Raphael Bostic: Hello, everyone—welcome to another Atlanta Fed podcast. I'm Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, and today it's my pleasure to speak with Raj ChettyOff-site link, who is the William A. Ackman Professor of Economics at Harvard University. Professor Chetty, welcome.

Raj Chetty: It's my pleasure. Thanks for having me here.

Raphael Bostic, President and CEO of the Atlanta Fed (left) with Raj Chetty, William A. Ackman Professor of Economics at Harvard University, at the recording of a podcast episode.
Photo: David Fine

Bostic: Professor Chetty has an illustrious background. He's been awarded a MacArthur Fellowship, which those of you who pay attention to this sort of thing know that we call them the "genius grants." And in 2013 he received a John Bates Clark Medal, which is awarded to an economist under 40 who's made the biggest contributions in the field. It's a great honor in economics to get that, and it's not something that very many people have, so congratulations on that.

Chetty: Thank you.

Bostic: Now, Dr. Chetty does most of his work, and most of his impact these days has been, on economic mobility, and he's the director of Opportunity InsightsOff-site link at Harvard, and he's one of the youngest tenured professors in Harvard's history. I'm a Harvard undergrad, so I'm very proud of your accomplishments, and it's really good to have you with us. So, welcome, and I'm really excited to have you here. In my going around, I hear lots about your work, and it really is informing a lot of people who are trying to make a difference in this space. So what I thought I would do is really start with the question of: How did you get into this stuff? Is this something that you've always had a passion for, or is it something that you kind of stumbled upon?

Chetty: I think I've been interested in studying the American dream, which is what a lot of my research currently focuses on, I think partly because of my own personal background. I was born in India, lived there till I was nine, and then came to the United States at that time, and my parents, like many immigrants, came here in search of the American dream—right? The idea that they could give their kids a better chance of climbing up, better prospects in life—in the U.S., with hard work you could achieve anything.

And so that was very much a part of the fabric of our family. And so, I was nine years old. I saw the tremendous contrast between India and the United States. I don't think I necessarily was thinking about it from the perspective of inequality and studying those differences and so forth. But certainly, personal experience—I could see the tremendous difference in the opportunities I had relative to my cousins who didn't have the chance to come to the U.S., and so forth. And so I think given that background, given then an interest in scientific research, math statistics, those pieces kind of came together and started to focus on economics and studying these questions in particular.

Bostic: Thank you for that. It's really interesting that there are so many different angles to come from and address issues of economic mobility and really acknowledge that it's something that's very important. But you said something at the end which I think is really useful, which is this idea that we need to get evidence much more present in our public policy discussions. And economic mobility—there's been a lot of understanding about this in sociology and among advocates, but it hasn't always gotten to an economics type of analysis. Do you feel like this is changing? Do you feel like people are having a deeper understanding, from an evidence basis?

Chetty: These issues—economic mobility and equality growth—these are, of course, extremely important to lots of people. They also can be polarizing at times, and there's lots of political issues, obviously, that factor into these things. My view is, when we're thinking about something like, "How do we improve kids' outcomes, kids' chances of climbing the income ladder?" we can have differences in opinion in terms of what kinds of policies we want to prioritize, but at the end of the day it's basically an empirical scientific question—does a given policy work or not? That has to have a yes or no answer. There at some level has to be some ordering of which policies are most effective, and I think we create room for ideological debate when we lack evidence on what actually works. And so while I think political factors are always going to play into these decisions, having more scientific evidence for people to lean on can at least help structure debates around: "We know affordable housing is key to provide economic mobility," or maybe it's not. And I think just understanding the role of these things is extremely important.

Where I'm encouraged is that, thanks to the availability of new data—what in the private sector people would call "big data," or in the public sector we'd refer to as "administrative datasets"—these types of data are allowing economics, sociology, the social sciences to become much more empirical and precise. It's no longer about theorizing that something might or might not happen based on mathematical models. It's now about actually saying, "Yes, this does happen, or doesn't happen." And I think that's incredibly valuable.

