How Economic Mobility Is Linked to Neighborhood Job Growth

You probably knew the neighborhood that you were born and raised in influenced your level of income. But did you know how much your success affects job growth in your childhood neighborhood?

That’s what St. Louis Fed economist Victoria Gregory and Research Associate Elisabeth Harding examined in a pair of Economic Synopses articles this summer: “Neighborhood Types and Demographics” and “Neighborhood Types and Intergenerational Mobility.”

Through their research, they found that most neighborhoods in the United States can be placed into five general groups based on their characteristics. However, the economic outcomes of people in those five neighborhood groups vary by their intergenerational mobility and other factors.

The authors used Opportunity Insights and the National Center for Health Statistics to study data of small geographic areas. (See box.) From there, Gregory and Harding used an algorithm to assign census tracts to one of the five neighborhood groups organized by:

• Educational attainment, measured by the share of residents with a four-year college degree
• Racial composition, measured by the shares of white, Black, Asian and Hispanic residents as well as the share of foreign-born residents

The Five Types of Neighborhood Groups

The algorithm grouped neighborhoods together and ordered them from lowest to highest median household income, as seen in the table. Neighborhood types 1 and 2 have high shares of Black and Hispanic residents, respectively. The predominantly white neighborhoods are split into types 3 and 5.

“Type 4 includes tracts that do not fit in well with the other groups and tracts that are more balanced with respect to race and educational attainment,” the authors stated. “The population of this tract is most representative of the United States as a whole.”

Where the Different Neighborhood Types Tend to Be

The article also broke down where these neighborhoods are generally located in the U.S. Using the algorithm, the authors discovered:

• Type 1 neighborhoods, mostly Black, are in urban and suburban areas and the South.
• Type 2 neighborhoods, mostly Hispanic, are in urban areas and the West.
• Type 3 neighborhoods, with the highest share of white residents least likely to have a four-year college degree, are most strongly represented in suburban and rural areas as well as in the Midwest and South.
• Type 4 neighborhoods, while racially balanced, are not geographically balanced and are most likely to be found in suburban areas and in the South and West.
• Type 5 neighborhoods, predominantly white, are “fairly evenly dispersed by region” and in suburban and urban areas.

How Economic Mobility Varies by Neighborhood Type

Gregory and Harding’s next article focused on how an individual’s socioeconomic status can be different from his or her parents’ due to the intergenerational mobility of a society. Using the neighborhood groupings from the previous article, the authors looked at how intergenerational mobility was connected to job growth of individuals in each neighborhood type.

Using Opportunity Insights data, the authors measured the relationship between the probability that children born in a specific neighborhood type reached the top quintile, or fifth, of the national individual income distribution in 2014 and 2015 and the annualized change in the number of employed workers between 2004 and 2013.

They found that the average probability of reaching the top 20% of national income increases with each neighborhood type, with Type 1 having an 11.7% probability and Type 5 having a 31.3% probability.

Which Neighborhood Types Are Most Likely to Benefit from Mobility?

While the Type 1 neighborhood had the lowest probability of children reaching the top quintile of income as adults, the authors noted the neighborhood type had the largest increase in job growth for every increase in probability of reaching the top quintile of income.

In other words, Type 1 had the strongest relationship between economic mobility and job growth of the five groups, and upwardly mobile adults from a Type 1 neighborhood would be the most likely to help create jobs in their childhood neighborhood. The graphs below show the relationships.

However, for Type 5, economic mobility and job growth had a negative relationship, meaning they move in opposite directions: job growth for those types of neighborhoods goes down when economic mobility goes up. One plausible explanation is that “for a neighborhood to capture positive spillover effects and job creation from children that become upwardly mobile adults, those adults must stay near their childhood homes,” the authors said.

Gregory and Harding used the Opportunity Insights data again to chart those effects and found that Type 1 and Type 2 neighborhoods had the highest “stay” rates, as shown in the bar graph including census tracts and commuting zones.

Ultimately, the authors found that U.S. neighborhoods have systematic differences in racial and educational composition. Those qualities impact economic relationships, job growth and income in varying degrees.

“In most neighborhood types, upward economic mobility correlates positively with job growth,” they said. “We have shown, however, that neighborhood stay rates are important factors in capturing the positive effects of economic mobility.”