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Strictly Business: Location drives your bottom line

By Aaron Corvin, Columbian Port & Economy Reporter
Published: June 7, 2015, 12:00am

When we think about economic mobility — our capacity to improve our economic status by pumping up our paychecks — a college education, job training and hard work are among the winning ingredients that likely come to mind.

But what about where we grow up? To what extent does a neighborhood influence a child’s opportunity to expand her or his earning power later in life?

Turns out, more than we might think.

That’s the upshot of a trailblazing study, “The Impacts of Neighborhoods on Intergenerational Mobility: Childhood Exposure Effects and County-Level Estimates,” by Raj Chetty and Nathaniel Hendren, both of Harvard University.

Chetty and Hendren drill into the neighborhood/upward mobility question by examining data from tax records on more than 5 million children whose families moved across counties between 1996 and 2012.

The place in which a child grows up, they found, has “significant” causal effects on her or his hopes for upward economic mobility.

Take, for instance, the cities of Cincinnati and Pittsburgh. Children who grow up in low-income families in Cincinnati have an average income of $23,000 at age 26, according to the analysis, while those in Pittsburgh have an income of $28,000.

The analysis plots the increases in income that children of low-income families will, on average, obtain by moving from Cincinnati to Pittsburgh at some point during their childhood.

Children who were 9 years old at the time of the move, the analysis shows, “capture 50 percent of this difference, leading to an income of approximately $25,500 as adults.” Conversely, children who move from Cincinnati to Pittsburgh at later ages “have steadily declining incomes, relative to those who moved at younger ages,” the study shows.

In other words, the younger you are when your family makes that move, the fatter your wallet will be, on average, later on.

DuPage County in Illinois is No. 1 in the study’s upward-mobility rankings of the 100 largest counties in the U.S. Each additional year that a child spends growing up there raises that child’s household income in adulthood by 0.76 percent.

What about Clark County? It’s “about average in helping poor children up the income ladder,” according to a report by The New York Times based on Chetty and Hendren’s research.

So, what are the characteristics of places that improve upward mobility?

They tend to have “less segregation by income and race, lower levels of income inequality, better schools, lower rates of violent crime, and a larger share of two-parent households,” according to the study.

The study makes clear that moving to a better place is hardly the only, or even the most practical, way to climb the income ladder. They argue for rejuvenating neighborhoods with low levels of mobility.

How? The authors say their findings “provide support for policies that reduce segregation and concentrated poverty in cities” — such as affordable housing subsidies or changes in zoning laws — “as well as efforts to improve public schools.”

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Columbian Port & Economy Reporter