Bostic: It's incredibly valuable, I also think it's quite important. In so many of the debates—not only in this area, but in a lot of areas—we're arguing about what the facts on the ground are, and I think there is real value in trying to level-set people's understanding about what's actually happened. And being able to precisely identify mechanisms and also do evaluations of the effectiveness of policy—it really can, as you say, take some of the ideology out of it and get people to focus much more on, what do we know? What do we really know? So that we can have a conversation that takes some of the emotion out of it, and gets us to be much more analytical and dispassionate. I think there's real value in that.

Chetty: Yes, I think that's exactly right, and I would add to that, Raphael, that if you think about economic mobility in particular, I found it to be a very unifying topic in the sense that people on all sides of the political aisle are in favor of greater economic opportunity, right? So I think people might have different views on inequality, or some people have the view that if you've earned a lot of money you should have the right to keep it, other people believe in more redistribution. But I think everyone believes in equality of opportunity, that a kid should have a fair shot of succeeding no matter their background. And so given that kind of unifying objective, the debate then is more about "how do you achieve that objective?" And that's where I think evidence and science can be quite illuminating in pushing things forward.

Bostic: And I have to agree completely with your assessment there. In my district, the Sixth District, we have a wide variety of communities and economic situations. When I go to talk and this comes up, every head is nodding, "Yes, we want everyone to have access to opportunity, and we want to allow people to be able to strive and dream about achievement and success, and then take steps to then have a hope of really having those good things happen." And if there are barriers, then I think we really need to try to find ways to break those down and really unleash the potential of our population. And so that's really important.

But let's turn to some of the work that you've done, and what you've actually found in terms of how we're doing here in the U.S. in terms of providing access to opportunity. Now, one of your findings is that Americans' chances of earning more than their parents at age 30 has fallen pretty considerably. It used to be 90 percent, now it's 50 percent today. What are the reasons for this? What's driving this change in the likelihood that a child is going to be able to go beyond what their parents experienced?

Chetty: I think it's useful to talk about two different sets of factors, or two different levels, that are driving the fading of the American dream in some sense. So just to restate the facts: for kids born in the 1940s and 1950s, something like 90 percent of them, as you said, went on to earn more than their parents did. For kids who were born in the 1980s, that number is only 50 percent. It's a coin flip as to whether you're going to achieve the American dream. So at a macroeconomic level, first, you can think about two key factors that are driving this decline. One, when you have less economic growth, naturally you're going to have fewer kids do better than their parents. So if you just have the total size of the economic pie growing more slowly, that could drive part of it. And in fact, if you look at historical data on GDP [gross domestic product] growth in the United States, you see that in the past 30 years we've had about 1 percentage point lower GDP growth rates than we did in the middle of the last century. So that's part of what's going on.

The other part of what's going on is that the distribution of economic growth is now very different than what it was in the past. So today, as is well known, much of the gains in income, they're going to the very top of the income distribution—the people in the top 1 percent. And so that growth is concentrated among relatively few people, and when that happens, intuitively, it's going to be hard for lots of kids to do better than their parents. Imagine in the extreme, that only one person got all of the GDP growth. Then, of course, you're going to have the vast majority of kids at the same position as their parents were.

So you can then ask: how much of this trend that we're seeing is due to the first factor—the decline in GDP growth rates—versus the difference in how that growth is shared? And based on some analysis we do in the paper, we show that something like two thirds of the decline is due to changes in the distribution of growth, and one third is due to the changes in the overall level of growth.

So both things matter, but the distribution is quite central. And so then you can ask, "What is it that's causing wages to stagnate for lower-income Americans, for middle-income Americans? Why are they not experiencing increases in incomes as they were in the '50s, '60s, '70s?" And so that has to do with a variety of factors, some of which are, again, macroeconomic factors like trade and globalization and automation and things like that. But I also think, importantly, a lot of it has to do with our institutions, in terms of how we provide opportunities for kids from disadvantaged families, in particular, access to higher education, the quality of elementary schools, the rise of segregation in American neighborhoods. All of these factors, I think, play into changes in essentially the human capital that lower-income and middle-income kids are accumulating, which then factors into their wage growth and their chances of doing better than their parents.

