Expand Opportunity to Boost Growth

November 25, 2014 • Cato Online Forum
By Scott Winship

Over human history, nothing has expanded opportunity more successfully than economic growth. Indeed, growth is nothing if not a machine to fulfill ever more of the wants and needs of ever more people. But economic growth alone has been insufficient for ensuring equal opportunity to benefit from growth or contribute to it. Through politics and cultural change, we have made great — if long‐​delayed and incomplete — advances in eliminating formal and even informal discrimination. But a fundamental market failure continues not only to impair opportunity but to limit economic growth: we do not choose our parents. Parents endow us (unequally) not only with skills and personalities, but values, habits, and aspirations, often reflecting legacies of history, familial or societal. While there may be better strategies to promote growth than expanding opportunity, steps that expand opportunity while stimulating economic growth would achieve complementary goals.

There are at least two ways of thinking about “opportunity.” It can mean either rising living standards or upward movement in rank. The former, often called “absolute mobility,” is unconcerned with whether those who start at the bottom end up at the bottom, so long as they also see rising purchasing power. Rank mobility, or “relative mobility,” is about whether — real income gains aside — people who start at the bottom can make it to the middle or top. Both are important — the rising living standards embodied in absolute mobility are self‐​evidently so, while relative mobility stands in for the ability of poor children to aspire to something other than the least desirable jobs or government dependence when they become adults. It is this sense of high relative mobility that is evoked by appealing to “equal” opportunity.

What is the state of upward relative mobility in the United States today? A just‐​released paper examined, better than any previous study, mobility across multiple countries using administrative data for each and the same methods and income concepts.1 That paper reported — for the U.S., Sweden, and Canada — the probability that a man raised by a father in the bottom fifth of earnings has earnings that exceed the bottom fifth of grown sons. The figures were 68 percent in the U.S. and Sweden and 69 percent in Canada. The essentially identical rates of upward mobility — also reflected in other measures in the paper — contradict the prior consensus that the U.S. features lower upward mobility than other nations, a conclusion that now appears compromised by data inconsistencies or driven by family structure differences that affect household income.

Upward mobility rates in the U.S. differ notably by race. Among whites, 74 percent of sons raised in the bottom make it out, compared with just 49 percent of African American sons.2 Even among whites, however, upward mobility is arguably insufficient. Just 37 percent of sons raised in the bottom fifth end up in the top three fifths, while equality of outcomes would put that figure at 60 percent. Among black sons, the figure is just 29 percent.

And while upward mobility probably has not declined in recent decades, neither has it increased.3 My own estimates, for example, indicate that 63 percent of sons born in the late 1940s and raised in the bottom quarter of family income made it out of the bottom quarter of earnings in early adulthood. For sons born in the early 1980s, the figure was 60 percent.4

Of course, it is impossible to directly observe barriers to opportunity since we can neither observe the potential outcomes of children under different circumstances nor identify how their preferences form and evolve. Relative mobility rates cannot even be taken as prima facie evidence of unequal opportunity. However, we do know that there are large test score gaps when children enter school, which do not diminish much, if at all, over the course of primary and secondary schooling.5 We also know that college graduation rates are six times higher for children born in upper‐​income families than for those in lower‐​income families.6 Even children with test scores in the top quartile in eighth grade have dramatically different probabilities of getting a bachelor’s degree depending on whether they come from advantaged or disadvantaged families.7 There are sizable ethnic gaps along these dimensions as well. Perhaps these inequalities reflect preferences. Perhaps.

Does greater opportunity increase economic growth? There are certainly theoretical reasons to think so. If the next potential Steve Jobs is languishing in an impoverished neighborhood and attending a failing school, we will all lose if she never fulfills her potential. Unequal opportunity may diminish investment in human capital and entrepreneurship. Alternatively, human capital may simply be misallocated. Poor children, for instance, may train for jobs that do not match their talents. Not only would we better off with more people investing in human capital and more people working jobs for which they are best suited, but we could end up with more people in high‐​productivity jobs as an ancillary benefit.

