Recent Research: Broadening economic opportunity to support American innovation

This article is part one of a two part series focused on the intersection between economic opportunity and the economic development practice.  

A lack of economic opportunity could threaten American innovation, according to new research from Stanford economist Raj Chetty and other members of the Equality of Opportunity Project. In light of empirical research showing the worsening effects of economic segregation and inequality, the economic development community needs to support new strategies and tactics that can deliver “realistic economic opportunity” to more communities across the country. If the future of American inventiveness depends on place-based economic opportunity and exposure to innovation as the study suggests, troubling times may lie ahead.

In Who Becomes an Inventor in America? The Importance of Exposure to Innovation, the Equality of Opportunity Project authors — Chetty of Stanford, Alex Bell of Harvard, Xavier Jaravel of the London School of Economics, Neviana Petkova of the U.S. Department of the Treasury, and John Van Reenen of MIT — find evidence that both an aptitude for invention and exposure to a culture of innovation are important in determining future inventiveness. Using a novel method linking federal patent records from 1996 to 2014 with tax records from the IRS, the authors are able to track the lives of inventors from birth through adulthood in order to get a better sense of both the demography and geography of innovation. As a proxy for ability, the authors link this data with records from New York City schools on third-grade standardized math tests. This allows the authors to look at how factors like race or socioeconomic status affects students with similar abilities.

The authors find that typical inventors are white, more likely to be male, and from more privileged backgrounds than non-inventors. Regardless of their abilities, white, Asian, and third-graders from higher-income families were far more likely than black and Latino children to become inventors. The authors find that among high-income families, students with higher math scores were much more likely to invent than those with lower scores. On the other hand, among low-income families, there are relatively few differences between high-scoring and low-scoring students and their likelihood of becoming an inventor.

The study also points to the advantages of exposure to innovation, or higher levels of patenting. The authors map patent rates by childhood commuting zone and find considerable disparities across regions, as the map below shows. Children growing up along the Coasts or in the Midwest were far more likely to become inventors than those growing up in the South.

In an analysis of the technical categories of patents, the authors also find evidence that inventors who grew up in an area that specializes in a certain type of patenting (like medical devices, computers, or automotive) would be more likely to invent something in that field. This holds true even when inventors live in areas later in life that are not specialized in a particular technology.

Overall, because even high-aptitude students from lower-income or diverse backgrounds are effectively held back from pursuing their natural abilities, the study points to the lack of economic opportunity and mobility as a critical barrier facing the future of innovation in the United States.

If the future of American inventiveness depends on place-based economic opportunity and exposure to innovation, troubling times may lie ahead.

New research from Johns Hopkins’ 21^st Century Cities Initiative explores economic segregation — the sorting of households into neighborhoods based on socioeconomic status. In the study, researchers Paul Jargowsky of Rutgers and Christopher Wheeler from the New Jersey Department of Community Affairs find that the bottom four quintiles of households experienced a decline in income in past 40 years while only the top quintile has seen gains. This same measure shows an even higher rate of neighborhood economic inequality.  

This sorting is not just about personal preferences; it is enabled by decades of federal, state, and local public policies. Brookings’ Richard Reeves argues in his 2017 book that the American dream is alive and well, but it is being “horded” by the upper middle class, furthered by public policy. As Rachel Cohen and Will Stancil write in the Pacific Standard, housing policies have facilitated segregated neighborhoods and schools, which in turn advance racial and economic inequality.

In an article for Belt magazine, Cleveland State professor Tom Bier writes that transportation and land policies also fuel regional inequality and segregation, as state incentives shift economic development from older areas to newer greenfield locations, forcing struggling communities to solve their own problems with little state assistance. Likewise, in a recent CityLab article, Economic Innovation Group founders John Lettieri and Steve Glickman make the convincing argument that economic inequality, public health, and quality of life are inextricably linked.

As nearly all of the above authors allude to, the crises of economic segregation and inequality require an agenda focused on reconnecting America’s communities with opportunity. This notion has profound implications for the economic development space. Next week’s article will examine what the strategies and tactics associated with what a reconnection agenda might look like.