Geographic Effects on Intergenerational Income Mobility

The notion that where one grows up affects future living standards is increasingly well established in social science. Yet research on intergenerational economic mobility often ignores the regional and neighborhood context of childhood, especially local purchasing power. We hypothesize that unexplained variation in intergenerational mobility is partly attributable to regional and neighborhood conditions-most notably access to high quality schools. Using the Panel Study of Income Dynamics and other data, we find that neighborhood income has roughly half the effect on future earnings as parental income and roughly the same effect as shared sibling characteristics. Growing up in an economically segregated metropolitan area also has a large negative effect on future earnings, though somewhat smaller than the neighborhood effect. We estimate that lifetime household income would be $500,000 dollars higher if people born into a bottom quartile neighborhood would have been raised in a top quartile neighborhood. These results are robust to considerations of regional purchasing power and migration between metro areas. Finally, we replicate the results for economic segregation at the metropolitan level using aggregated metropolitan level statistics of intergenerational income elasticities based on millions of IRS records.