From islands of poverty to bridges to prosperity

by Greg Rosalsky

You know that feeling when your favorite band releases a new album?

Okay, so, for me, that’s not exactly what it’s like when Harvard economist Raj Chetty and his team at Opportunity Insights release another big study. But it’s close!

Chetty and his team do incredible research. Part of it is the stuff they study really matters. They seek compelling evidence on what actually works to fight poverty, reduce inequality, and rejuvenate the American Dream of upward mobility.

But what makes Chetty and his team’s research so special is how they research these topics. They get their hands on remarkable datasets, which are massive, rich, and authoritative. And then they crunch this data in creative ways to figure out how we can solve core economic problems. Many of these research projects take years to be published, and when they finally are, it’s like Radiohead dropping Kid A or something.

Well, Chetty and his team have dropped another study that slaps. And it’s making us think really hard about the fact that so many American kids grow up in neighborhoods that are economically segregated and socially isolated.

For years, Chetty and Opportunity Insights have been amassing evidence that the neighborhood that a kid grows up in matters dramatically for their economic destinies. (Planet Money did an episode about one of those studies; and we’ve done plenty of newsletters and Indicator episodes about other studies as well).

Much of that research focused on what happens when impoverished kids move to more affluent neighborhoods. In short, their lives are transformed. Chetty and his colleagues find that kids from low-income households are much more likely to climb the economic ladder if they grow up in a good neighborhood.

But the reality is many poor kids aren’t able to move to good neighborhoods. The question in this new study is: can policymakers transform some of America’s most impoverished neighborhoods, which have abysmal rates of upward mobility, into better neighborhoods where kids have a much greater shot at escaping poverty? And, if you can transform these neighborhoods and that does increase kids' chances of climbing the economic ladder, how and why does that happen?

To answer these questions, the economists look to a kind of natural experiment from recent history, created by a nineties-era federal program with a name that sounds like a Star Wars sequel: HOPE VI. In a recent interview with Planet Money, Raj Chetty told us it was essentially “ the largest effort ever in the U.S. to revitalize high-poverty neighborhoods.”

In the early 1990s, the federal government used HOPE VI to demolish the nation's most distressed public housing projects and transform them into new, mixed-income housing complexes, essentially integrating low-income families into neighborhoods with more affluent families. The program was pretty controversial, particularly since lawmakers failed to replace all the public housing units that they destroyed and many residents were displaced.

Chetty and his colleagues don’t really endorse the whole program. Instead, they use data it generated to see what happens when disadvantaged kids get raised in less economically segregated neighborhoods. They find, in short, that these neighborhoods went from having poverty quicksand to having giant beanstalks that helped disadvantaged kids climb to greater prosperity.

And they find a remarkable reason why this happened: low-income kids became much more likely to interact with and befriend higher-income kids.

Today, in the Planet Money newsletter, we unveil the findings of this new study. And check out a new Planet Money episode, which features Raj Chetty and one of his co-authors, Matt Staiger. It delves more into the story of HOPE VI and how their study came together.

George Frey/Getty Images

The HOPE VI Program

By the early 1990s, public housing in America was in crisis. Especially after the crack epidemic, “the projects” had become synonymous with crime, drugs, violence, and crushing poverty. The news was filled with horror stories, like little kids being gunned down in gang wars on their way to school. Leaders in both political parties wanted change.

And, so, in 1992, the federal government implemented the HOPE VI program. Between 1993 and 2010, the program spent almost $17 billion in both public and private funds to transform 262 public housing complexes.

Picture high-rises, once jam-packed with people living in extreme poverty, razed to the ground and then new, less dense housing complexes built over their ashes. These new housing complexes were designed to more seamlessly blend into surrounding neighborhoods. And they wove together public housing with market housing, integrating families with different incomes to live closer to each other and reducing the miseries of concentrated poverty that had plagued the projects. The program also offered low-income denizens services like childcare and job training.

Demolition crews tear down Chicago’s Cabrini Green projects in 1995.
Beth A. Keiser/AP

Not everyone loved how this redevelopment was conducted. Some scholars and activists argued the program was a kind of government-backed gentrification, sending many of the poorest residents of the city packing while serving the interests of private developers.