To see the potential benefits to economic growth from reducing inequality of opportunity, consider a recent study by University of Chicago and Stanford economists.8 The study examines how the expanded opportunity afforded women and African Americans to choose their best‐​fitting occupation affected U.S. productivity after 1960. Using a model of human capital investment, occupational choice, labor demand, and economic growth, the researchers explore how the lessening of three barriers to equal opportunity helped the economy. The barriers modeled include reduced accumulation of human capital among women and blacks for the same investment of time and money, higher costs to acquire the same human capital, and lower pay for the same human capital.

The study finds that greater opportunity among women and African Americans raised productivity by 15 to 20 percent between 1960 and 2008. The researchers’ model also suggests that this was only about half of the boost to productivity that could have been achieved from reducing all barriers to occupational choice among the two groups. These are surely rough estimates, and they assume that opportunity can be expanded at no cost, but they nevertheless demonstrate the likelihood that unequal opportunity constitutes “money on the sidewalk” that would make the nation richer if we could successfully pocket it.

How, then, might we increase upward mobility rates? If we admit, as we must, that we lack many successful models for improving the educational and economic outcomes of disadvantaged children, then the task becomes one of discovering models that work.9 The best way to do so would be to follow the advice of entrepreneur and policy analyst Jim Manzi and embrace local experimentation and evaluation through the use of randomized controlled trials.10 The federal government could build on the quiet shift toward evidence‐​based policymaking instituted by the Obama Administration and subject all new and existing programs intended to change behavior or build human capital to such evaluation.11 The emphasis on evaluation should be coupled with greater state and local flexibility to combine programs and depart from federal requirements. Executive agencies would also need flexibility to shift funding between successful and unsuccessful approaches so long as they serve the goal of the authorizing legislation.

It would be most efficient if policy experiments were coordinated and evaluated by a dedicated federal office, which would work with state and local recipients of federal funds to set program goals, design the experiments, approve evaluation metrics, analyze data as it is generated, and summarize results for the Administration and Congress. Brookings Institution scholar Richard Reeves has proposed establishing an Office of Opportunity, which would symbolize federal commitment to and prioritization of increasing upward mobility rates.12 A beefed up version of Reeves’s office could lead the policy experimentation and compile a user‐​friendly database of programs evaluated by the office or externally, building on the Institute of Education Science’s “What Works Clearinghouse” within the Department of Education. This database would itself serve as guidance for states and localities looking to submit proposals to agencies supported by the office.

While we know little about what intermediate objectives would best serve the goal of increasing upward mobility, we know enough to suggest some important areas on which to focus. Effective early childhood education and parenting programs would help close the yawning test score gaps between advantaged and disadvantaged children present even in kindergarten. Greater experimentation and flexibility in primary and secondary schools might identify encouraging models related to school and class size, teacher recruitment and retainment, curricular and pedagogical approaches, governance and school choice, and school‐​to‐​work linkages. Performance‐​based aid experiments for postsecondary institutions could increase accountability at community colleges and four‐​year institutions and promote better support of non‐​traditional and first‐​generation college students. Safety‐​net program experiments could better promote work and independence. Policing, sentencing, incarceration, and re‐​entry experiments could find a better balance among public safety, prevention, punishment, and forgiveness. And programs aimed at early unintended childbearing and family stability might ensure that more children enjoy the increasingly uncommon experience of growing up with both of their parents in a happy household.

This last issue of family instability merits special attention and prioritization. Births to single mothers constitute more than 40 percent of all births today — and over half of births to women under age thirty.13 In 1970, 20 percent of births to women without a high school diploma were to single mothers but today two‐​thirds are. Births to single women in 1970 accounted for under 10 percent of births to women with a high school diploma but no college, but for 58 percent of such births in 2012.

We can debate the strength of the (mountains of) studies finding that growing up with a single parent worsens adult outcomes. My own view is that they are generally unpersuasive as evidence that children who are raised by single parents would do better if their actual parents would marry or stay married. But if we could delay early out‐​of‐​wedlock births such that more births were planned by older parents within durable marriages, the children who would be born — often to different fathers! — would likely do better for having been born into more stable circumstances. And the minimal expectations we have of fathers today likely have discouraged the responsible behavior of men — not just in terms of family formation and childrearing, but in terms of work and self‐​sacrifice — and eroded norms in support of such behavior.