Bostic: Now, you said something interesting there about the rise of segregation. There are a lot of people that think that segregation has been around for a long time. Are you finding that it's actually increasing?

Chetty: Segregation can mean many different things. It can mean racial segregation, which is very salient to people, of course. It can also mean income segregation: to what extent are low- and high-income people living together? And as best we can tell, income segregation is actually rising fairly steadily in the United States—low- and high-income people are less in contact with each other now than they were in the past. And you see that not just in terms of where people live, but also as you look at things like people sending their kids to private schools or the divide in various other parts of society. There's just a bit less of a common ground. There's less of a middle class, "meeting in the middle" kind of phenomenon than you had in the past.

Bostic: What can we do about that? I mean, that seems to be a large dynamic that involves decisions of many, many households that are maybe not thinking about this at all. What are the types of things that we might be able to do to make people aware of this, and then stem the tide, if you will, to try to create more of a common ground?

Chetty: So I think you're first right to emphasize that at the end of the day, we have to respect the fact that people are making individual choices about what's best for their families, and so you can never completely engineer a society where you're going to have a certain distribution of incomes in each place. That said, I do think the policy frameworks that we adopt have important influences on the decisions that people choose to make. To give you two examples—one, I think if you think about things like zoning laws and how we structure development within cities—those are deliberate choices. It's not just that it has to be one way or the other. And by changing zoning laws—for instance, by permitting higher-density building in certain cities, you could potentially make it much more affordable for low- and middle-income families to live in certain areas. Now, there can be pushback to that, where existing property owners in a given place are not in favor of more building.

Bostic: Yes, I was going to comment on that because I used to teach a class on affordable housing, and one of the biggest challenges is getting these things permitted and allowing the buildings to occur at a scale that brings the rents down. So it gets to your question, and your issue, about the collective nature of the problem.

Chetty: But I think the way to look at that—at least, the way an economist would look at it—is there are gains to be had there, in terms of the total size of the pie increasing, if we permit more building. In principle it could be better for economic activity, total welfare could rise, and there should be some trade in the sense that you should be able to provide something to the existing homeowners, such that they benefit as well to make this happen. I'm not saying that's easy to do politically, but at least in principle that type of thing could potentially be beneficial.

Bostic: But I actually think it's more difficult than that, because most of the existing households don't actually believe that the pie gets bigger, and if it does, that they're not actually going to benefit from it. So part of the challenge in this space is really trying to articulate what that benefit is in a way that people who might oppose building more affordable housing will understand and embrace. I think there's been a lot of groping over the years about, "How do we talk about that?" And I think it's something that we definitely need to do more of.

Chetty: And that actually is a good segue to the second point I was going to make on that, which is short of changing zoning laws, as you well know we spend a lot of money on affordable housing policies in the U.S.—about $45 billion a year through various forms of things like Section 8 housing vouchers and other programs, and I think there might be things one could do in the design of those programs that would potentially make them more effective for the money we're already spending, and potentially illuminate some of the benefits they have for taxpayers more broadly.

Let me be more precise on that. Let's focus on housing vouchers for a minute. There are about 2.2 million families in the U.S. that get housing vouchers from the federal government, from HUD [the Department of Housing and Urban Development]. Most of those vouchers, if you look at where they're being used to rent housing, based on data that we've constructed on economic opportunity across neighborhoods in the U.S., we see that the vast majority of those vouchers are being used in relatively low-opportunity, high-poverty areas—that is, people are getting considerable assistance from the government, but they're not actually using that money to live in areas where their kids will necessarily thrive.

So one intervention that we're piloting at the moment in the city of Seattle is helping families with housing vouchers take the voucher that they're already getting from the government but use it to move to a place that we call an "opportunity bargain," a place that would be affordable to them but where we see much better outcomes for low income kids. And so that is a case where it's an individual-level change that I think can be done without some broader legislation on zoning, and things like that can potentially make the government's expenditures much more effective in increasing upward mobility.

