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The End of the American Dream? Inequality and Segregation in US cities

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  • Veronica Guerrieri

    (University of Chicago)

  • Alessandra Fogli

    (Minneapolis Federal Reserve Bank)

Abstract

Over the last 40 years, the US has experienced a large increase in inequality. At the same time there has been a substantial increase in residential segregation by income and education. What is the link between inequality and residential and educational choice? We first document a strong correlation between inequality and residential segregation at the MSA level, especially in MSA with higher percentage of families with children. Then we develop a general equilibrium overlapping generations model where parents choose the neighborhood where they live with their children. The key ingredient of the model is that there is a spillover effect: children's future wage is expected to be higher if they live in richer neighborhoods. We model such a spillover effect as a black box that can be explained by different quality of public schools, peer effect, learning from neighbors' experience and so forth. This generates a general equilibrium effect through which the residential choice amplifies future inequality: the higher is inequality, the higher is residential segregation which, due to the spillover effect, generates higher inequality. Is this the end of the American dream? We then calibrate the model, using the elasticities found in Chetty and Hendren (2016) and quantify how much residential segregation has contributed to increase inequality. (We attach slides of a preliminary version of the paper, as the current version is still on progress).

Suggested Citation

  • Veronica Guerrieri & Alessandra Fogli, 2017. "The End of the American Dream? Inequality and Segregation in US cities," 2017 Meeting Papers 1309, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1309
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    References listed on IDEAS

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    5. Fabian Eckert & Tatjana Kleineberg, 2019. "Can We Save the American Dream? A Dynamic General Equilibrium Analysis of the Effects of School Financing on Local Opportunities," 2019 Meeting Papers 1197, Society for Economic Dynamics.
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    Cited by:

    1. Gerard Domènech-Arumí, 2022. "Neighborhoods, Perceived Inequality, and Preferences for Redistribution :Evidence from Barcelona," Working Papers ECARES 2022-09, ULB -- Universite Libre de Bruxelles.
    2. Suzanne Bellue, 2024. "Why Don’t Poor Families Move? A Spatial Equilibrium Analysis of Parental Decisions with Social Learning," Working Papers 2024-07, Center for Research in Economics and Statistics.
    3. Victoria Gregory & Julian Kozlowski & Hannah Rubinton, 2022. "The Impact of Racial Segregation on College Attainment in Spatial Equilibrium," Working Papers 2022-036, Federal Reserve Bank of St. Louis, revised 24 Jul 2023.
    4. Jo Blanden & Matthias Doepke & Jan Stuhler, 2022. "Education inequality," CEP Discussion Papers dp1849, Centre for Economic Performance, LSE.
    5. Kulkarni, Nirupama & Malmendier, Ulrike, 2022. "Homeownership segregation," Journal of Monetary Economics, Elsevier, vol. 129(C), pages 123-149.
    6. Stephen J. Redding, 2022. "Suburbanization in the USA, 1970–2010," Economica, London School of Economics and Political Science, vol. 89(S1), pages 110-136, June.
    7. Redding, Stephen, 2021. "Suburbanization in the United States 1970-2010," CEPR Discussion Papers 16174, C.E.P.R. Discussion Papers.
    8. Takeda, Kohei, 2022. "The geography of structural transformation: effects on inequality and mobility," LSE Research Online Documents on Economics 118050, London School of Economics and Political Science, LSE Library.
    9. Victor Couture & Cecile Gaubert & Jessie Handbury & Erik Hurst, 2019. "Income Growth and the Distributional Effects of Urban Spatial Sorting," NBER Working Papers 26142, National Bureau of Economic Research, Inc.
    10. Alessandra Fogli, 2019. "The Research Agenda: Alessandra Fogli on Social Context and Macroeconomic Outcomes," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 20(2), November.
    11. Hennig, Jan-Luca, 2021. "Labor Market Polarization and Intergenerational Mobility: Theory and Evidence," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242353, Verein für Socialpolitik / German Economic Association.
    12. Andrew W. Nutting, 2023. "Geographic earnings inequality by race, 1960–2016," Journal of Regional Science, Wiley Blackwell, vol. 63(2), pages 290-339, March.
    13. Gallipoli, Giovanni, 2023. "Comments on unequal growth," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 19-24.
    14. Roland Bénabou, 2017. "Comment on "Understanding the Great Gatsby Curve"," NBER Chapters, in: NBER Macroeconomics Annual 2017, volume 32, pages 394-406, National Bureau of Economic Research, Inc.
    15. Oskari Harjunen & Tuukka Saarimaa & Janne Tukiainen, 2021. "Love Thy (Elected) Neighbor? Residential Segregation, Political Representation and Local Public Goods," Discussion Papers 138, Aboa Centre for Economics.
    16. Eckert,Fabian & Kleineberg,Tatjana Karina, 2021. "Saving the American Dream ? Education Policies in Spatial General Equilibrium," Policy Research Working Paper Series 9574, The World Bank.
    17. Wangbao Liu, 2022. "Tenure-Based Housing Spatial Patterns and Residential Segregation in Guangzhou under the Background of Housing Market Reform," Sustainability, MDPI, vol. 14(8), pages 1-19, April.
    18. Choi, Jaerim & Lim, Sunghun, 2023. "Ostrom Meets the Pandemic: Lessons from Asian Rice Farming Traditions," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334543, Agricultural Economics Society - AES.
    19. Jean-Felix Brouillette & Charles I. Jones & Peter J. Klenow, 2021. "Race and Economic Well-Being in the United States," NBER Working Papers 29539, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E0 - Macroeconomics and Monetary Economics - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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