Place Prosperity and the Intergenerational Transmission of Poverty

Abstract

Much new work in urban and regional economics has emphasized the importance of place prosperity. This study focuses on the determinants of adult poverty and the contribution of place prosperity in damping the intergenerational transmission of poverty. Childhood poverty is a major predictor of adult poverty. We consider how such intergenerational transmission is affected by metropolitan and neighborhood (census tract) prosperity. To capture the temporal dynamics of this process, the model explored here is recursive in nature. We use longitudinal microdata from the Panel Study of Income Dynamics. Location variables at the census tract and metropolitan levels, family variables, and poverty status are observed for our subjects over multiple years both in childhood and adulthood. Neighborhood and metropolitan prosperity are measured in terms of average incomes adjusted for purchasing power parity differences. The standardized neighborhood prosperity direct effect on adult poverty is strongly significant and its total effect is twice as large. On the other hand, the standardized direct effect of metropolitan prosperity and its total effect are small and insignificant. But even neighborhood effects are modest compared to standardized effects of childhood poverty, race, mother’s education and own education. At least with respect to these data, the recent emphasis on place variables would seem to be overstated.