By Druta Bhatt
A new Harvard study shows Black Americans have seen better economic mobility than low-income white Americans, reducing the earnings gap by race. The study, published in July 2024, analyzed declassified income-tax data of 57 million Americans over the years, finds that low-income white millennials fare worse in terms of income than their Gen-X parents. However, the reverse is true for Black Americans.
In families at the bottom 25th percentile of national household income levels, if you look at the typical white Gen-X person at age 27, they earned more, relative to what everyone else in the country was earning at that time, compared to how much a typical white millennial made at age 27 relative to everyone else's earnings. For Black Americans, on the other hand, millennials from families of all income levels have achieved better relative income outcomes compared to their parents’ relative income status. This improvement also holds true when measured in terms of absolute dollars. The “race gap” in earnings among low-income black and white families has reduced by 30% over the two generations due to differences in economic mobility.
While the race gap decreases, the white “class gap” increases, and the effect of parental income on children’s outcomes has risen. The increase in the class gap and the decrease in the race gap are reflected not just in earnings outcomes, but also in other indicators like educational attainment, SAT/ACT scores, and mortality rates. The white class gap in educational attainment increased by 20%, and the race gap nearly disappeared for the millennial cohort studied, as high school graduation rates among Black children rose.
However, the shrinking white-Black race gap is not easily explained by family characteristics like parental education, wealth, occupation, and marital status. What correlates most with intergenerational economic mobility is the employment rates of parents among the children’s peers. Even within neighborhoods, there are communities of individuals who share the same race, class, and geography. When children move to communities with higher parental employment rates, their outcomes improve years later. The younger the children are at the time of the move, the greater the impact on future economic outcomes. Unlike those before it, this study establishes a causal link between the community factors children grow up with and their future economic outcomes. The study also suggests that the reduction in the race gap is at least partly explained by increased interactions between races.
As an individual, it might be disheartening to learn that our prospects depend on the community we grew up in — something over which we had little to no control. However, as a policy researcher, it’s incredibly empowering to learn that place-based development helps children of all races and economic classes regardless of individual and family characteristics. As the paper puts it, “…changing opportunity is feasible in short time frames. Community-level changes in one generation can propagate to the next and generate rapid changes in economic mobility.”
An important takeaway from this research is that, while current efforts focus on neighborhood-level development, community-level development — defined by the interactions children have — is more effective in determining the outcomes of future generations. Policies that increase interaction among communities of different races and income groups can significantly expand opportunities for future generations.