Fostering Upward Mobility

April 2, 2014

The United States spends $800 billion every year on antipoverty programs, yet upward mobility has stagnated, and a child born into a low-income family is likely to remain low-income. The United States is not going to see improved intergenerational mobility without policy reform, say Aparna Mathur and Abby McCloskey of the American Enterprise Institute.

Reviewing existing research on intergenerational mobility (the ability of a future generation to move out of its parents' income bracket) in the United States, Mathur and McCloskey found that most studies concluded that a child's income level was significantly determined by the income level of his parents. There were five factors that these studies indicated were important determinants of income mobility: segregation, income inequality labor market challenges, welfare programs, education and family structure.

The authors developed policy proposals for each of these areas:

  • Segregation: When low-income families live in isolation from middle- and high-income families, low-income children are unable to interact with good peer groups. Children that are born into poor neighborhoods are more likely to move down the economic ladder. Additionally, segregation of low-income families from other families often leads to poor schools with little parental involvement. Mathur and McCloskey suggest school choice to improve the prospects of these children. Even children who do not attend charter schools experience benefits from school choice programs through increased competition.
  • Labor market challenges: The United States needs to encourage more Americans to participate in the labor force through policies that encourage economic growth. But a more immediate solution would include work-sharing arrangements and relocation vouchers for Americans in communities that are suffering. Customized job training would also improve people's prospects.
  • Welfare programs: Expanding the earned income tax credit (EITC) would do much to lift people out of poverty. In just 2010 alone, the EITC brought 5.4 million people out of poverty. By expanding the EITC to childless adults, as well as reducing the marriage penalty and other welfare work disincentives, mobility would rise. Cash assistance programs cannot produce the type of mobility created by work incentives.
  • Education: Low upward mobility and high school dropout rates are highly correlated. By granting a credit to low-income teenagers that receive their high school diploma, students would be incentivized to complete their education. Moreover, requiring that dependents be enrolled in school in order for families to receive welfare payments, as well as structuring Pell Grant disbursements to encourage graduation would help.
  • Family structure: The number of traditional families has fallen dramatically, while the number of single mothers has doubled since the 1980s. The childcare tax credit should be restructured so that single mothers can reenter the workforce and get off public assistance.

Source: Aparna Mathur and Abby McCloskey, "Fostering Upward Economic Mobility in the United States," American Enterprise Institute, March 19, 2014.

 

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