Sustainable & Impact Investing
February 22, 2023
Advancing Economic Mobility Through Sustainable and Impact Investments
- Upward mobility measures the likelihood of a child in a low-income family climbing the socioeconomic ladder and is largely dependent on where a child grows up.
- Neighborhoods influence the trajectory of children who grow up there. Even within the same city, degrees of opportunity may differ by zip code, driven by local factors including neighborhood segregation, income inequality, social capital, education quality and the strength of families.
- Sustainable and impact investors seeking to close health, social and economic inequities can employ a range of investment and philanthropic tools.
Exploring Socioeconomic Mobility
Most of us are familiar with the term “the American Dream,” coined by James Truslow Adams in his 1931 best-selling book The Epic of America. Generally, it is the belief that every individual should be able to get ahead through dedication and hard work. Yet for a low-income child growing up in Philadelphia’s Kensington neighborhood, for example, the odds of doing so are low. Two in five children in Kensington live in poverty, which is nearly double the citywide poverty rate.1 These children are growing up in one of the poorest neighborhoods in one of the poorest cities in the nation.2 Additionally, increased costs of living, inflation and stagnant wages3 amid growing market volatility have threatened to make the ladder of opportunity harder to climb for low-income children. Kensington is but one example of a wider trend of the decreased ability for upward mobility in the U.S.
The concept of upward mobility — the likelihood of a child in a low-income family climbing the income distribution ladder4 — varies depending on where the child grows up. While the child of a wealthy family is likely to remain well-off regardless of where the child grows up, geography plays a significant role in a low-income child’s ability to climb the income ladder.
There is variation not only in the average income in cities across the country but also in rates of absolute upward mobility — or the fraction of children who grow up to earn more than their parents, adjusted for inflation. Cities in the Deep South and Midwest often experience lower rates of upward mobility, while cities such as Seattle and Salt Lake City experience some of the highest.5 Despite this variance, general rates of absolute upward mobility have been declining across generations. As shown in Exhibit 1, the ability for children to out-earn their parents has been declining over time, with 90% of children born in 1940 achieving absolute upward mobility compared to only 50% of children born in 1984.
EXHIBIT 1: Change in Absolute Mobility by Parent Income Percentile and Child Birth Cohort
Source: Opportunity Insights.6 Chart shows that rates of absolute upward mobility have been declining over time. This is true at every percentile of the income distribution.
Neighborhoods influence the trajectory of children who grow up there, leading to variation in upward mobility rates within a city.7 Cleveland, for example, mirrors many large cities in experiencing a sharp divide in rates of upward mobility between the city and suburbs. Children from low-income families growing up in the Cleveland suburb of Shaker Heights earn $44,000 per year as adults. Six miles east, in Hough, a majority Black neighborhood closer to the heart of the city, low-income children go on to make $19,000 per year.8 Despite improvements in recent years, the neighborhood’s history of segregation and inequality continues to have a lasting impact, with more than half of Hough families living in poverty9 and more likely to be incarcerated or unemployed.10
The varying degrees in opportunity within a city tend to be driven by local factors, such as differences in neighborhood segregation and income inequality, social capital, education quality and the strength of families.11 As seen in Exhibit 2, differences in these factors among neighborhoods in the Philadelphia area can lead to a wide variance in the average adult earnings for low-income children. For low-income children growing up in areas of low upward mobility like Kensington, it is much more difficult to break out of the poverty cycle. As a result, low-income children born into struggling neighborhoods, regardless of their hard work or talent, are at a further disadvantage. Meanwhile, similar low-income children who grow up in higher mobility neighborhoods like Somerton are more likely to climb the income ladder, as shown in Exhibit 3.
EXHIBIT 2: Average Earnings at Age 35 of Low-Income Children
Source: Opportunity Atlas. The following bar graph depicts the average earnings in 2014-2015 of Philadelphia children born between 1978 and 1983, given that their parents were at the 25th percentile of the income distribution, or made $27,000 per year (adjusted for inflation). Children who grew up in the Kensington, Hartranft and Point Breeze neighborhoods remained in poverty as adults, while low-income children who grew up in Center City and outside of Philadelphia proper experienced greater upward mobility.
EXHIBIT 3: Average Earnings at Age 35 of Low-Income Children by Zip Code
Policymakers and researchers are exploring ways to address socioeconomic mobility in low-income communities. The Cleveland City Council recently passed the Cleveland Commission on Black Women and Girls to improve social mobility for women and girls through addressing health, social and economic inequities in the city.13 Yet sustainable and impact investors can also get involved to diminish barriers to opportunity in these communities.
To spur upward mobility and improve the individual life outcomes of those residing in low-income communities, investors can focus on improving the neighborhoods themselves (Exhibit 4). One option is “place-based impact investing,” that is, investing in projects or policies to improve local neighborhoods. For example, the Reinvestment Fund has reinvested $20 million in projects to address the needs of vulnerable communities in the greater Philadelphia area. The Reinvestment Fund focuses on projects such as daycare centers that remain open during nontraditional hours at night and on weekends.14 This change in operating hours enables parents not working in a traditional 9-5 job to continue earning a steady income while their children are cared for in a safe environment in the community.
