The Determinants of Income Segregation and Intergenerational Mobility: Using Test Scores to Measure Undermatching

Abstract

We analyze how changes in the allocation of students to colleges would affect segregation by parental income across colleges and intergenerational mobility in the United States. We do so by linking data from tax records on parents' incomes and students' earnings outcomes for each college to data on students' SAT and ACT scores. We find that equalizing application, admission, and matriculation rates across parental income groups conditional on test scores would reduce segregation substantially, primarily by increasing the representation of middle-class students at more selective colleges. However, it would have little impact on the fraction of low-income students at elite private colleges because there are relatively few students from low-income families with sufficiently high SAT/ACT scores. Differences in parental income distributions across colleges could be eliminated by giving low and middle-income students a sliding-scale preference in the application and admissions process similar to that implicitly given to legacy students at elite private colleges. Assuming that 80% of observational differences in students' earnings conditional on test scores, race, and parental income are due to colleges' causal effects — a strong assumption, but one consistent with prior work — such changes could reduce intergenerational income persistence among college students by about 25%. We conclude that changing how students are allocated to colleges could substantially reduce segregation and increase intergenerational mobility, even without changing colleges' educational programs.