David Leonhardt of the New York Times has highlighted a recent article by economists Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez. Chetty et al use IRS data to look at how the income mobility of children varies across different local areas in the U.S. Income mobility is the child’s rank in the U.S. income distribution at ages 30 or 31, in 2010 or 2011, versus their parent’s rank in the income distribution. This study is able to present such detailed local results largely because the access to IRS data provides unusually large sample sizes for each of the 750 “Commuting Zone” local areas that are defined so as to comprise the entire U.S.
Leonhardt does a good job of summarizing many of the study’s key results. The key result is that income mobility varies quite a bit across local areas in the U.S., and that only a modest part of these income mobility differences can be explained by observable variables in this data base.
The Chetty et al study considers income mobility for persons who were born well before states began large scale investments in pre-K programs or other early childhood programs. However, I think the study provides indirect evidence that a wide variety of policies that can enhance the experiences of children when they are young may positively affect income mobility.
One of the most interesting findings is that the effects of local areas on income mobility also occurs for children whose parents moved into a local area, but much more so if the parents moved in when the child was young. Apparently something about the environment of a local area makes a key difference to the potential for upward mobility of a child, but only if the child experiences that environment at a young enough age. The importance of local areas at younger ages appears to be robust to focusing across two siblings in the same family, one who experienced the local area at a younger age than the other sibling. Therefore, the importance of local areas at younger ages is not due to some unobservable differences across families in who moves where.
Another interesting finding is that local areas matter much more to income mobility for children from lower income families. The intuition might be that upper-income families are able to insulate children more from some of the problems in a metro area, whereas lower-income families are affected more by the local “environment”: the local economy, social culture, and educational opportunities.
The Chetty et al. study finds some evidence that local areas will have greater income mobility if they have less residential income segregation, more generous earned income tax credits for low-income, higher test scores in K-12, and lower high school dropout rates. Both K-12 test scores and high school dropout rates can be improved by high-quality early childhood education programs. Therefore, early childhood programs at least should have important indirect effects in increasing income mobility. It is possible that if we had later data on income mobility, with more variation across local areas in early childhood programs, that early childhood programs would have even larger direct effects in improving income mobility. However, obviously many other aspects of the local environment for lower income families also affect income mobility. Improving early childhood programs is only part of what needs to happen to improve U.S. income mobility. Dealing with issues of income segregation and racial segregation, and directly helping the living standards of low-income families with young children, are also important policies to consider.
But in my view, the key point remains: local areas matter. There is some tendency in national debates in the U.S. to assume that what matters to important economic and social outcomes is the national economy and national policy, and that local areas only have a peripheral role in affecting these outcomes. That is not the case. What state and local governments choose to do in public policy has a major effect on the long-term economic well-being of the children who grow up in a particular state or local area. Policy activists who focus on state and local public policy, including early childhood advocates, should take this as encouragement to redouble their affects to affect state and local policies. State and local policies make a big difference, especially for young children, and especially for young children from lower-income families.