Improving Economic Opportunity in America
New Evidence and Policy Lessons
Raj Chetty
Stanford University
Photo Credit: Florida Atlantic University
The American Dream?
 Odds that a child born to parents in the bottom fifth of the
income distribution reaches the top fifth:
The American Dream?
 Odds that a child born to parents in the bottom fifth of the
income distribution reaches the top fifth:
USA
UK
Denmark
Canada
Chetty, Hendren, Kline, Saez 2014
Blanden and Machin 2008
Boserup, Kopczuk, and Kreiner 2013
Corak and Heisz 1999
7.5%
9.0%
11.7%
13.5%
The American Dream?
 Odds that a child born to parents in the bottom fifth of the
income distribution reaches the top fifth:
USA
UK
Denmark
Canada
Chetty, Hendren, Kline, Saez 2014
Blanden and Machin 2008
Boserup, Kopczuk, and Kreiner 2013
Corak and Heisz 1999
7.5%
9.0%
11.7%
13.5%
 Chances of achieving the “American Dream” are almost
two times higher in Canada than in the U.S.
Differences in Opportunity Within the United States
 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
Source: Chetty, Hendren, Kline, Saez 2014: The Equality of Opportunity Project
The Geography of Upward Mobility in the United States
Odds of Reaching the Top Fifth Starting from the Bottom Fifth by Metro Area
Denver 8.7%
Chicago
6.5%
Boston 10.4%
San
Jose
12.9%
Charlotte 4.4%
Salt Lake City
10.8%
Atlanta 4.5%
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
Sonoma
Marin
Contra
Costa
San Francisco
San Mateo
Alameda
Santa Clara
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
Why Does Upward Mobility Differ Across Areas?
The Importance of Childhood Environments
 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.
Source: Chetty and Hendren 2015
100%
80%
San Francisco (avg. earnings of $40,000)
40%
60%
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)
20%
0%
Percentage Gain from Moving to a Better Area
Effects of Moving to a Different Neighborhood
on a Child’s Income in Adulthood by Age at Move
Oakland (avg. earnings of $30,000)
10
15
20
25
Age of Child when Parents Move
30
100%
40%
60%
80%
San Francisco (avg. earnings of $40,000)
20%
0%
Percentage Gain from Moving to a Better Area
Effects of Moving to a Different Neighborhood
on a Child’s Income in Adulthood by Age at Move
Oakland (avg. earnings of $30,000)
10
15
20
25
Age of Child when Parents Move
30
What are the Characteristics of High-Mobility Areas?
Five Strongest Correlates of Upward Mobility
1. Less residential segregation
2. Larger middle class
3. More stable family structure
4. Greater social capital
5. Better school quality
Education Policy: Using Big Data to Study Teachers’ Impacts
School district records
2.5 million children
18 million test scores
Tax records
Earnings, College
Attendance, Teen Birth
Source: Chetty, Friedman, Rockoff 2014a,b
Measuring Teacher Quality: Test-Score Based Metrics
One prominent measure
of teacher quality:
teacher value-added
How much does a
teacher raise her/his
students’ test scores
on average?
A Quasi-Experiment: Entry of High Value-Added Teacher
56
Average Test Score
Entry of Teacher
with VA in top 5%
54
52
50
‘93
‘94
‘95
‘96
School Year
Scores in 4th Grade
‘97
Scores in 3rd Grade
‘98
A Quasi-Experiment: Entry of Low Value-Added Teacher
55
Entry of Teacher
with VA in bottom 5%
Average Test Score
54
53
52
51
50
‘93
‘94
‘95
‘96
School Year
Scores in 4th Grade
‘97
Scores in 3rd Grade
‘98
The Value of Improving Teacher Quality
5th
Median
95th
Teacher Quality (Value-Added) Percentile
The Value of Improving Teacher Quality
+$50,000 lifetime earnings per child
= $1.4 million per classroom of 28 students
= $250,000 in present value at 5% int. rate
5th
Median
95th
Teacher Quality (Value-Added) Percentile
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.
Patent Rates vs. Parent Income Percentile
6
4
2
Patent rate for children
with parents below median:
0.85 per 1,000
0
No. of Inventors per Thousand Children
8
Patent rate for children
with parents in top 1%:
8.3 per 1,000
0
20
40
60
Parent Household Income Percentile
Source: Bell, Chetty, Jaravel, Petkova, van Reenen 2015
80
100
1
2
3
4
90th Percentile
0
No. of Inventors per Thousand Children
5
Patent Rates vs. 3rd Grade Math Test Scores
-2
-1
0
1
2
3rd Grade Math Test Score (Standard Deviations Relative to Mean)
No. of Inventors per Thousand Childreny
0
2
4
6
8
Patent Rates vs. 3rd Grade Math Test Scores
for Children with Low vs. High Income Parents
-2
-1
0
1
2
3rd Grade Math Test Score (Standard Deviations Relative to Mean)
Par. Inc. Below 80th Percentile
Par. Inc. Above 80th Percentile
No. of Inventors per Thousand Childreny
0
2
4
6
8
Patent Rates vs. 3rd Grade Math Test Scores
for Children with Low vs. High Income Parents
High-ability children much more
likely to become inventors if they
are from high-income families
-2
-1
0
1
2
3rd Grade Math Test Score (Standard Deviations Relative to Mean)
Par. Inc. Below 80th Percentile
Par. Inc. Above 80th Percentile
Policy Lessons
1.
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
1.
Improve childhood environments and primary education
2.
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
The Atlantic, Feb 24, 2016
Policy Lessons
1.
Improve childhood environments and primary education
2.
Tackle upward mobility at a local, not just national level
3.
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
An Opportunity and a Challenge
Metro Area
Odds of Rising from
Bottom to Top Fifth
Dubuque, IA
San Jose, CA
Washington DC
U.S. Average
Chicago, IL
Memphis, TN
17.9%
12.9%
10.5%
7.5%
6.5%
2.6%