William A. SundstromDepartment of EconomicsSanta Clara Universitywsundstrom@scu.edu

Economic opportunity or low-income trap? Lessons from recent research on intergenerational mobility in the United States

Thanks to…• Step Up Silicon Valley, http://stepupsv.org/ • Bannan Institute, Ignatian Center for Jesuit Education at Santa Clara University, https://www.scu.edu/ic/programs/bannan-institutes/

The poverty-reducing impacts of the nation's social safety net have been facing the headwind of increasing inequality of earnings and family income, and reductions in real market income of individuals and families at the bottom of the distribution. This growing inequality of wages and income appears to have large intergenerational effects as parental support for children is directly related to family economic position and to the education and resources of parents. The drive for increased equality of opportunity and upward mobility for poor children is a topic of growing interest and includes support for more and better preschool education as well as calls for parenting and “two-generation” programs.

Haveman et al,“The War on Poverty: Measurement, Trends, and Policy”

The poverty-reducing impacts of the nation's social safety net have been facing the headwind of increasing inequality of earnings and family income and reductions in real market income of individuals and families at the bottom of the distribution. This growing inequality of wages and income appears to have large intergenerational effects as parental support for children is directly related to family economic position and to the education and resources of parents. The drive for increased equality of opportunity and upward mobility for poor children is a topic of growing interest and includes support for more and better preschool education as well as calls for parenting and “two-generation” programs.

Haveman et al,“The War on Poverty: Measurement, Trends, and Policy”

The poverty-reducing impacts of the nation's social safety net have been facing the headwind of increasing inequality of earnings and family income and reductions in real market income of individuals and families at the bottom of the distribution. This growing inequality of wages and income appears to have large intergenerational effects as parental support for children is directly related to family economic position and to the education and resources of parents. The drive for increased equality of opportunity and upward mobility for poor children is a topic of growing interest and includes support for more and better preschool education as well as calls for parenting and “two-generation” programs.

Haveman et al,“The War on Poverty: Measurement, Trends, and Policy”

“Upward mobility for poor children”• What have we learned?• How much intergenerational mobility is there?• Is there a generational poverty “trap”?• What factors are associated with intergenerational mobility?

• What kinds of policies and interventions work to prevent generational poverty?

Persistence of poverty• Poverty remains a persistent problem in affluent America… and in affluent Silicon Valley

Source: http://www.cbpp.org/research/poverty-and-inequality/chart-book-accomplishments-of-the-safety-net

Poverty in Santa Clara County, 2014

USASanta Clara

CountyEveryone: Official 15% 9%Children: Official 22% 9%

Poverty in Santa Clara County, 2014

USASanta Clara

CountyEveryone: Official 15% 9%Children: Official 22% 9%Everyone: Supplemental 15% 17%Children: Supplemental 17% 19%

Sources: https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-254.pdf http://www.ppic.org/main/publication_show.asp?i=261 http://www.ppic.org/main/publication_show.asp?i=721

Why haven’t we solved this problem?• Structural changes in the economy loom large• Especially, unequal sharing of gains from economic growth since the 1970s

• But another recurrent concern: Is poverty so persistent because people become “trapped” in poverty?

• These concerns melded with fears that policies associated with the War on Poverty may only have made things worse

Challenge of generational poverty• Poverty status transmitted across generations• Challenge to the “American creed” of equal opportunity• Challenge to social science: Can we measure it? What causes it?

• Challenge to policy: breaking the vicious circle

Concerns have been around a long time“These are people who lack education and skill, who have bad health, poor housing, low levels of aspiration and high levels of mental distress.…Each disability is the more intense because it exists within a web of disabilities. And if one problem is solved, and the others are left constant, there is little gain.”

Michael HarringtonThe Other America (1962)

Feedback loops• Harrington and many others have linked intergenerational persistence to a “culture of poverty”

• But there are structural sources of disadvantage too…• Children in poverty tend to:

• Receive education of lower quantity and quality• Have lower nutritional and health status and less access to

quality health care• Live in more stressful, violent, and polluted places• Develop fewer valuable social connections• Suffer from greater segregation and racial discrimination

Investment in human and social

capital

Next generation’s resources

Parental resources, neighborho

od

On the other hand…• Many forces counteract negative feedback loops

• Despite its shortcomings and inequities, public education provides many skills and access to opportunities

• Kids and communities are resilient• Luck plays a role• So does place… and people do move around

• What is the balance of these forces for persistence across generations (poverty trap) vs. mobility?

