improving Teacher Quality

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+$50,000 lifetime earnings per child

= $1.4 million per classroom of 28 students

= $250,000 in present value at 5% int. rate

Teacher Quality (Value-Added) Percentile

5th

95th

Median

The Value of Improving Teacher Quality

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Equality of Opportunity and Economic Growth

Traditional argument for greater social mobility is based on principles of justice

But improving opportunities for upward mobility can also increase size of the economic pie

To illustrate, focus on innovation

Study the lives of 750,000 patent holders in the U.S.

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0

2

4

6

8

0

20

40

60

80

100

Patent Rates vs. Parent Income Percentile

No. of Inventors per Thousand Children

Parent Household Income Percentile

Patent rate for children

with parents in top 1%:

8.3 per 1,000

Patent rate for children

with parents below median:

0.85 per 1,000

Source: Bell, Chetty, Jaravel, Petkova, van Reenen 2015

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0

1

2

3

4

5

-2

-1

0

1

2

3rd Grade Math Test Score (Standard Deviations Relative to Mean)

Patent Rates vs. 3^rd Grade Math Test Scores

90^th Percentile

No. of Inventors per Thousand Children

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0

2

4

6

8

-2

-1

0

1

2

3rd Grade Math Test Score (Standard Deviations Relative to Mean)

Par. Inc. Below 80^th Percentile

Par. Inc. Above 80^th Percentile

Patent Rates vs. 3^rd Grade Math Test Scores

for Children with Low vs. High Income Parents

No. of Inventors per Thousand Childreny

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2

4

6

8

-2

-1

0

1

2

High-ability children much more likely to become inventors if they are from high-income families

0

3rd Grade Math Test Score (Standard Deviations Relative to Mean)

Patent Rates vs. 3^rd Grade Math Test Scores

for Children with Low vs. High Income Parents

Par. Inc. Below 80^th Percentile

Par. Inc. Above 80^th Percentile

No. of Inventors per Thousand Childreny

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Improve childhood environments and primary education

Not just spending more money: U.S. already spends more on schools than other countries with better outcomes

Instead, focus on key inputs such as improving teacher quality or expanding high-performance charter schools

May be valuable to combine efforts in schools with other neighborhood-level investments

Policy Lessons

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Improve childhood environments and primary education

Tackle upward mobility at a local, not just national level

Help low-income families with young children move to higher opportunity areas by targeting housing vouchers

80% of Section 8 housing vouchers ($20 bil./year) currently used in low-opportunity areas

Improve opportunity in cities such as Baltimore and maintain opportunity in places like the Bay Area

Policy Lessons

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The Atlantic, Feb 24, 2016

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Improve childhood environments and primary education

Tackle upward mobility at a local, not just national level

Harness “big data” to develop a scientific evidence base for economic and social policy

Identify which neighborhoods are in greatest need of improvement and which policies work

County-level data on upward mobility publicly available at www.equality-of-opportunity.org

Policy Lessons

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Metro Area	Odds of Rising from Bottom to Top Fifth

Dubuque, IA	17.9%
San Jose, CA	12.9%
Washington DC	10.5%
U.S. Average	7.5%
Chicago, IL	6.5%
Memphis, TN	2.6%

An Opportunity and a Challenge