Impact-focused investment strategies, such as the AllianceBernstein Municipal Impact strategy, invest in municipal bonds of issuers that intend to make a positive environmental or social impact on improving communities. These strategies may seek to invest in schools, hospitals and infrastructure projects in underserved areas that could play a significant role in positioning community members toward better outcomes as adults.
Even throughout an adult’s life, there are key levers to spur upward mobility. Stagnating wages and affordable housing also play a role in the difficulty of low-income families to experience upward mobility in their lifetimes. In the public markets, Adasina’s Social Justice strategy advocates for companies to pay livable wages15 since women and people of color are disproportionately impacted by subminimum wages. The discussion on how to spur upward mobility is incomplete without the intersection of gender and race — two approaches often at the forefront of issues of concern16 for impact investors. To address this issue, one opportunity in the private markets is Bridge Workforce Affordable Housing, a firm that seeks to deliver quality, affordable housing alongside gap-filling social services. Conscious that low-income communities are most disproportionately cost burdened by rent, Bridge’s goal is to address critical gaps in essential housing while driving toward equitable outcomes.
Exhibit 4: Examples of Upward Mobility Investments
Harnessing Philanthropy and Community Engagement
Along with investment solutions, investors can work toward improving results for low mobility communities through other means of resource deployment, including philanthropy. By considering how one invests, gives and spends one’s money, investors can have a much larger impact. Individuals can have incremental impact through philanthropy by tailoring their mission and objectives to build stronger communities. Glenmede’s expertise on family philanthropy and wealth education can support individual and family efforts by providing information on charitable vehicles (including foundations and charitable trusts), as well as on ways to give effectively to support these communities.
Furthermore, investors may consider partnering with an organization with a shared set of values around community engagement. Glenmede’s commitment to community engagement through volunteer programs and hiring Philadelphia Futures individuals promotes impact that goes beyond investment and wealth management. Glenmede’s funding of Drexel’s Environmental Collaboratory17 supports a project focusing on reducing lead poisoning in West Philadelphia — an area of low upward mobility with high rates of lead poisoning despite rates declining in other parts of the city.
Whether through investing or philanthropy and community engagement, investors can make a direct impact in spurring upward mobility in more ways than one. For interest in solutions that seek to improve upward mobility, please reach out to us at SustainableAndImpactInvesting@glenmede.com.
— Authored by the Sustainable & Impact Investing team
1 Drexel University Urban Health Collaborative. “Community Health Profile: Kensington, Philadelphia.” October 2019.
2 Drexel University Urban Health Collaborative.
3 McKinsey & Company. “How Inflation is Flipping the Economic Script, in Seven Charts.” July 2022.
4 Organization for Economic Cooperation and Development (OECD). Executive Summary. In “A Broken Social Elevator? How to Promote Social Mobility.” June 2018. https://doi.org/10.1787/9789264301085-2-en.
5 Opportunity Insights. “The Opportunity Atlas.” https://www.opportunityatlas.org/.
6 Opportunity Insights. Dataset: “Fading American Dream: Baseline Estimates of Absolute Mobility by Parent Income Percentile and Child Birth Cohort.”
7 Chetty, Raj and Nathaniel Hendren. “The Impacts of Neighborhoods on Intergenerational Mobility I: Childhood Exposure Effects.” The Quarterly Journal of Economics, Vol. 133, Issue 3.
8 Data points sourced directly from Opportunity Atlas interactive map: https://www.opportunityatlas.org/.
9 Case Western Reserve University. Hough. in “Encyclopedia of Cleveland History.” April 2019. https://case.edu/ech/articles/h/hough.
10 The Opportunity Atlas combines Census and federal tax return data to link 20 million children born between 1978 and 1983 with their parents. The interactive dataset follows this cohort of children and measures various outcomes in their mid-30s. Children of low-income families are defined as parents who are at the 25th percentile of the income distribution, or who earn $27,000 per year, as of 2014-2015. Opportunity Insights. “The Opportunity Atlas.”
11 OECD. Executive Summary. In “A Broken Social Elevator? How to Promote Social Mobility.”
12 HUD Office of Policy Development and Research. “HUD-USPS Zip Code Crosswalk Files.”
13 Cleveland City Council. “Cleveland Commission on Black Women and Girls Seeks Social, Health and Economic Equality.” June 2022. https://www.clevelandcitycouncil.org/resources/news-media/cleveland-commission-black-women-and-girls-seeks-social-health-and-economic.
14 The Reinvestment Fund. “PhilaImpact Fund: 2021 Impact in Greater Philadelphia.” April 2022.
15 Livable wages are defined as wages paid above the federal or state minimum wage. Paying employees less than the minimum wage is legal in 42 states, permitting tipped workers in many states to be paid at the federal subminimum wage of $2.13 an hour.
Adasina Social Capital. “Investor Statement in Support of Ending the Subminimum Wage.” https://adasina.com/investor-statement-in-support-of-ending-the-subminimum-wage/.
16 “Applying an Intersectional Investment Lens across Gender and Race.” https://www.glenmede.com/insights/applying-an-intersectional-investment-lens-across-gender-and-race/.
17 Drexel University. “Drexel’s Environmental Collaboratory Will Solve Environmental Problems with a Community-Driven and Justice-Centered Approach.” February 2022.
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