In the mid-1990’s the Department of Housing and Urban Development (henceforth HUD) began what would be one of the largest government-led social experiments you have never heard of. While law enforcement and elected officials monopolized media attention by popularizing the term super-predator and implementing “broken windows” policing, HUD hypothesized the following: high-crime neighborhoods keep impoverished families poor. To prove this, HUD randomized 4600 families with children from New York, Boston, Los Angeles, Baltimore, and Chicago into three categories:
- The Section 8 voucher group received a voucher to cover housing in any desired neighborhood;
- The Experiment group received this same voucher, a year of housing counseling by HUD and had their voucher usage restricted to low-crime neighborhoods;
- The Control group received nothing.
The randomized families moved, grew up and were interviewed several times by HUD to evaluate the success of the program. As results came in, social scientists churned out research showing little economic improvement for the adults and children in the experimental group (Lawrence, Kling and Liebman 2001, Goering et al. 1999, Clampet-Lundquist and Massey 2008). It was not until 2016 when economists finally saw progress for families in the housing experiment. Chetty, Hendren, and Katz 2016 (henceforth Chetty et al.) find that children who move to the low-poverty neighborhood before the age of 13 see a 31% increase in earnings compared to the control mean. This translates to those children paying an additional $394 in federal taxes yearly, making the program profitable to the federal government. Additionally, those same children are more likely to attend college and to attend better colleges. Lastly, the effects permeate to the next generation as the children find themselves, as parents, in a low-poverty neighborhood.
However, the picture for those who move to low-crime neighborhoods after the age of 13 is bleak. Adolescents at the time of move end up, in many if not all measures, worse off than the control group. Our authors’ attempt to measure the effect age has on moving and find that, on average, a child will lose $364 of income per year for the rest of their lives for every year they continue to live in a high-crime neighborhood. After the age of 13, movers earn less than the control group.
The adults in the experimental group saw insignificant changes in their wages, which is perplexing. We would expect parents who move to low-crime neighborhoods to have access to higher paying jobs. While the adults do not experience growth in wages, they do experience health benefits including lower rates of obesity and depression (Ludwig et al. 2011).
As promising as these results seem, and to the American Economic Review (a top-notch journal) they seem promising, there exist a significant issue within the estimation strategy that must be scrutinized before coming to any conclusions about the Moving to Opportunity (henceforth MTO) experiment.
Self-selection is an enduring problem in all social experiments. What self-selection means, in this context, is that there exists a strong possibility that families who end up in low-poverty neighborhoods have an unobservable quality that led them to submit their randomly assigned government voucher and move to a new neighborhood. This is not random. Our author’s attempt to control for this by assuming that families who do not use the voucher randomly assigned to them are no better off than the control group. While plausible, this is untestable given the experimental design (families that were offered the voucher but did not use it were not interviewed separately).
Taking self-selection as given, the results of the social experiment are stark. Low-income families break out of poverty when given the opportunity to move to low-crime neighborhoods. The MTO has yet to be expanded which is unfortunate given the profitability of the program to the government and the lost income for every year a child stays in a high-crime neighborhood. If our president is looking for a way to start fighting poverty while engaging in bipartisanship, this experiment would be a good place to start.
- The voucher covered the difference between the family’s contribution (all moving families were required to contribute 30% of their annual household income towards rent) and the Fair Market Rate (the 40th percentile of rental costs in a metro area) ↑
- After one year of living in a low-crime neighborhood, families could move wherever they pleased. ↑