Restoring the American Dream

Influential economist describes novel work tracking economic mobility and policies to boost it

with census records, which contain race and ethnicity information. The resulting map for Black and White men exposes the stark gap between the two.

“We’re finding that if you take a Black boy and a White boy, who grew up in families at the exact same levels of income, same resources,” he continued, “they have dramatically different prospects of rising up.”

“So, race seems to matter. But there continues to be an important role for place,” he said

Creating Evidence-Based Policies to Support the American Dream

In his IPR Distinguished Public Policy Lecture on February 20, Harvard economist Raj Chetty discussed his research to systematically trace “the dramatic fading of the American Dream” by pairing big data with innovative models and methodology.

Chetty, the William A. Ackman Professor of Public Economics at Harvard University and director of Opportunity Insights, began with a dramatic contrast of the upward mobility of children born in 1940 to those born in the 1980s in the U.S.

“For kids born in the middle of the last century, it was a virtual guarantee that you were going to achieve the American dream of moving up,” he said, with 92% of children going on to earn more than their parents. Yet four decades later, that figure dropped to just 50%.

This reflects a “fundamental change” in the U.S. economy, he continued, with critical implications for U.S. society, politics, and elections.

Illustrating his talk with a series of maps, Chetty showed how anonymized tax data allowed his lab to trace the geography of upward mobility within the United States.

He pointed to the enormous variation in children’s chances of rising up out of poverty across the map, highlighting areas of high upward mobility indicated in blue and green—in the center of the country and the coasts—with red and orange signaling lower upward mobility, like in the Southeast U.S. and the urban Midwest, including Chicago and Cleveland.

As an example, he pointed to blue-green Dubuque, Iowa, where children who grew up in families making $27,000 a year on average— which is the average household income of low-income children by age 30—are now making between $45,000 and $50,000.

“That’s a tremendous amount of upward mobility in a single generation,” he said. Comparing a place of higher upward mobility like Dubuque to one of lower mobility like Atlanta also permits the researchers to examine what happens when people move from one to the other.

“We can start to unpack what the drivers are of these differences in economic opportunity, with an eye towards potentially making changes going forward, that might give children better chances of rising up,” Chetty said.

Chetty then dove into possible explanations for the wide differences in upward mobility around the nation.

Viewing the map through a demographic lens, Chetty highlighted how places with larger African American populations, like in the Southeast and Midwest Rust Belt cities, show up in red and orange on the map. To parse this possible connection, Chetty and his fellow researchers paired the tax data

Chetty said his research indicates viable policy solutions to promote the American Dream of upward mobility by reducing segregation, investing in places, and recognizing the role that universities and colleges can play.

For policy ideas to address segregation, Chetty discussed results of a randomized control trial (RCT) of a low-cost program of coordinated support called Creating Moves to Opportunity (CMTO) in Seattle. It revealed that for those in the experimental group of 500 Housing Voucher Choice recipients, 53% of them moved to neighborhoods with higher mobility versus just 15% for the 500 in the control group. That meant kids in the experiment group could wind up earning about $200,000 on average more over their lifetimes, Chetty said.

More customization of such low-cost social support—such as housing navigation services with information about local schools and financial assistance—could further promote social mobility as well. These approaches are now being tested in HUD’s Community Choice Demonstration that launched interventions similar to CMTO in eight U.S. cities, as well as finding their ways into congressional bills to expand housing voucher programs and corresponding mobility services.

“It’s just an illustration of how I think academic research, even in this polarized climate, can have a really direct impact on policy and, ultimately, on people’s lives,” Chetty said.