A Poor American Child’s Future Job Prospects Depends On Parental Employment

Income of U.S. Blacks rises but historical gap remains according to a study led by Harvard's Raj Chetty

(Photo: Raj Chetty)

July 26, 2024

Over the past 15 years, incomes of children in Black communities rose across all parental income levels, according to a study led by Raj Chetty. For Blacks born in 1992 in low-income families – bottom 25% - starting average annual income at age 27 was $21,500, an increase of $1,400 compared to those born in 1978. Similarly, for Blacks born in 1992 in high income families – top 25% - average income was $30,600, a rise of $1,200.  

Overall, Black children born in 1978 in low-income families were 14.7 percentage points more likely to remain in the bottom quintile than their white counterparts. For Blacks born in 1992, this gap shrank to 4.1 percentage points — a roughly three quarters reduction in the racial gap in the intergenerational persistence of poverty over just 15 years.

The rising incomes of Blacks does not come at the expense of whites, the study notes. In areas, such as Charlotte, North Carolina, and Grand Rapids, Michigan where Black children’s outcomes improved most, are the same regions where white children’s outcomes also improved or held steady. Also, even with the improvements, Black children born in 1992 still had poorer prospects of rising income than white children in virtually every county in America because initial Black-white disparities were so large.

For Whites born in 1992, starting average annual income at age 27, for those from low-income families, was $34,500, a drop of $2,000 compared to the income of a similar group born in 1978. In contrast, income for those from high-income families increased by $770 to $44,900. Also, the gap in average household incomes for white children raised in low- versus high-income families grew by 28%, from $10,383, for those born in 1978, to $13,202 for those born in 1992.

While poor whites did not fare as well as the upper income whites, the overall income levels of whites are higher than for Blacks. The average annual household income of white children at age 27, who were born in 1978 and grew up in poor and low-income families, was roughly $13,000 higher than those of comparable Blacks. For those born in 1992, while the income gap between whites and Blacks shrunk by 27%, it was still large at about $9,500, according to Chetty’s study.

Chetty’s study, conducted with Will Dobbie, Benjamin Goldman, Sonya R. Porter, and Crystal S. Yang, is based on anonymized census and tax data of 57 million children. The findings are noted in a working paper titled “Changing Opportunity: Sociological Mechanisms Underlying Growing Class Gaps and Shrinking Race Gaps in Economic Mobility,” which was published this week by the U.S. National Bureau of Economic Research. The study is the work of Opportunity Insights, a non-profit at Harvard University, where Chetty is a professor.

Findings from earlier studies led by Chetty show:  the fading of the American Dream with only about half of those born in the U.S. in the early 1980s going on to earn more than their parents; elite colleges in the U.S. enroll more children from the top one percent of families, based on income, than from families in the bottom 60 percent; a black boy from a wealthy family is more than twice as likely to end up poor as a white boy from a wealthy family; and that teacher quality has a direct impact on students’ achievements.

While Chetty’s conclusions from his latest study, as well as some of those from his previous studies, are evident from anecdotal experience, his work provides data-based proof. As a result, his research, which analyzes major economic and related social issues in America, gets wide attention among academics, media, and policy analysts. 

Chetty has authored or co-authored more than 55 peer reviewed articles as well as written stories in the media. In 2012, Chetty was awarded a MacArthur Fellowship, which came with a $500,000 grant. The next year, at age 33, he received the John Bates Clark medal, awarded to an economist under 40 whose work is judged to have made the most significant contribution to the field. Chetty’s “research has transformed the field of public economics,” the American Economic Association noted in a statement which announced his prize.

In 2003, he joined the University of California, Berkeley, as an Assistant Professor in Economics; he was named a professor in 2008. The next year, at age 29, he joined Harvard’s Economics Department, becoming one of the youngest tenured professors in the university’s history. He was also on the faculty of the university’s statistics department. In 2015, he joined Stanford University, where he also spent a year as a Professor of Sociology. Three years later he returned to Harvard as a Professor of Economics and is also on the sociology faculty.

Some of Chetty’s Harvard courses are available for free online. They include all 18 lectures of his introductory economics undergraduate course, Using Big Data to Solve Economic and Social Problems, which is available on YouTube.