Early studies of the HOPE VI program, like one commissioned by Congress, also found the program had mixed results. In the early 2000s, for instance, researchers found that adults who were displaced by the demolitions and moved to new neighborhoods failed to see much in terms of greater rates of employment or higher earnings. At the time, the program wasn’t exactly seen as a slam-dunk success, and Congress slashed funding for it.

Opportunity Insights Reassesses The Program

Fast forward a couple decades, and the economists Raj Chetty, Rebecca Diamond, Thomas Foster, Lawrence Katz, Sonya Porter, Matthew Staiger, and Laura Tach teamed up to reevaluate what happened to the people who lived in these redeveloped neighborhoods with a greater passage of time. Their core question: Did transforming high-poverty housing projects into mixed-income developments move the needle on the economic opportunities for the low-income people who lived in them? And, if this transformation did boost upward mobility, then why?

The gold standard for answering these questions would be conducting a randomized controlled trial. You know, take statistically identical low-income families, and then randomly plop them to live in old-school public housing projects and more new-school, mixed-income HOPE VI developments. Then the researchers could simply compare the two groups and see if the families who moved to the revitalized neighborhoods did better and probe why or why not.

But Chetty and his team couldn’t travel back in time and spend a gazillion dollars conducting a real-world experiment like this. Instead, they had to spend years crunching data, essentially trying to mimic that sort of randomized experiment with statistical techniques.

For their primary analysis, the economists rely on huge data sources, including federal income tax returns, census data, and administrative data from the Department of Housing and Urban Development, allowing them to trace the economic outcomes of more than one million public housing residents between 1995 and 2019. They leverage the fact that Congress didn’t provide enough funds to the HOPE VI program to transform all distressed housing projects, leaving the researchers with a sort of control group that is statistically similar to the projects that underwent the HOPE VI transformation.

Disadvantaged kids win big

One of the economists’ first major findings basically replicates the earlier findings that took some of the wind out of the sails of the HOPE VI program back in the early 2000s. Chetty and his team find that adults in HOPE VI revitalized neighborhoods saw basically no income gains compared to the control group. Yes, the neighborhoods got richer. But that’s because richer people moved in, not because low-income adults living in public housing units saw big income gains.

But that’s the adults. What about the kids? Enough time has passed that the researchers can see what happened to them after they grew up. And here they find eye-opening evidence that these revitalized neighborhoods really mattered for their economic fates.

Kids raised in HOPE VI revitalized public housing units earned significantly more as adults. The economists find that at age 30, the average person who had lived in HOPE VI neighborhoods as kids earned 16% more than those raised in the control group of kids raised in old-school projects that weren’t redeveloped.

“ This was the first indication that this program really improved neighborhood conditions,” says Matt Staiger, a research scientist at Opportunity Insights who co-authored this study. In addition to observing sizable gains in income, the researchers also found that kids who grew up in HOPE VI neighborhoods were 17% more likely to attend college and, for boys, 20% less likely to be incarcerated.

And, keep in mind, many of these kids did not spend their whole childhood in these revitalized neighborhoods. The economists calculate that each additional year a kid is raised in a HOPE VI mixed-income development, they earn, on average, 2.8% more in adulthood. Their results suggest that, if a kid is raised their whole childhood in a HOPE VI site, as opposed to a dense housing project with concentrated poverty, they will earn 50% more!

A crux for their study

But just because the kids raised in HOPE VI neighborhoods have better outcomes doesn’t mean that it was necessarily their neighborhood environments that caused them to do better.

It could be the case that the kids raised there were just statistically different and would have earned more no matter where they were raised. Economists call this potential issue “selection bias.” And because this wasn’t a real randomized trial, the economists had to spend years banging their heads against their computers and hearing passive aggressive comments from other economists when presenting this study (probably). They worked a long time to figure out if it really was the HOPE VI transformation that led to these better outcomes for kids.

Indeed, a big issue with their analysis is that the HOPE VI public housing units seem to have been more selective in which families were allowed to live there. For example, some may have not allowed those with criminal records to live in them.

