Last time I wrote about some examples of Early Childhood Investment (ECI), actions that if done early enough in children's lives might have persistent and significant impacts on their adult outcomes (education, income, crime...). A recent study by one of my favorite economists - Raj Chetty - and coauthors provides another excellent example on how some unexpected policies could be understood as ECI.
The Moving to Opportunity (MTO) experiment offered randomly selected families living in high-poverty housing projects vouchers to move to lower-poverty neighborhoods in the 1990s. Previous studies had found that even though this tended to improve health and safety of the families, it did not have significant impacts on the earnings and employment of adults and older youth. Hence, this was taken as evidence that neighborhood environments were not really important for economic success. However, only recently have researchers become able to study the effect on those children who moved at younger ages. And results are quite different.
Chetty and Hendren had previously used evidence from movers to suggest that gains were larger for children who are younger when they move: every year spent in a better area during childhood increases earnings in adulthood. The figure below shows the percentage gain from moving to a better area by the age at which the child moves. For example, children who move at age 9 have outcomes that are about 50% between the outcomes of children who grow up permanently in the origin and destination areas.
And how big are the differences of being born and raised in one area versus another? This is particularly hard to answer because people are not born in random places. Being born and raised in the Upper West Side of NYC is probably associated with coming from a high income, high educated family. But the authors did their best to distinguish effects from each other (once again by using movers), and found that the neighborhood impacts on earnings can be over 30% (moving from bottom to top counties). In case you are thinking about moving, Table 1 shows the bottom and top 10 places in the US.
Table 1: Percentage Gains/Losses Relative to National Average.
With this evidence in hand, they went on to try to confirm their findings using the MTO experiment. The evidence from this experiment was more particular (only poor people were the target) but was also more robust to estimation problems. As mentioned before, people are not born in neither do they move to random locations. They choose were they live or move to. And this brings selection problems during estimation. The MTO experiment provided people who actually were randomly given the opportunity to move (though they were still partially able to choose the destination). And results were confirmed.
Even though the MTO experiment suggested that better neighborhoods had almost no effects on adult earnings of children who moved after the age of 13, Chetty and co-authors found that those who moved to better neighborhoods before the age of 13 had on average a 31% increase in their income. Moreover, it also increased their college attendance. Individuals with Section 8 vouchers were given the freedom to choose where to move to, while those with experimental vouchers were forced to choose places with poverty rates below 10%. As impacts were smaller for those with Section 8 vouchers, actively encouraging families to move to lower-poverty areas (and not just anywhere they want) seems to also be important for these type of policies.
Moving a child out of public housing at age of 8 would increase her total lifetime earnings by $302,000. But how expensive is this policy? With an average family of two children, the authors estimate that it amounts to a gain (net of extra costs) of almost $100,000 per child. Moreover, given the gain in tax income paid by these children in the future (extra $400 per year in the mid-twenties), results suggest that the additional tax revenue may be enough to finance the difference between public housing and moving vouchers costs. Whether this policy is still worth it in simple gains-costs terms for those who are not in public housing remains to be seen. However, I believe benefits other than earnings, like health, education or crime, should be considered. Moreover, the effect on future generations (the children of those moved) should also be taken into account as children of higher educated and higher income parents tend to do better in life.
Based on an article by Chetty, Hendren and Katz.
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