It’s no secret that opportunity in the U.S. is staggeringly low. Studies suggest that mobility is lower in America than in other developed countries, and according to the Pew Charitable Trusts 70 percent of children born into poverty here will not make it to the middle class. Contrary to popular belief, mobility hasn’t actually gotten worse over the last several decades, according to a recent paper by Harvard economist Raj Chetty and his colleagues — but that’s hardly any consolation.
The Obama administration’s big idea has been to increase the minimum wage to $10.10. But analysis from the Congressional Budget Office shows that this would reduce the number of Americans living below the poverty line by only about 2 percent while causing hundreds of thousands to lose their jobs.
Clearly, policymakers must do better.
A good place to start would be to identify the causes of low mobility and target public policies toward those causes. Fortunately, there is much sound science to navigate by. Research by Chetty and others has shown time and again that the inability to move up in life is caused by segregated communities, failure to graduate from high school, broken homes, and a persistent joblessness that keeps young men from reaching the first rung of the ladder. If we as a nation are serious about helping the poor, then we must pursue a mobility agenda
that takes these factors into account and holds the promise of helping far more than 2 percent of those in poverty.
Such an agenda would begin with the recognition that residential segregation is a major impediment to mobility. Those in low-income neighborhoods do not always have the benefit of interaction with effective role models. Economists have proposed many ways to reduce segregation, such as encouraging the in-migration of richer households into poorer areas, improving public transit routes into poor areas, and improving pre-K education. The evidence for these reforms is mixed.
A far better way to improve the human capital of residents in disadvantaged neighborhoods is to use increased school choice to cut the artificial ties that bind students to specific neighborhood schools. A 2012 National Bureau of Economic Research paper by economist Justine Hastings and colleagues found that truancy rates declined by 21 percent for students who won a charter-school lottery, and these students’ test scores improved as well. This suggests that school choice can affect student outcomes through increased motivation and personal effort as well through improved school and peer inputs.
The school-choice fix requires no additional resources. States and localities just have to change the rules and allow for open enrollment where students can choose their school regardless of their neighborhood. If a school is oversubscribed, then a lottery could be used to determine which students are accepted. Even though there could be initial resistance to such a program, even the most ardent critics should acknowledge that getting low-income students out of poorly performing schools is an improvement over the status quo.
A mobility-focused agenda must also recognize that failure to complete high school is, for many, the major factor affecting mobility. In 2009–10, the U.S. had its highest graduation rate in more than 30 years, and yet over 20 percent of high-schoolers did not graduate on time or at all. According to the Department of Education, students from low-income families drop out of high school at five times the rate of students from middle-income families.
A growing body of research has documented that financial incentives can have an impact on the odds that low-income students will achieve their educational goals. For example, Roland Fryer of Harvard has found financial incentives to be a cost-effective way to encourage students to read books. With high-school graduation so important for mobility, Congress should fund a pilot “milestone credit” program, wherein low-income teenagers receive a cash bonus upon receiving their diploma.
College aid also should be restructured. The government spends $33 billion a year subsidizing college tuition, yet many students (especially low-income students) never graduate. Without a college diploma, the social and economic benefits of college vanish. We agree with a recent CBO report that proposes restructuring the Pell Grant program as a loan program, wherein a student would receive a direct loan at the beginning of each term that would be forgiven at the end of the term as long as the student completes the classes.
Education prepares individuals to work, yet people are choosing to work at historically low rates. The Great Recession, combined with higher taxes and increased regulation, has been lethal to the work force. Only 63 percent of Americans are in the labor force, equivalent to 1970s levels. More than 10 million Americans are actively looking for jobs but cannot find work.