But the economists found important evidence that strongly suggests that the program really made a difference. Matt Staiger says that prior research shows that the effects of better neighborhoods on child development “operates through a kind of exposure or dosage model.” Think of it like a magic beverage or something. The more years kids spend in a good neighborhood, imbibing all the things that come with it — whether it’s lower crime, better schools or role models, more affluent social networks — the greater the chance they have at escaping poverty.

One particularly compelling piece of evidence they find that suggests it really was the neighborhood transformation behind better outcomes was to compare siblings from the same family to each other. The basic idea is that, if a family moves from a distressed housing project to one of these new HOPE VI public housing units, we should expect, on average, to see that younger siblings do better than older siblings because they’re the ones who spend more time being raised in the better environment.

Indeed, that’s exactly what the researchers find. The longer a kid spends being raised in one of these HOPE VI neighborhoods, as opposed to the distressed housing project, the more likely they are to see a sizable boost in their incomes as adults. That’s true with kids in general, but also siblings. The fact that siblings come from the same family is strongly suggestive that the better outcomes found in HOPE VI housing are not because kids raised in them are inherently different. Instead, it suggests that their better outcomes are the result of those kids being raised in a better neighborhood for more time. That explains why younger siblings tend to do better.

“The sibling comparison is the single most convincing piece of evidence that we have that these gains are really driven by an improvement in the causal effect of place and not by a sorting of different types of families into HOPE VI sites,” Staiger says.

Opportunity Insights

Why do kids fare better in mixed-income neighborhoods?

There are many plausible reasons why kids raised in more economically diverse neighborhoods would do better. It could be, for example, related to the benefits of a lower crime rate or better schools or their integration into a more affluent social network.

Sean Gallup/Getty images

Chetty and his team do a lot of work to try and suss out what it is about these mixed-income neighborhoods that helps kids climb the economic ladder. And they find evidence that a big reason has to do with the fact that low-income kids are much more likely to interact with and befriend kids from more affluent families in the mixed-income redevelopments.

“Prior to the intervention, the HOPE VI sites were islands of disadvantage, where kids growing up in public housing were largely interacting only with other families in public housing,” Staiger says. “What we found is that Hope VI broke down the barriers that led to this isolation and increased the degree to which kids in public housing were interacting and befriending kids who live nearby. And that is what appeared to be central in driving the long run gains in their outcomes.”

The researchers find a bunch of evidence that cross-class social relationships were enhanced by the HOPE VI program. For example, they look at census data, and they find that kids raised in HOPE VI sites were much more likely to end up living with higher-income peers, raised in their same geographic proximity, as adults (suggesting they were more likely to get married or have romantic partnerships with more affluent peers). And the researchers crunch Facebook data, and they find that kids in HOPE VI sites are much more likely to be friends with higher-income peers.

This finding relates to a previous study by Chetty and his colleagues, which found that low-income kids who had more Facebook friendships with high-income kids were much more likely to climb the economic ladder. (We covered that study in a previous Planet Money newsletter).

The most important evidence the researchers find to support the idea that cross-class relationships was vital to the improvement of kids' economic outcomes is this: they find that HOPE VI developments in richer areas of cities saw much more sizable improvements for low-income kids than developments in poorer areas.

”When you look at Hope VI projects that were located in kind of the most disadvantaged communities — where kids outside of public housing were also from very low-income families and tended to do poorly in adulthood — we actually found no evidence of gains in those areas,” Staiger says. “ It's only in cases where the kids who live nearby had better outcomes, were from more affluent families, do we really see meaningful gains of the program.”

It’s a remarkable finding. Kids in HOPE VI developments only see gains when they’re surrounded by more affluent kids around their same age range. If the surrounding population isn’t more affluent, the HOPE VI program failed to deliver them a meaningful income boost.

The Harvard political scientist Robert Putnam has called cross-class social relationships a kind of “bridging social capital.” And this new study from Chetty, Staiger, and the rest of the team suggests that this sort of social capital is really important for low-income kids to find greater prosperity as adults.

Chetty’s theories for why social connections matter for upward mobility

Chetty and his colleagues don’t offer definitive evidence about what it is exactly about cross-class social interactions and friendships that gives low-income kids greater rates of upward mobility.

