Income Inequality, Economic Segregation and Children’s Educational Attainment

Households became more geographically segregated by income in the United States between 1970 and 1990. Research shows that growing up in a poor neighborhood is associated with worse outcomes for children. This suggests that economic segregation may be harmful to children. Economic inequality also increased between 1970 and 1980. Theoretical arguments suggest that the increase in inequality led to the increase in segregation. Using 1970, 1980 and 1990 Census data, I find that an increase in income inequality at the state level is associated with an increased in economic segregation between census tracts in the state. However, economic inequality between households in the same census tract hardly changed between 1970 and 1990. I then combine Census data with data from the Panel Study of Income Dynamic to show that given a constant level of economic inequality in a state, an increase in economic segregation between tracts in the same state increases affluent children’s educational attainment but reduces poor children’s educational attainment. Therefore segregation between census tracts increases inequality in educational attainment and may therefore increase inequality in the next generation. Economic inequality within census tracts has little effect on high or low-income children’s educational attainment. Income Inequality, Economic Segregation, and Children’s Educational Attainment Susan E. Mayer Harris Graduate School of Public Policy University of Chicago Households became more geographically segregated by income in the United States between 1970 and 1990 (Jargowsky 1993, 1997). A large research literature shows that growing up in a poor neighborhood is associated with worse outcomes for children. Many researchers therefore conclude that the increase in economic segregation has been harmful to children. Economic inequality also increased in the United States between 1970 and 1980 (Karoly 1993, Morris and Western 1999). Some researchers have suggested that the increase in inequality led to the increase in segregation (Durlauf 1996, Wilson 1987). I first test this hypothesis. Then I estimate the effect of both economic segregation and economic inequality on children’s educational attainment. If rising economic inequality among adults has led to more economic segregation and if increased economic segregation led to more inequality in children’s outcomes such as educational attainment, increases in economic inequality among parents are likely to be transmitted to the next generation perpetuating economic segregation. Conversely, if economic inequality hurts children but economic segregation does not, efforts to reduce segregation without reducing inequality could be misdirected. I. Theoretical Issues I denote the total variance of household income as σt. If we divide a geographic area such as a state, s, into mutually exclusive geographic areas such as neighborhoods, n, we can decompose the total variance of household income for s into two additive components: a