Rich parents often set their kids up for an easy life — they pass wealth onto their kids, help them get good jobs, and help them do better in school.
But a big part of why their kids do so well might simply be that they live in rich neighborhoods. In a new study appearing in the journal Economic Geography, Jonathan Rothwell from the Brookings Institution and Douglas Massey from Princeton University find that growing up in a rich neighborhood can mean hundreds of thousands of dollars more in lifetime earnings.
What they studied
There have been lots of studies on intergenerational mobility, but not a lot on how geography affects that mobility, write Rothwell and Massey. So they used Panel Survey of Income Dynamics and Census data on income in census tracts to figure out how neighborhood affected children's chances of moving up or down the income spectrum later in life.
What they found
Neighborhood plays a huge role in social mobility, they find — around half the size of the role that parental income itself plays.
Moving a child from a neighborhood in the bottom 25 percent of the income distribution to the top 25 percent, they found, yields hundreds of thousands of dollars in lifetime earnings.
Leaving all other things equal, the earnings difference between being born in a top-quartile and bottom-quartile household is around $635,000, or half the parental income effect. When you adjust for local price parities — taking into account, for example, that life in Wichita is cheaper than in New York City — the difference is even bigger, at over $900,000 — or around two-thirds of the parental income effect.
In comparison, they write, the difference in earnings between a high school diploma and a college diploma is $1.1 million — that makes the jump from a poor to a rich neighborhood almost as lucrative as getting a four-year degree.
The below table from the report showing the effects on both national and local levels.
In addition, Rothwell and Massey find that intergenerational mobility is closely linked to metro areas' levels of economic segregation — that is, the extent to which they have neighborhoods that are entirely made up of very poor or very middle-class or very rich people, with little mixing. That implies that in a more economically mixed city, the future earnings would be higher for one of the bottom-quintile person, relative to the bottom-quintile person from a segregated city, as the authors write.
What it means
If their results are true, it means that "growing up in a poor neighborhood would wipe out much of the advantage of growing up in a wealthy household," as Rothwell writes in a Brookings Institution blog post on the study.
Why would neighborhoods have such a big effect on lifetime earnings? The most obvious reason, the researchers write, is school quality.
"We know school quality is highly correlated with neighborhood income, and experimental evidence shows that poor children have higher cognitive scores and lifetime earnings when they attend good schools," Rothwell writes in his blog post. "Interesting quasi-experimental evidence from the random assignment of refugees shows that those who grow up in better neighborhoods do better at school."
What this means is that attempts to create more economically integrated cities via policies like affordable housing and providing higher-quality schools to lower-income kids, could be two powerful tools in helping low-income kids escape the bottom of the economic ladder.