Class Notes: The end of the American dream?, opportunity markets, and more

This week in Class Notes:

• • Residential segregation contributes to rising inequality.
  • Upward intergenerational mobility increases subjective well-being while downward mobility deteriorates it.
  • Well–off parents can increase the probability of a middle class lifestyle for their children in opportunity markets.  
  • This week’s top chart shows that the Creating Moves to Opportunity (CMTO) program increased the number of families who moved to high-opportunity neighborhoods by 40 percentage points.
  • Steven Greenhouse opines on the plight of American workers.
  • Finally, check out our new piece on improving access to elite education institutions to increase social mobility, and our upcoming event on Moving to Opportunity.

The end of the American Dream? Inequality and segregation in US cities

Does residential segregation by income contribute to rising inequality? Yes, according to Alessandra Fogli and Veronica Guerrieri. The researchers develop a model for their analysis in which residential choice is treated as a form of human capital investment. Richer parents with more talented children choose to pay higher rents to live in neighborhoods with higher average human capital. An unexpected increase in returns to college increases inequality between educated and non-educated workers, and inequality is amplified because of residential segregation. Using census data from the United States, the authors show that residential segregation by income contributed to 28% of the total increase in inequality between 1980 and 2010.

Climbing up ladders and sliding down snakes: An empirical assessment of the effect of social mobility on subjective well-being

Intergenerational mobility affects subjective well-being (life satisfaction and mental health), according to researchers Paul Dolan and Grace Lordan. Relative upward mobility improves subjective well-being significantly more—especially for individuals who experience large income gains—as compared to absolute mobility. In contrast, absolute downward mobility damages subjective well-being much more than relative downward movement. The effect of absolute downward mobility is the most substantive; earning £100 less than your parents weekly gives the same deterioration to life satisfaction as being unemployed. Both relative and absolute downward mobility damage subjective well-being more than upward mobility improve it, consistent with the loss aversion hypothesis; losses hurt more than gains. Intergenerational mobility affects subjective well-being mainly through financial perceptions and consumption changes.

The rise of opportunity markets: How did it happen and what can we do?

Opportunity is for sale in America, according to Grusky et al. “Opportunity markets” allow well-off parents to buy high-quality education and other desirable inputs that increase the probability of a middle class lifestyle for their children. According Grusky et al., education reforms have not adequately tackled the rise of opportunity markets. In short, “merit” can be bought, in the form of high test scores and grade point averages, advanced placement exams, volunteering activities, and confidence. Low-income families are usually locked out of these opportunity markets. The authors propose some policy solutions including: income distribution to allow low-income families to participate in opportunity markets, and dismantling these markets by providing free high-quality education and childcare. However, the most realistic solution would be “convincing education-sector elites to define merit in a way that adjusts for the different environments in which it is constructed.” Specifically, they propose that an elite college should take an equal number of students from each decile of the income distribution, in the hope that this will trigger a “norm cascade” so that others quickly follow suit.

Top chart

This week’s top chart shows how the Creating Moves to Opportunity (CMTO) program in the Seattle Metro Area increased the number of families moving to high-opportunity neighborhoods by 40 percentage points. Low-income families eligible for housing vouchers were randomly assigned to receive housing search assistance, connections to landlords, and financial support.

Choice opinion 

“America’s workers have for decades been losing out: year after year of wage stagnation, increased insecurity on the job, waves of downsizing and offshoring, and labor’s share of national income declining to its lowest level in seven decades…The consequences are enormous, not only for wages and income inequality, but also for our politics and policymaking and for the many Americans who are mistreated at work” writes Steven Greenhouse in The New York Times.

Self-promotion 

In “Elite or elitist? Lessons for colleges from selective high schools”, Ashley Schobert and I argue that improving access to elite education institutions, including selective high schools, could be an important ingredient to create greater social mobility.

Also, don’t forget to join our event featuring new results on Moving to Opportunity from Jens Ludwig, professor at the University of Chicago, Jeffrey Kling from the Congressional Budget Office, and Nathaniel Hendren of Opportunity Insights and Harvard University. The presentations will be followed by two panels discussing the research in the field as well as the work on the ground by practitioners.

From the archive 

In light of the new Opportunity Insights paper on Moving to Opportunity, and our own upcoming star-studded event on the same topic, here is a 2015 piece by Jonathan Rothwell on that subject, “Sociology’s Revenge.”