In the spirit of experimentation, then, we should consider promoting childrearing within marriage with generous financial rewards. The easiest way to do so would be to restructure tax subsidies so that married parents qualify for a sizable and refundable tax credit that explicitly makes parenthood within marriage more attractive than parenthood outside marriage. Funding for such a subsidy could come from any of a number of sources, including eliminating tax expenditures that subsidize less important societal goals, cutting ineffective anti‐​poverty programs, or by explicit redistribution from childless taxpayers to parents (as the writer and policy analyst Reihan Salam has suggested).14 While calls for expanded child tax credits are growing more popular as a way to support parents generally, and while marriage promotion programs have been proposed to encourage unmarried parents to wed, targeting tax benefits to married parents would have a different goal. The goal would be to give teens and young adults who might otherwise see little to gain from more responsible family planning a clear incentive to delay pregnancy.

Using opportunity expansion as a strategy for increasing economic growth would be compatible with other growth‐​promoting efforts. Even if it failed to increase growth meaningfully, we might nonetheless succeed at giving poor children better options. That would be a very pleasant failure indeed. But we might find instead that unequal opportunity has been a drag on economic growth all along, and that doing right by poor children turns out to benefit all of us.

1 Miles Corak, Matthew J. Lindquist, and Bhashkar Mazumder (2014). “A Comparison of Upward and Downward Intergenerational Mobility in Canada, Sweden, and the United States.” Labour Economics 30: 185–200.
2 Bhashkar Mazumder (2014). “Black‐​White Differences in Intergenerational Economic Mobility in the United States.” Federal Reserve Bank of Chicago Economic Perspectives 38(1): 1–18.
3 For a review, see Scott Winship (forthcoming). “Has Rising Income Inequality Worsened Inequality of Opportunity in the United States?” Social Philosophy and Policy.
4 Scott Winship (forthcoming). “The Dream Abides: Economic Mobility in America from the Golden Age to the Great Recession.“
5 Sean F. Reardon (2011). “The Widening Academic Achievement Gap Between the Rich and the Poor: New Evidence and Possible Explanations.” In Greg J. Duncan and Richard J. Murnane, eds. Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances (New York: Russell Sage Foundation).
6 Martha J. Bailey and Susan M. Dynarski (2011). “Inequality in Postsecondary Education.” In Duncan and Murnane.
7 Mary Ann Fox, Brooke A. Connolly, and Thomas D. Snyder (2005). “Youth Indicators 2005: Trends in the Well‐​Being of American Youth.” (NCES 2005–050). U.S. Department of Education, National Center for Education Statistics (Washington, DC: U.S. Government Printing Office).
8 Chang‐​Tai Hsieh, Erik Hurst, Charles I. Jones, and Peter J. Klenow (2013). “The Allocation of Talent and U.S. Economic Growth.” Working Paper.
9 On the limited success of existing federal programs that have included multiple sites and have been evaluated using randomized controlled trials, see David B. Muhlhausen (2013). Do Federal Social Programs Work? (New York: Praeger).10 Jim Manzi (2012). Uncontrolled: The Surprising Pay‐​Off of Trial‐​and‐​Error for Business, Politics, and Society (New York: Basic Books).11 On the Obama administration’s efforts, see Ron Haskins and Jon Baron (2011). “The Obama Administration’s Evidence‐​Based Social Policy Initiatives: An Overview.” In Evidence for Social Policy and Practice: Perspectives on How Research and Evidence Can Influence Decision‐​Making In Public Services (London: Nesta).
12 Richard V. Reeves (2014). “Planning the American Dream: The Case for an Office of Opportunity.” Brookings Center on Children and Families CCF Brief #53.
13 Isabel V. Sawhill (2014). Generation Unbound: Drifting Into Sex and Parenthood without Marriage (Washington, DC: Brookings Institution Press).
14 Reihan Salam (2014). “Tax the Childless.” Slate​.com.

The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on reviving economic growth.

About the Author
Scott Winship is the Walter B. Wriston Fellow at the Manhattan Institute.