What Happens When Children Move to Better Neighborhoods?

What Happens When Children Move to Better Neighborhoods?
Raj Chetty, Nathaniel Hendren, Lawrence F. Katz
American Economic Review
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The Moving to Opportunity (MTO) experiment examines if moving to a lower-poverty neighborhood improves children’s long-term economic outcomes and if the gains decline when children are older. The study found that children are better off when they move to lower-poverty environments, and the earlier this occurs in life, the greater the impact on adulthood outcomes. The sample consisted of five cities—Baltimore, Boston, Chicago, Los Angeles, and New York—from 1994 to 1998. Over 4,600 families were selected based on the criteria of having children and residing in public housing or in project-based Section 8 assisted housing in high-poverty census tracts. These families were randomly assigned to three groups: an experimental voucher group, a Section 8 voucher group, and a control group with no intervention. To test for different effects with age, the 7,340 children were spilt into one group under age 13 and another group ages 13 to 18. The data for the study came from the US Department of Housing and Urban Development (HUD) files on MTO participants and federal income tax records. The HUD files recorded characteristics of the individuals and families and the census tract poverty rates. The tax records provided data on individual earnings, college attendance, college quality, neighborhood characteristics in adulthood, marital status and fertility, and tax filing and taxes paid.

Key findings:

  • Children under age 13 when assigned to the experimental voucher group increased their individual earnings in adulthood by $3,477 and total pretax lifetime earnings by $302,000. They were also more likely to attend college, live in lower-poverty neighborhoods as adults, and less likely to be single mothers (for the girls in the sample).
  • When assigned to the Section 8 voucher group, children under age 13 had mean outcomes between the experimental and control groups.
  • MTO had slightly negative effects on adolescence (ages 13 to 18) and no impact on improving adult outcomes.
  • MTO is cost saving relative to public housing because the counseling costs for MTO are $3,783 per family, and the tax revenue gain for each family with two small children that moves is significantly higher at $22,400.