Opportunity and Inclusive Growth Institute

Fall Conference Summary

Read a summary of the Opportunity and Inclusive Growth Institute's second conference.

Half a century after the Civil Rights movement, segregation continues to limit opportunity for many Americans, reinforcing disparities in educational achievement, home ownership and wealth creation, according to researchers presenting at the fall conference of the Opportunity and Inclusive Growth Institute at the Federal Reserve Bank of Minneapolis, Oct. 26, 2017.

An array of experts from the fields of economics, education, law and public policy gathered at the Bank for the daylong conference, which focused on the topics of segregation and inequality. The importance of place as a springboard to intergenerational mobility emerged as a key theme, as well as the ways public policy can sometimes amplify racial and economic disparities.

The Minneapolis Fed launched the Institute in January 2017 to focus attention and generate research on the structural barriers that limit opportunity and advancement in the United States; barriers that are obstacles to meeting the Federal Reserve’s maximum employment mandate.

The impact of segregation on children is especially significant, conference panelists said. Lawrence Katz of Harvard, a member of the Institute’s board of advisors, shared evidence from the Moving to Opportunity project of the 1990s: Young kids from high-poverty neighborhoods who moved to low-poverty areas had 30 percent higher earnings as young adults than those who stayed behind. Derek Neal, an Institute Visiting Scholar from the University of Chicago, noted that knowing how to “learn to learn” (as opposed to learning a skill, or “learning to earn”) makes a big difference in earnings over a lifetime. Kids who lack that foundation are likely to be left behind.

Alessandra Fogli of the Minneapolis Fed explained how segregation tends to amplify inequality, as parents in rich neighborhoods invest in education, while parents with fewer resources are less likely to. Sean Reardon, an education expert from Stanford, added that data from standardized test scores are highly correlated with socioeconomic status. Poverty is much higher for African American and Hispanic students, he said, and growing over time. Peer effects are important, too, because teachers aim instruction to the median student, and because it is much harder to attract and retain good teachers in low-income areas.

Federal policy has often created segregation in places it did not exist before, said Richard Rothstein, a research associate at the Economic Policy Institute, who spoke at the event’s keynote luncheon. The author of The Color of Law: A Forgotten History of How Our Government Segregated America, Rothstein explained that the first federal housing programs during the Great Depression were designed as separate projects for whites and African Americans, even in cities that had previously been integrated. After World War II, whites largely abandoned such housing projects for government-subsidized single-family home developments like Levittown, Rothstein said. But African Americans were not allowed to buy into such developments or to obtain federally insured mortgages. Over time, white families saw the value of their homes appreciate, and their wealth grew. But African Americans, blocked from some of these opportunities, fell behind and now have a wealth ratio 10 percent that of whites, he said.

Redlining (refusing loans to people living in areas deemed to be a poor financial risk) also contributed to the exclusion of African Americans from home ownership, the primary source of wealth for most Americans, according to Bhash Mazumder of the Federal Reserve Bank of Chicago. Race was a pivotal factor in drawing the boundaries of color-coded maps created for a Depression-era federal loan program, he said, and these boundaries are still reflected in measures of financial well-being today.

Segregation is not just a problem of the past, however. Erika Wilson of the University of North Carolina at Chapel Hill described a new trend of municipalities seceding from county-based school districts, exacerbating racial and economic inequality. This hurts white, affluent children as well as African Americans, she said, by limiting privileged children’s exposure to people who are different from them and fostering a culture of entitlement. Myron Orfield, a law professor at the University of Minnesota, presented maps showing how Twin Cities schools have become increasingly segregated over the past two decades, creating concentrations of poverty. He and Samuel Myers Jr., also of the University of Minnesota, challenged the Federal Reserve to look into the big, unexplained gaps in loan denial rates between whites and African Americans in the Twin Cities. Discrimination does not need to be conscious to be illegal, Myers noted, declaring, “We need to more vigorously enforce the existing laws.”

The fall conference followed a more wide-ranging inaugural conference in May 2017. In addition to the conference series, the Institute is sponsoring 17 Visiting Scholars who will be in residence at the Minneapolis Fed for some period through the end of 2018 and who will contribute to the body of research addressing some of society’s most vexing challenges on segregation and inequality. Neel Kashkari, the Bank’s president, said that the Institute will soon launch a community advisory board to ground the work of the Institute in the experience of those working in the field every day.