## Ensuring the American Dream

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**Canonical URL:** [Ensuring the American Dream](https://www.imf.org/-/media/files/publications/fandd/article/2022/june/chetty.pdf)

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### Decline in upward mobility and the case for childhood targeting
- 90 percent of children born in 1940 grew up to earn more than their parents; only half of today’s young adults earn more than their parents did at the same age.
- Childhood matters for two reasons: children’s environment growing up profoundly shapes their outcomes in adulthood, and policies that directly expand investment in children—especially low-income children—are often the most cost-effective way to reduce intergenerational inequality.
- The research uses the Opportunity Atlas, which measures upward mobility for every neighborhood in the United States using census and tax records.

### Neighborhood effects on long-term outcomes
- Analysis of more than 5 million children whose families moved while they were growing up shows that moving to more upwardly mobile neighborhoods causally improves adult outcomes.
- Charted neighborhood variation (New York City examples):
  - Income spread for New Yorkers whose parents earned $27,000 annually: >$60K, $34K, <$10K, $17K, $26K, >$45K, $24K, <$10K (as presented in the source).
  - Brownsville (Brooklyn) example: adult incomes for low-income children depended significantly on which side of Dumont Avenue they grew up.
- Estimated income gains by age of move (Brooklyn example, Chart 3):
  - Average income at age 35 if remaining in Van Dyke Houses: $17.0K.
  - Predicted average incomes at age 35 for hypothetical children who move to Nehemiah Houses at different ages: $20.3K, $23.7K, $27.0K (mapped to older-to-younger ages as in Chart 3).
- Timing matters:
  - Children who move at age two to a higher-opportunity neighborhood are predicted to earn roughly $25,000 a year as adults versus $17,000 had they remained in Van Dyke Houses.
  - Each additional year of exposure to a higher-opportunity neighborhood improves later-life outcomes.
  - Improvements in environment matter into adolescence and beyond; moving to a better neighborhood at 15 instead of 20 is still valuable.
  - It is only after age 23 that there are no longer observable effects on income from a move to a higher-opportunity neighborhood.

### Comparative evaluation of policies: MVPF framework and main results
- The study reviewed 133 policies implemented over the past 50 years and compared them using the marginal value of public funds (MVPF).
  - MVPF = ratio of the benefit provided to recipients relative to the net cost to the government (including long-term budget effects such as reduced social expenditures or increased tax revenue).
- Policies were grouped into 12 programmatic categories; for each category the average MVPF was plotted against the average age of beneficiaries (Chart 4).
- Key finding: investments in children historically yielded the highest MVPFs. High-MVPF categories included:
  - Expanded health insurance for children.
  - Investments in preschool and K–12 education.
  - Policies to increase college attendance.
- Some policies historically paid for themselves and were assigned an MVPF of ∞ in the analysis.
  - Example: policies that expanded health care insurance coverage for children, on average, yielded $1.80 for every $1.00 in up-front spending.
- Chart 4 indicators (as presented):
  - Marginal value of public funds axis ranged from <-1 to >5 with category averages and ∞ marked for some child-targeted categories.
  - Categories shown in Chart 4: Child Education, Health Child, College Child, Housing Vouchers, Job Training, Cash Transfers, Top Taxes, Disability Ins., Health Adult, College Adult, Supp. Sec. Inc., Unemp. Ins.

### Housing vouchers, barriers to mobility, and the CMTO experiment
- Observation: low-income families receiving housing choice vouchers tend to concentrate in neighborhoods with low levels of upward mobility; vouchers alone have had limited effect on reducing residential segregation and expanding economic opportunity.
- Creating Moves to Opportunity (CMTO) pilot (2018, Seattle Metropolitan Area):
  - Intervention: randomly selected voucher recipients were provided housing search assistance, connections to landlords, and financial support.
  - Outcomes: 53 percent of families receiving assistance moved to higher-opportunity neighborhoods, while only 15 percent of families with no help found housing in high-upward-mobility neighborhoods.
- Estimated long-run impact of CMTO-style moves:
  - Children who move at birth to a high-opportunity neighborhood as part of the CMTO program and stay there until adulthood are estimated to have lifetime earnings $200,000 higher than if they remained in a lower-opportunity neighborhood.

### Policy implications and conclusions
- Geographic variation in mobility implies substantial room for policy to expand opportunity; targeted interventions during childhood produce the largest social returns per dollar of net government spending.
- Both earlier childhood investments (preschool, health coverage) and programs targeting older children (high-school and college-age) tend to yield large payoffs to taxpayers.
- Reducing barriers—rather than assuming preference-driven location choices—is effective: targeted services that help voucher recipients navigate housing markets significantly increase moves to higher-opportunity neighborhoods.
- The evidence suggests many investments in children can both improve intergenerational mobility and generate fiscal returns, creating stronger incentives for society to expand such investments.

*Source: Chetty, Raj, and Nathaniel Hendren. June 2022. "Ensuring the American Dream" (Opportunity Atlas and related analyses).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/june/chetty.pdf_