University News

Harvard prof looks at equality of opportunity

Economics professors discuss potential policy changes based on big data, quasi-experiments

Staff Writer
Tuesday, March 3, 2015

“You could reasonably have different views on the subject of inequality,” said Harvard Professor of Economics Raj Chetty in a lecture and panel discussion featuring his work Monday.

The event — titled “Equality of Opportunity in America: Where Shall We Look?” — was part of an economics symposium series.

Some people believe that wealth should be spread equally, and others have the view that if a person has made money on their own, they’re entitled to it, he said. “But because most people believe that social mobility or equality of opportunity is an important part of the American ideal — insofar as inequality seems to erode social mobility — then inequality potentially becomes a concern for everyone.”

Chetty is the recipient of both a MacArthur Foundation Genius Grant and the American Economics Association’s John Bates Clark Medal. Around 250 community members attended the packed event, which was co-sponsored by the Department of Economics and the Watson Institute for International Studies.

Other panelists included Professors of Economics John Friedman, Justine Hastings and Glenn Loury. Louis Putterman, professor of economics and chair of the department, and Nathaniel Hilger, assistant professor of economics, moderated the panel.

The symposium aimed to highlight the relevance of economics to pressing real-world issues, Putterman said.

Chetty opened the event by remarking on the low probability of achieving the American dream in the United States. “Distilling the phenomenon to a simple statistic,” Chetty said the probability that a child born to parents in the bottom fifth of the income distribution will move to the top fifth is a slender 7.5 percent. In the United Kingdom, Denmark and Canada, the rates stand at 9, 11.7 and 13.5 percent, respectively. “Your chances of achieving the American dream are almost twice as high in Canada as in the U.S.,” he said.

While international comparisons have been the focus of recent policy discussion on the subject, Chetty quickly shifted the discussion toward the differences in opportunity within the United States. Based on a comprehensive and long-spanning sample of 40 million children born between 1980 and 1993, Chetty said differences in upward mobility vary even more within the United States than across developed countries.

Chetty stressed that  large variation exists in the probability of reaching the top from the bottom on both a regional level and a county level.

Chetty went on to argue that childhood environments play a central role in why upward mobility varies across locations.

Chetty cited two studies addressing county-level disparities. The first study documented families who moved locations and showed that children whose families moved from one county to another experienced a change in their earning capacity in proportion to the age at which they moved. For example, a child whose family moved from Providence to Worcester at age nine would receive 70 percent of the benefits of growing up in Worcester from birth, in terms of economic mobility.

The second study, an experiment called Moving to Opportunity, gave low income families housing vouchers to move to low-poverty areas. The study showed similar results as the first: Children who moved to low-poverty areas at a young age did much better financially as adults. Moving had little effect on the outcomes of teenagers and parents, Chetty said.

Making the case for the tie between equality of opportunity and economic growth, Chetty challenged the traditional zero-sum argument that improving outcomes for low-performing children comes at the expense of high-performing individuals. Instead, he argued that improving equality of opportunity can actually increase the size of the economic pie.

Three policy changes to address equality of opportunity are tackling social mobility at a local and not just a national level, improving the childhood environment at all ages  and using big data to assess local performance and improvement, Chetty concluded.

Continuing on the theme of policy initiatives to increase equality of opportunity, Friedman addressed the issue in relation to educational policies.

Students attending the same college tend to have a similar probability of reaching the top of the income distribution, regardless of their family background, Friedman said. “Once we get kids to college, a lot of these differences disappear,” he added.

Stressing the importance of developing skills in students so that they can get into college of their own accord — where their family income has less bearing on their future income — Friedman highlighted the need to improve instructional quality, citing two studies.

The first study showed that improving kindergarten class quality resulted in an increase in earnings of nearly $1,000 per year; the second consisted of a quasi-experiment which showed that replacing a low-quality teacher with an average-quality teacher could greatly increase lifetime earnings.

Hastings emphasized the importance of a good school for student outcomes, citing studies that showed a good school has dramatic impacts on test scores, college attendance and graduation rates. Both charter schools and above average public schools were effective at reducing the achievement gap between students from different regions of the income distribution, she said.

Speaking to ways to reduce disparities in educational opportunities, Loury argued that “one may want to consider tearing down the barriers which suburban middle-class communities have assiduously erected around their high-quality primary and secondary public schools.”

Loury stated that a focus on equal opportunity may be a poor moral substitute for a focus on the redistribution of wealth in the name of equality. To conclude the panel, he said that while geographic relocation of low-income individuals to low-poverty areas may have large benefits, one must be mindful of the fact that there is a personal cost which people incur from moving from one place to another.

A previous version of this article misidentified the number of attendees as approximately 100. In fact, approximately 250 community members attended. The Herald regrets the error.