And importantly, to your last point, I think it can have important benefits for taxpayers. What we show when we've done analyses of experiments like Moving to Opportunity, the famous HUD experiment, is that kids do a lot better when they grow up in these higher-opportunity, low-poverty neighborhoods. But not just that—they're earning more, they're less likely to be incarcerated, and so forth, but that naturally filters into benefits for taxpayers in terms of higher tax revenue, lower costs spent on incarceration, and so forth. And so we actually find that those benefits more than outweigh the incremental cost of the program. In that sense, it can truly be a win-win.

Bostic: And that's an important message for people to have in their heads, that when people grow up in an environment that is not very helpful for them, it puts them oftentimes down a path that incurs other costs and imposes other costs on society that we wind up collectively paying. And so if we can get rid of those, that can be a benefit. On the mobility thing, it's actually quite interesting—there are a number of initiatives that are going on across the country exploring this: so Baltimore has one, associated with the Thompson lawsuit. Dallas has one, around a Supreme Court decision, and HUD itself is trying to implement a small-area, "fair market rent" program to try to make the vouchers more appealing in higher-opportunity neighborhoods.

And all these are moving out at the same time. It will be really interesting to see how it all shakes out, on two levels: one, whether families choose to move to those areas when they have access to them—because there's been a lot of work that suggests that some of these neighborhoods are really distant socially and can be very difficult for families. And then the second is, particularly in the voucher program, that the landlord has got to be willing to participate, and one thing that we've done some work on in the past is, how can you make the program more palatable for landlords, so that they're not afraid to be a part of the program and don't expect there to be a lot of administrative struggle? So it's very, very interesting work that you're doing.

So I wanted to now talk a little bit about the regional stuff. Here in the Southeast, we have lots of issues when it comes to economic mobility, and I know that you've been looking at differences across regions, in terms of how they're doing and providing opportunities for their children. Could you talk a little bit about that?

Chetty: Yes, absolutely. So what we find when we look at economic mobility across the United States is, if you just asked the "big picture" question: is the U.S. still a land of opportunity?—and we talked earlier about how many kids don't really end up doing better than their parents. It turns out when you then break that data down by region or by neighborhood, you find that the story varies tremendously across different parts of the U.S. And so in particular, if you were to look at a map of this you would see immediately that the southeast United States, and much of the industrial Midwest—places like Cleveland or Detroit—tend to have some of the lowest rates of upward mobility, and Atlanta unfortunately is one of the cities which has very low rates of upward mobility for its current residents.

Now the case of Atlanta, I think, is particularly striking, because Atlanta is of course one of the cities with the highest rates of job and wage growth in the past 20 years as well, so by traditional measures of economic success the economy here in Atlanta, and in much of the southeast United States, is actually doing extremely well. But what is somewhat surprising is that those gains don't seem to be filtering down to the low- and middle-income kids who are growing up in places like Atlanta or places like Charlotte.

And so, how does that work? It's because these cities are effectively a magnet for talent. Lots of people move to places like Atlanta to get high-paying jobs, but the kids who are growing up in Atlanta itself end up not necessarily benefiting from that, and so I think that creates a real opportunity to try to understand why is that the case, and how can you promote opportunity for kids in Atlanta?

Bostic: Well, I think there are at least two dimensions that come to my mind about how we think about this. One is, are we—through our basic schooling—giving kids the skills that can make them competitive for these new jobs, to get them to think about how they might contribute to the new economy, to higher-paying wages? And then the second, which we also have in this region, is the disconnect between where the jobs are and where the people are, and trying to reconnect, geographically, communities is another challenge that we have to overcome. I've been talking a lot to our folks, leadership here in Atlanta, about the reality that there are many communities that are disconnected, and some of them are well known but some of them are less known, and I'm very excited by the work that you do, because with mapping tools and the like it can be—I find that people understand maps easier than they understand statistical tables, and so if we can get those sorts of understandings out in the general population and understood, I think there's some real hope there.

