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Where You Grow Up May Affect How Well You Climb The Income Ladder

Stanford University Economics Professor Raj Chetty discusses upward mobility ...

Above: Stanford University Economics Professor Raj Chetty discusses upward mobility at a talk in San Diego, Feb. 27, 2018.

As California's middle class downsized over the last 50 years, income inequality rose. Stanford University Economics Professor Raj Chetty has made the widening gap his research bailiwick. His Equality of Opportunity Project studies what has wounded the American Dream and how it can be resurrected.

KPBS spoke with Chetty about the link between inequality and democracy and how childhood environment is key in boosting economic success.

Q: The poverty rate in California is at 20 percent, the highest in the nation when adjusted for the cost of living. How big of a threat is income inequality to the California dream, the American dream in general and democracy itself?

A: I think inequality and poverty in particular are critical issues. They’re some of the most important issues of our time that I think affect how Americans across the United States and California, in particular, feel about society, feel about democracy, feel about other countries. And I think the frustration that you see people expressing around the country is related to the fact, not just of income inequality at a given point in time, the fact that there are some people in the country, a relatively small fraction of people who are doing extremely well — say the top one percent — and a large fraction who aren’t seeing their fortunes improve as much as in the past. But also, importantly, a lack of opportunity, a feeling that in the past if I worked hard, I could get ahead and achieve the American dream of moving up but today maybe that’s not as possible for my children.

Q: To what extent does income inequality affect social mobility?

A: I think there is a link between income inequality and social mobility. In particular, we find that areas with more income inequality, a smaller middle class for example, tend to have lower levels of social mobility. By that we mean lower chances of kids climbing the ladder relative to their parents across generations. One of the ways in which that link might arise is that places with more inequality tend to have more segregation. So for example, low-income kids are going to different schools relative to higher income kids. They’re not interacting as much with people from different backgrounds. And those kinds of factors can lead to less social mobility, less opportunity to climb the ladder across generations.

Q: Why is upward mobility higher in some California cities than others?

A: There’s a lot of variation in grades of upward mobility, kids’ chances of achieving the American Dream, if you’d like, across cities in California, across cities in the United States. There are some parts of America where kids’ chances of climbing the income ladder are higher than anywhere else in the world. There are other parts of America where your chances of escaping poverty are lower than anyplace in the world and so why is that the case? While it’s difficult to figure out exactly what the recipe is for success in some places relative to others, we’ve looked in our research at what factors predict these differences. And we’ve identified five main characteristics of cities that have high levels of upward mobility. The first is that places that are less residentially segregated, where the poor and the rich are living in closer proximity, tend to have higher levels of upward mobility. The second is that places with less income inequality, a larger middle class, tend to have higher levels of upward mobility. The third is that places with more stable family structures, more two-parent families, for example, tend to have higher levels of social mobility. And the fourth, somewhat related to that is that places with more social capital — so think of the old adage that it takes a village to raise a child. Will someone else help you out even if you’re not doing well? Places that have a lot of social capital tend to have more upward mobility. And the fifth, perhaps quite intuitively, is that places with better schools, better elementary schools, better higher education, tend to have higher levels of social mobility

Q: Overall, how does a person’s childhood environment affect his or her economic success as an adult?

A: We find that there are profound differences in your chances of climbing the income ladder based on where you grow up and what your environment looks like. In particular, if you look at kids who move to better areas, lower poverty neighborhoods with better schools when they are young, you see that they do dramatically better when they become adults. They’re more likely to go to college. They have higher levels of earnings. They’re less likely to have teenage pregnancies. So in a variety of dimensions, childhood environment — quality of schools but also the neighborhood you’re living in, resources — really is central in understanding what drives mobility.

Q: What can be done to create a better environment for children?

A: I think there are really two approaches one could think about. One is what you might call a choice-based approach where you give low-income families the opportunity to move to existing neighborhoods where you have better outcomes for low-income kids. In the United States, for example, we spend about $45 billion a year on various affordable housing programs that are precisely intended to give low-income families better chances of living in neighborhoods that will help their kids thrive. Unfortunately, the way the programs work today, 80 percent of families use things like housing vouchers, for example, but still live in relatively low-opportunity areas. So one strategy is to try to take that money we’re already spending and redesign those programs so that families can use voucher assistance to live in better neighborhoods where their kids will thrive. Now that approach, while quite promising, is not fully scalable. You can’t just move everyone into a higher opportunity area. So ultimately we need to think about how to invest in neighborhoods that are currently lower opportunity, improving schools, improving the quality of public services, reducing segregation, in my view, in a very data-driven way, trying to diagnose exactly what the problems are in a particular neighborhood and addressing those problems. I think that is feasible with new data. I think taking that two-pronged strategy can really make a difference.

Q: In terms of strategies, how do policymakers, how does government help to resurrect the dream of access to economic opportunity?

A: I think government can play a huge role precisely because government already plays a big role in trying to foster the American Dream. We have a huge set of social programs on which we spend quite a bit of money. I mentioned affordable housing programs as one example. Another big example is support for higher education. I think thinking about how we more effectively design those programs to achieve the goals we intend and then expanding the programs that are successful in an evidence-driven, data-based way is the path forward.

Q: What motivated you to study income inequality?

A: My own interest in issues of income inequality really comes from my personal background. I grew up in India for the first part of my childhood and then moved to the United States. My parents came here very much motivated by searching for the American Dream. Just seeing the stark contrast in opportunities myself, it’s totally obvious to me that I wouldn’t have the opportunities I had today had I not been able to come to the U.S. I think it’s really just created a longstanding interest in studying these issues and I’d like to figure out how to give more kids, across the United States and around the world, more opportunities to succeed.

Logo for Cal Dream project The California Dream Project is a statewide collaboration focused on issues of economic opportunity, quality-of-life, and the future of the California Dream. Partner organizations include CalMatters, Capital Public Radio, KPBS, KPCC, and KQED.

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