Recent research has uncovered substantial differences in intergenerational mobility across neighborhoods, in countries and continents around the world. In some neighborhoods, children from low-income families grow up to join the middle class (and beyond), while in other, nearby areas, children from comparable backgrounds are more likely to remain trapped in poverty. It is unclear, however, what drives these differences.
In this paper, the authors investigate the sources of neighborhood-level variation in intergenerational mobility using Danish administrative data. They link children born between 1973 and 1983 to their parents, examining how the relationship between parental and child incomes differs across neighborhoods in Denmark. The authors distinguish between two drivers of mobility: selection—where the characteristics of families who choose to live in a specific neighborhood contribute to variation in upward mobility—and location effects—the remaining variation that is not explained by selection. By disentangling these factors, the authors seek to understand whether the variation in intergenerational mobility revealed by prior research is driven by families living in certain neighborhoods or by the characteristics of the neighborhoods themselves. They find the following:
- The authors begin by assessing the role of sampling error: The difference between a sample estimate and the true population value due to random fluctuations. , or, the degree to which random fluctuations contribute to the observed variation in intergenerational mobility. They find that even before accounting for the role of selection, a large portion of the variation is explained by sampling error rather than actual differences between neighborhoods.
- Next, the authors separate mobility into selection effects (the characteristics of families who choose to live in specific neighborhoods) and location effects (the qualities of the neighborhoods themselves). They find that selection explains the majority of the variation in neighborhood-level mobility, while location effects contribute a small portion of the variation.
- After adjusting for selection, urban areas, which initially seemed to have low mobility, show higher mobility. The reverse is true for rural areas. This suggests that the lower mobility often linked to urban neighborhoods is primarily due to the characteristics of the families living there, rather than the neighborhoods themselves.
- The authors next investigate how neighborhood characteristics, such as school quality, labor market structure, and whether an area is rural or urban, influence location effects. They find that factors previously associated with mobility, like average home value, lose significance after accounting for selection. Instead, the most critical factor in predicting mobility differences is whether an area is rural or urban. This suggests that in Denmark, the primary drivers of mobility differences are the amenities and opportunities available in urban versus rural areas.
- Finally, the authors identify two distinct patterns in neighborhood mobility across Denmark. In one group, children from low-income families experience limited upward mobility, but mobility increases significantly as parental income rises. In contrast, the second group shows the opposite: children from low-income families exhibit higher upward mobility, which decreases for those with higher-income parents. This suggests that different neighborhoods may promote upward mobility through varying mechanisms.
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