Chetty: Yes. And just to add a bit of nuance, I completely agree with what you were saying, the type of thing you can learn from these data. What we find when we look at it in a granular way across neighborhoods in Atlanta—and we have these interactive maps that you can look at online, Atlanta, all cities in the U.S.—you find that, as you say, being connected to jobs can be important. But interestingly, what really seems predictive is not whether you're near a lot of jobs—that actually is not that highly correlated with rates of mobility—but whether you're near a lot of people who have jobs. So the employment rates of adults living in the neighborhood where you grow up are highly predictive of your own chances of success, whether you literally are living near a place with a lot of jobs or not seems less important, which is broadly consistent with that set of ideas, but suggests the type of connection that matters is not literally access to jobs but access to things like role models or pathways that will then—

Bostic: Social networks.

Chetty: Social networks, capital, exactly.

Bostic: That's actually very interesting, and it's consistent with a lot of the sociological work that we've seen in this space, and it's nice when the data matches how you might think about how the world works. I want to turn a little bit to some positivity. Are there places where you've seen positive change, where you've seen an evolution which suggests that there may be some things that we can learn that can improve the condition of economic mobility for children?

Chetty: So when you look across the country, you see pockets of places with lower levels of upward mobility, but the way I like to look at the data is, it's actually that there are a lot of positive messages there, because you see lots of places in the U.S. even today that provide kids great chances of succeeding. And so a very natural way to learn is to ask, what's going right in those places? And that's a complicated question. There's a big research agenda there.

But if you just look at what are some of the common factors, these tend to be places with relatively little residential segregation, coming back to what we were talking about earlier. They tend to be places with a larger middle class, so less inequality. They tend to be places with more social capital and stronger family structures, so in particular one of the very strong patterns in the data is areas with more two-parent families tend to have higher levels of upward mobility—that's a strong fact in the data. And then naturally, as you might expect intuitively, places with strong public school systems tend to have higher levels of upward mobility.

But the key thing I would note is, it's not just about one factor. I think people often think, "Oh, this is about schools—we need to fix schools." And I think schools are clearly part of the picture, and they're important because we can think about policies to do things in schools, but increasingly we find that these social factors, and things like role models and social capital—will someone else help you out, even if you're not doing well?—the presence of civic and religious organizations, the thing that economists honestly traditionally don't engage in as much, because it feels a bit soft or hard to quantify—I actually think that's extremely important.

Bostic: Well, I'm glad that you emphasize those things, and I think the message that there's not one silver bullet that solves this, but that you really need a broad infrastructure environment wrapping around kids in order for them to succeed, I think is extremely critical, and if we don't do that well, then we're making it much harder for children because they're going to have to try to create that infrastructure on their own, and that's going to be something of a crapshoot, which is not going to serve us well. Now, a lot of the work that you've done is really around the Opportunity InsightsOff-site link program and your Opportunity AtlasOff-site link . Could you say a little bit about how you're hoping to use these institutions and tools to change the dialogue and affect policy?

Chetty: Yes, absolutely. So our most recent study, Raphael, which we just put out a little while ago, is the Opportunity Atlas, which provides census tract–level information on upward mobility for the entire United States. So the way to think about this is, you can enter in your address, sort of like a Google map, and you can see how kids who grow up in your area do in terms of later incomes when they grow up and become adults, teenage birth rates, incarceration rates, and you can break that data down by race and by gender and parental income level and so forth. So it really gives a very detailed map of which parts of your city are doing well in terms of economic opportunity and which are not—something that's just unprecedented. It's an example of how the big data revolution is really changing our field, and changing what we know.

So what can you do with that data? I think you can do two types of things. First, it can be very useful for diagnostic purposes and for targeting policies. So if you think you've got a way to help, let's say, young men achieve better outcomes. To take one example we find in our work, that if you look at racial disparities, men in particular have much lower rates of upward mobility than white men. So suppose you have a program like, say, My Brother's Keeper or another sort of mentoring program that you think might be effective in addressing that problem, using these data, you can target precisely which neighborhoods the problems seem to be emerging in and potentially have a much bigger impact.

