The Limits of Job Creation
Strong Towns member Joe Cortright runs the think tank and blog, City Observatory. The following essay deals with a recent report from the Equality of Opportunity Project that explores the factors that influence intergenerational economic mobility: that is, the likelihood that someone who is born poor in a given location will rise out of poverty.
While many economic development professionals think job creation and access to jobs are the key to ending cycles of poverty, Cortright observes something counterintuitive in the data: both proximity to jobs in one’s neighborhood, and even regional job growth, are poor predictors of upward mobility.
We would suggest that this work dovetails with a core tenet of the Strong Towns movement: that we need to get a lot more nuanced in how we talk about growth. Just as not all local economic growth is productive growth—a.k.a. the kind of growth that continues to build out wealth over time, rather than delivering a one-time rush of cash before a crash—it is also true that not all growth delivers increased opportunity to those who have been shut out of it in the past.
So what does correlate with upward mobility—and does so startlingly? The neighborhood a person grows up in, and how much social capital it has according to various measures.
We heartily endorse Cortright’s prescription for a few things our cities and towns do need more of:
…. [w]ays to improve these kids’ human capital (get them greater access to education), strengthen their personal networks (as exemplified by greater contact with peers, neighbors and friends who are employed), and building social capital. These are not the usual targets of many job creation strategies.
These things are hard work. They’re tougher to quantify than jobs created, a lot more subtle and intangible. They require a very different way of thinking about economic development, one which, we might suggest, is conducive to a Strong Towns approach: bottom-up, iterative, responsive to feedback, and conducted as much as possible as a personal scale.
Here’s Cortright’s post. It is reprinted from his site with permission.
There’s a seemingly unquestioned (and unquestionable) truth among economic development practitioners that more job creation is the universal answer to problems of economic opportunity. If our neighborhood (or city or region) could just grow more jobs, or grow them at a faster rate, there’d be lots more opportunity for the poor and disadvantaged to lead a better life. We support job creation efforts because we believe that the benefits will help those especially at the bottom of the income spectrum.
The “proximity to jobs and job growth” argument is more than just a widely repeated shibboleth of economic development practitioners. For decades its been encapsulated in something called the “spatial mismatch” hypothesis, propounded by economist John Kain in 1968; he argued that the suburbanization of jobs meant that low skilled urban workers left in segregated low income urban neighborhoods were progressively further from jobs. As jobs moved away from cities, these workers suffered accordingly. The implication of this hypothesis is that if we could just get more jobs closer to these disadvantaged populations, they’d have more opportunity.
In the past few years, we’ve gotten a much clearer and more detailed picture of who’s flourishing (and where) thanks to the research of Raj Chetty, Nate Hendren, and their colleagues at the Equality of Opportunity Project. Using de-identified tax records, they’ve calculated the intergenerational economic mobility of Americans, identifying who has moved up. A core indicator is the extent to which children born to the poorest families move up in the income distribution and have higher relative incomes that their parents. It turns out that some cities and some neighborhoods do a much better job of enabling children to succeed as adults.
Their latest—The Opportunity Atlas: Mapping the Childhood Roots of Social Mobility—examines data at the neighborhood level to judge the correlates of economic mobility. We highlighted the on-line Atlas they’ve created, which enables you to see which places do the best job of giving kids a chance to succeed economically. The accompanying research paper steps back and asks what we can learn from these patterns about the characteristics of local communities that seem to underlie economic mobility.
On specific point of inquiry is using data from the Atlas to test the connection between job growth and intergenerational economic mobility. Does living in a neighborhood that has a wealth of jobs nearby improve the lifetime economic prospects of kids growing up there? The short answer is “no.”
The authors use data from the Census Bureau’s Local Employment and Housing Dynamics (LEHD) report to estimate the number of jobs within five miles of every census tract (neighborhood) in the US and then compare variations in job proximity to their measures of intergenerational economic mobility. They find that the density and growth of jobs bears no statistically significant relationship to lifetime earnings prospects of kids growing up nearby.
[The number of jobs within five miles] is slightly negatively associated with upward mobility, with a correlation of -0.175 (s.e. = 0.004). The number of “high-paying” (annual pre-tax wages above $40,000) jobs exhibits a similar pattern. We also find small correlations with the rate of job growth between 2004-2013, the period when children in our sample were entering the labor market. In short, there is little evidence of a positive association between local availability of jobs and upward mobility, challenging spatial mismatch theories of economic opportunity (Kain 1968).
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The same finding holds at the metropolitan level. Kids who grow up in regions or metropolitan areas where job growth is strong don’t tend to exhibit greater intergenerational economic mobility as adults than kids growing up in weaker labor markets. Here’s a scatter diagram of data for the 50 largest commuting areas (major metropolitan areas and their surrounding commuting zones), showing intergenerational economic mobility on the vertical axis and job growth on the horizontal axis. As the report notes, there is essentially no correlation between the two measures.
As the authors conclude:
The upshot of these findings is that a booming labor market does not automatically translate into greater upward mobility for local residents. Hence, policies targeted based on job growth rates would reach quite different areas from the places where upward mobility is lowest. More broadly, the factors that lead to highly productive labor markets with high rates of job, wage, and productivity growth apparently differ from the factors that promote human capital development and result in high levels of upward income mobility across generations.
What does matter? While the number of local jobs doesn’t seem to make much difference to lifetime employment prospects, the share of neighbors who are employed does. Chetty, Hendren and co-authors look at the correlation between the rate of adult employment and the intergenerational mobility of children. The bigger a fraction of the local adults who have jobs, the more likely it is that kids will be successful as adults:
. . . we find a strong positive correlation of 0.349 (s.e. 0.004) between the employment rates of the local residents in a neighborhood and the outcomes of children who grow up there. Evidently, what predicts upward mobility is not proximity to jobs, but growing up around people who have jobs.
They also find a positive relationship between neighborhood level measures of social capital, proxied by the fraction of the local population that returns its census forms by mail (i.e. not requiring a separate personal contact to elicit a response). Children who grow up in neighborhoods with higher levels of social capital also have greater economic success as adults.
The non-existent relationship between economic mobility and local job growth poses a major intellectual challenge for many economic development programs and policies, particularly if they’re promoted as ways of redressing poverty and promoting greater equity. Take for example the recently enacted Opportunity Zone program, which confers tax breaks on investments in low income neighborhoods. Even if such measures do succeed in creating more nearby jobs, it may be that this does little to promote the lifetime prospects of kids growing up in these neighborhoods.
Instead, if we care about opportunity, we need to be looking for ways to improve these kids’ human capital (get them greater access to education), strengthen their personal networks (as exemplified by greater contact with peers, neighbors and friends who are employed), and building social capital. These are not the usual targets of many job creation strategies.
The Opportunity Atlas: Mapping the Childhood Roots of Social Mobility∗ Raj Chetty, Harvard University and NBER John N. Friedman, Brown University and NBER Nathaniel Hendren, Harvard University and NBER Maggie R. Jones, U.S. Census Bureau Sonya R. Porter, U.S. Census Bureau October 2018
(Cover photo via Picpedia - Creative Commons License)