Chetty also provides free public access to two self-guided courses: “Exploring the Opportunity Atlas”, through John Hopkins University GovEx Academy and a second year Ph.D. course.

Chetty earned a Ph.D. in Economics from Harvard University in 2003, only three years after enrolling, which is a rare accomplishment. In 2000, he earned a B.A. in Economics also from Harvard, completing the four-year degree requirements in three years. In 1997, Chetty finished at the top of his high school class at the University School of Milwaukee. 

Nadarajan (Raj) Chetty was born in New Delhi, India, and named after his maternal grandfather. In 1988, at age nine, he moved to the U.S. with his parents – his father Veerappa Chetty was a professor of economics and his mother Anbu was a professor of pediatrics. His parents are chettiars, a business caste in the state of Tamil Nadu who have traditionally been bankers and money lenders.

Chetty’s parents grew up in low-income families in the southern Indian state. Anbu learned English while attending a women’s college in a thatched roof structure in the town of Karaikudi, Chetty told The Atlantic. His two sisters are biomedical researchers and his wife Sundari, also a chettiar, is a stem-cell biologist. 

Chetty is not content with merely analyzing socio-economic problems and especially wants others to have a similar opportunity to access college education like his mother was lucky to have in India. In 2018, he returned to Harvard to teach as well as set up and run the non-partisan, not-for-profit Opportunity Insights, which “seeks to translate insights from rigorous, scientific research to policy change by harnessing the power of ‘big data’ using an interdisciplinary approach.”

Funding for the organization comes from the Bill and Melinda Gates Foundation, the Chan Zuckerberg Initiative, Overdeck Family Foundation, and Bloomberg Philanthropies.

In 2018, Chetty’s non-profit released the Opportunity Atlas, a free interactive mapping tool to answer the question: which neighborhoods in America offer children the best chances of climbing the income ladder?

Starting in 2018, Chetty’s team partnered with the Seattle and King County Public Housing Authorities, in Washington State, to test a program which provided housing search assistance, connections to landlords, and financial support to low-income households. An evaluation found that the “services dramatically increased the share of families who moved to high-opportunity areas.” 

Opportunity Insights is seeking to partner with other U.S. counties to replicate the program. Yet no new initiatives are listed on its website. Is this because of the major obstacles faced in legislating and funding such policies?

Typically, in middle and upper class neighborhoods, there is strong opposition to permitting housing for low-income tenants. Also, current social welfare schemes to tackle education, jobs and housing have been place in the U.S. for decades. So there are millions of Americans making a living off such schemes, from government and non-profit employees to consultants, researchers and some school and college teachers. Politically influential, they lobby aggressively against any new programs that may hurt their income and jobs. Then there are the long-entrenched political divisions on funding programs for the poor.

The latest paper co-authored by Chetty notes that the rise and fall in starting income at age 27 is determined by the level of parental employment. Rising levels of employment for parents of friends and school peers explain why children born in Black communities in 1992 earned higher incomes than those born in 1978. This economic mobility is also higher for children who move to such communities at a younger age compared to those moving at a later age. Also, a child has a better chance of finishing high school and being employed by age 27, even if her or his own parents were unemployed, if many parents of friends and school peers have jobs.

Higher parental employment rates leads to improved outcomes for children because it means more funding for local schools and programs and adults in jobs shaping children’s career aspirations and providing job referrals.

In contrast, job and income prospects of white as well as Black children born in 1992, in areas such as Milwaukee, Wisconsin, and Atlanta, Georgia, were adversely impacted by rising parental unemployment. In communities where many parents lose jobs, the children’s economic prospects are worse than that of their parents.  

The study also points out that there was no change in the chances of Black or white children, born in poor families, reaching the top fifth of the income distribution. The study notes that the same patterns of growing class gaps among the whites and shrinking Black-white race gaps in standardized school test scores and rates of incarceration and mortality.

Chetty and his co-authors pose the question: “Given the long shadow cast by history, is economic opportunity largely fixed by historical policies or can opportunity change in shorter, more policy-relevant time frames?”

Their answer: “Growing up in a thriving community — where the adults are employed, in good health, etc. — dramatically improves children’s outcomes…Our findings imply that community-level changes in one generation can propagate to the next generation and thereby generate rapid changes in economic mobility.”