Applied Microeconomics Seminar co-sponsored by the PSTC.

Friedman will discuss work that he and his co-authors (Raj Chetty, Nathan Hendren, Maggie R. Jones, and Sonya R. Porter) have done to construct a publicly available atlas of children’s outcomes in adulthood by Census tract using anonymized longitudinal data covering nearly the entire U.S. population. For each tract, they estimate children’s earnings distributions, incarceration rates, and other outcomes in adulthood by parental income, race, and gender. These estimates allow them to trace the roots of outcomes such as poverty and incarceration back to the neighborhoods in which children grew up. They find that children’s outcomes vary sharply across nearby tracts: for children of parents at the 25th percentile of the income distribution, the standard deviation of mean household income at age 35 is $4,200 across tracts within counties. They illustrate how these tract-level data can provide insight into how neighborhoods shape the development of human capital and support local economic policy using two applications.

First, they show that the estimates permit precise targeting of policies to improve economic opportunity by uncovering specific neighborhoods where certain subgroups of children grow up to have poor outcomes. Neighborhoods matter at a very granular level: conditional on characteristics such as poverty rates in a child's own Census tract, characteristics of tracts that are one mile away have little predictive power for a child's outcomes. Their historical estimates are informative predictors of outcomes even for children growing up today because neighborhood conditions are relatively stable over time. Second, they show that the observational estimates are highly predictive of neighborhoods’ causal effects, based on a comparison to data from the Moving to Opportunity experiment and a quasi-experimental research design analyzing movers’ outcomes. They then identify high-opportunity neighborhoods that are affordable to low-income families, providing an input into the design of affordable housing policies. Their measures of children's long-term outcomes are only weakly correlated with traditional proxies for local economic success such as rates of job growth, showing that the conditions that create greater upward mobility are not necessarily the same as those that lead to productive labor markets.