• A look at the evidence

Intergenerational income mobility in USA• New evidence and insights from large team led by Raj Chetty at Stanford

• http://www.equality-of-opportunity.org/ • Using tax records to link people across generations and track their incomes… Big data!

• How does your income as an adult depend on the income of your parents when they were raising you?

Intergenerational mobility by income rank• Thought experiment: Start with a kid who is 15 years old in 2000

• Determine her family’s pre-tax annual income: Where do they rank in the national income distribution (percentile)?• Family in the middle: about $60,000• Family at rank 10th/100: $15,000• At rank 90th/100: $145,000

• Now track that same kid to age 30 in 2015. Where does she rank?

3040

5060

70

0 20 40 60 80 100

Parent Income Rank

1971-74 1975-78 1979-82

71-74 Slope = 0.299(0.009)

75-78 Slope = 0.291(0.007)

79-82 Slope = 0.313(0.008)

Child Income Rank vs. Parent Income Rank by Birth CohortM

ean

Chi

ld In

com

e R

ank

Implication for generational poverty• What percentage of kids raised below the poverty line will end up in poverty as adults?

• They don’t answer this, but using their table, we can estimate it

• Glass half empty interpretation: about a quarter (27%) will be poor as adults.

• Glass half full interpretation: Despite adverse economic conditions, about three-quarters do “escape” poverty.

Opportunity and place• On average, people who grow up poor do escape poverty• But this average masks a lot of variation across individuals and places

• Source for maps: http://www.equality-of-opportunity.org/assets/documents/mobility_geo.pdf

The Geography of Intergenerational Mobility in the United StatesPredicted Income Rank at Age 26 for Children with Parents at 25th Percentile

Corr. with baseline 25 = 0.98 (unweighted), 0.86 (pop-weighted)

Adjusted for local cost of living

Upwardly mobile places have…• Less segregation by income and race• Lower levels of income inequality• Better schools• Lower rates of violent crime• More social capital• Larger share of two-parent households

Generational poverty?• Nationally, most people who grow up poor are not caught in an intergenerational “poverty trap”

• But there are places where it is much more likely to happen:• Segregated urban areas, esp. in the “Rust Belt”• Areas of the South and Southwest with large concentrations of

people of color

Preventing generational poverty• What can be done to reverse generational poverty where it occurs, and prevent it elsewhere?

• No one-size-fits-all policy solutions: different families in different places face different challenges

• Still, we actually know a lot about policies and interventions that work for many

Investment in human and social

capital

Next generation’s resources

Parental resources, neighborho

od

Investment in human and social

capital

Next generation’s resources

Parental resources, neighborh

ood

Income and safety net policies• Income support

• EITC• Making work pay: jobs, training, minimum wage

• The safety net• SNAP, Medicaid, housing assistance, etc.

Income and safety net policies• Does just giving families more resources help the kids long-run?• Growing body of evidence says yes• Effects of EITC, food stamps, on educational achievement,

health, and income• Even temporary help important• In other words, one can address “root causes” by treating “symptoms”

Strengthening communities• Importance of place suggests these may be important, but research on long-run effects lacking…

• Neighborhood economic development• Environmental justice• Public safety• Reducing discrimination • Mitigating impact of mass incarceration

Investment in human and social

capital

Next generation’s resources

Parental resources, neighborho

od

Investing in children• Education and early childhood development• Return to human capital – both quantity and quality – larger than ever…

• … but educational inequities are large and may be growing: income-achievement gap has widened

Investing in children• When do we get the most bang for our buck?• Earlier investments should be more effective

• Young brains are more “plastic”• Learning dynamics: skills beget skills

Sources: See https://heckmanequation.org/

Early childhood interventions: the evidence• Paradox: Many studies find

modest short-run impacts on cognitive skills and outcomes, but these often fade out within a few years

• But a number of studies have found large positive long-run impacts of high-quality early child development interventions in terms of incomes, crime, etc.• Perry Preschool Project: 1960s• Carolina Abecedarian: 1970s• Head Start

• Now a widely accepted policy prescription

Summing up• Poverty is not destiny• We know strategies that work• We know more strategies that we expect will work… but the evidence is not in

• We should strive to:• Protect and expand income transfers and the safety net• Invest more in disadvantaged kids• Mobilize politically for positive change• Experiment and learn!

Thank you, and keep up the good work!