But Chetty has been thinking a lot about this subject in recent years, and he offered us three theories, which are not necessarily mutually exclusive.

One, Chetty says, relates to the power of personal connections in helping people find jobs. “ More than half of jobs in America are obtained through referrals,” Chetty says. “So if you're connected to somebody who's got a good job at a high-paying firm, you are more likely to get that job. And so cross-class interaction just directly affects the internships you get, the career you might end up pursuing.”

A second theory is that these cross-class connections offer kids more insights or information about how to climb the economic ladder. For example, which college to go to. “ If you live near somebody whose parents went to a college, you may be more likely to think about applying to that college. You’ve at least heard of it,” Chetty says.

The third theory Chetty told us — and he suggested this was a really important explanation — is that cross-class relationships provide low-income kids with more successful role models. And that likely shapes their goals and aspirations.

“ I think people's aspirations and what they try to achieve themselves are greatly shaped by who they’re around, especially as they grow up,” Chetty says. “I can say that from my own personal experience. You know, I grew up in a family of academics. I’m the last person to publish a paper in my family. I was certainly greatly influenced by that in my own career choices.”

Chetty says that, conversely, there are many disadvantaged kids who don’t get much exposure to scientists or technologists or entrepreneurs and so on, and they may not imagine themselves pursuing career paths like those and maybe not even know where to start.

In 2018, Chetty and co-authors published a study that offers compelling evidence to support the idea that who kids grow up around has a profound influence on their future careers. The paper was titled, “Who Becomes an Inventor in America? The Importance of Exposure to Innovation.” And a core finding was that kids who were raised around inventors — whether they be scientists, engineers, technologists, or entrepreneurs — are much more likely to become inventors themselves.

Chetty and his colleagues find that where a kid grows up not only influences whether they become an inventor, but what kind of inventor they become. “So if you grow up around people who are, say working in the semiconductor industry, when we follow you 20 years later, we see you’re more likely to have a patent in semiconductors,” Chetty says. And they find that demographics matter, so if little girls grow up around female innovators in biotech, they’re much more likely to become innovators in biotech.

The fact that so many disadvantaged kids are socially isolated and don't get this exposure to life-changing role models led Chetty and his colleagues to say there are a bunch of “lost Einsteins” out there. That there may be a ton of low-income kids across America, who could be generating new ideas or inventions that benefit society, but they’re trapped in impoverished environments without enough seeds for success.

Whatever the magic sauce is of being in more economically diverse social circles, this new study from Chetty and his colleagues about HOPE VI really shines a spotlight on the idea that disadvantaged kids are much more likely to succeed if they’re raised in areas with more advantaged kids and their parents.

Helping kids out of poverty pays off

Chetty and his colleagues do the math and their numbers suggest that the HOPE VI program was cost effective. They estimate that the average HOPE VI public housing unit cost the federal government $170,000 upfront. That may sound like a lot. But consider that they find that the average family living in one of those units saw about $25,000 more in lifetime earnings per year for their children. If those kids were raised in HOPE VI public housing units their entire childhoods, that would translate to about $500,000 more in earnings over their lifetimes.

And people who make more tend to pay higher taxes, so much of the taxpayer cost of revitalizing these housing projects was ultimately paid back. Also relevant: the researchers find that for richer kids, more interactions with low-income peers in childhood have little or no effect on their incomes as adults.

It’s a remarkable study that seems especially relevant today. The researchers find that, across America, there are many neighborhoods that are just as economically segregated and socially isolated as HOPE VI sites were back in the 1990s.

Maybe it’s time for a sequel to HOPE VI? Call it Hope VII. Chetty says the Department of Housing and Urban Development actually has a program, called Choice Neighborhoods, which has sought to revitalize impoverished neighborhoods beyond just public housing projects. But, he says, it could be better funded and designed.

Opportunity Insights just released an interactive map that shows specific neighborhoods across America that would be good candidates for policy interventions to increase cross-class social connections and boost upward mobility.

This new study suggests that the United States could see a big rejuvenation of the American Dream — where disadvantaged kids are more likely to rise from rags to riches — if policymakers did more to help them be more socially integrated into communities with more advantaged kids.

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