Raj Chetty Stanford University Improving Economic Opportunity in America New Evidence and Policy Lessons 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:

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?

 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?

 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 Differences in Opportunity Within the United States 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 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 Boston 10.4% Chicago 6.5%

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 The Geography of Upward Mobility in the Bay Area Odds of Reaching the Top Fifth Starting from the Bottom Fifth by County

 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

0% 20% 40% 60% 80% 100% 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)

0% 20% 40% 60% 80% 100% 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)

1.Less residential segregation 2.Larger middle class 3.More stable family structure 4.Greater social capital 5.Better school quality What are the Characteristics of High-Mobility Areas? Five Strongest Correlates of Upward Mobility

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

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?

‘93‘94‘95‘96‘97‘98 Scores in 4 th GradeScores 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

‘93‘94‘95‘96‘97‘98 Scores in 4 th GradeScores 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

Teacher Quality (Value-Added) Percentile 5th95thMedian 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 Teacher Quality (Value-Added) Percentile 5thMedian The Value of Improving Teacher Quality

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 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

rd 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

rd 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

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

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 Policy Lessons

The Atlantic, Feb 24, 2016

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 Policy Lessons

Metro Area Odds of Rising from Bottom to Top Fifth Dubuque, IA17.9% San Jose, CA12.9% Washington DC10.5% U.S. Average7.5% Chicago, IL6.5% Memphis, TN2.6% An Opportunity and a Challenge