The second thing you can do is learn about mechanisms, and potentially use these data to increase economic opportunity in places that currently don't have high levels of opportunity, or help families move to higher-opportunity areas. And so what we're doing in this group Opportunity Insights that we've just started at Harvard is trying to move beyond the pure research itself, and support local policymakers around the country in using these types of data and these new tools to make more effective policy decisions that will help more kids rise up.

Bostic: Well, I think that's really a noble enterprise. As I've gone around and talked to folks and tried to help with policy, the one thing that you see as lacking in many communities is the data and, really, guidelines of how to use the data to inform deliberations that might happen down the road. In so many communities, they don't have a lot of extra resources, they don't have a lot of high-level analysts on staff, so if there are organizations—and it sounds like you guys are going to be a leading one in this space—who can help grease the wheel a little bit, so that by the time it gets to a city council or planning commission there's a much deeper understanding of what the message should be and how we should think about it. I think that would be a real positive change, and I know in the Southeast, in the Sixth District, we talk about capacity constraints at a local level all the time, and so there are ways to improve the capacity by having some experts from other places who can drop in things that are easy to understand. I think that gives us all some hope that we can start to see positive change.

I wanted to ask one more question, which is, when I was in grad school, the issues of distributions and inequality and all that—they weren't so prominent in terms of the field. Do you feel like there's been a change in how the field thinks about these things, and more attention to distributions and the impact of policy and the economy more generally on distributions?

Chetty: Yes, absolutely. I think issues of inequality and distribution are front and center now, from a couple different angles. First, obviously, if you just watch the public discourse, see what's in the news, this is something that's on a lot of people's minds and people want to work on things that are relevant to the public. And I think a good trend in economics is increasingly we're engaging in issues that are of direct practical relevance rather than doing purely abstract work.

Second, I think as we have more data we're able to see that just focusing on the average can often give you a misleading picture, that there's a lot of variation, there's variation across people, there's variation across racial groups, there's variation across places. I think of an analogy to medicine, where if you went to a doctor and he just tried to give you a treatment without asking you what exactly your issues were, what the symptoms were, trying to kind of address the average, obviously, that wouldn't make a lot of sense.

In economics, we're now moving to a point where we can have that more tailored approach, where we can tackle that variation across people in different parts of the economy, thanks to new data, thanks to new techniques. And so I think both from a methodological perspective and a topical perspective, in terms of what people are interested in, these issues have become central.

Bostic: Well, I'm very glad for that because the experience and the reality is that there are multiple economies in the U.S., and there are the go-go places that are seeing a lot of growth—the neighborhood that we're in here in Midtown in Atlanta. But then there are a lot of other places that are disconnected, and you don't actually have to go very far to see those. You can go to parts of this region and then you can go to a bunch of other places throughout my district. So I've been traveling around to more rural places to get a feel for that, and it's really been clear to me that by only looking at an aggregate number we're missing some really important experiences that people are having, and it's making our policies I think not be as effective and empathetic in thinking about moving forward.

I've really enjoyed this conversation—this has been very interesting. Raj, it's really a pleasure to have you here and to get to talk about these issues of economic mobility and the research that you're doing. And I have to say also, I am extremely gratified that you're taking the analytics and trying to apply it to policy and bring it to ground, because too often in the economics profession, we can get published in the AER, and we can do those things, but if we can deploy that knowledge and improve people's lives, I think that's ultimately what we're trying to get to.

Chetty: Thanks so much—pleasure to be here. And we appreciate the role you all are playing in that work as well.

Bostic: Well, I look forward to working with you more in the future. And so I want to thank all of you for listening. I hope you found this to be an interesting discussion. There's a lot more that is to be learned. You can look up Raj and his Opportunity Insights group—they have a lot of interesting maps and things for you to play with. And you should also check out our website, frbatlanta.org. We have lots of information there as well about the macroeconomy, but also about things around economic mobility. Check the website, but also check out our social media channels. We have more podcasts there and additional information on economics and finance. And so thank you again for being with us, and keep an eye out for the next one.