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Economic Penalties Based on Neighborhood, and Wealth Building  

Rowena Gray and Raymond Kim

Building wealth over lifetimes became possible for a broader span of the population in developed countries over the 20th century compared to any time in history. This was driven by more people having the capacity to save because of the expansion of middle-class jobs and education, access to highly developed financial markets, and government support for real estate investment. Housing wealth remains the dominant wealth-building vehicle for those outside the top decile of the income distribution. This, coupled with the high and growing level of residential segregation and local allocation of public goods in countries such as the United States, drives the unequal ability of individuals to build wealth depending on neighborhood of origin and residence. Segregated neighborhoods are drawn along racial and class lines, and while much progress has been made, historical and structural factors such as the legacy of slavery have contributed to the difficulty of fully closing the Black–White wealth gap. More generally, children who grow up in lower-status areas are significantly less likely to rise up the wealth and status ladder, and this is driven by a variety of disadvantages in those neighborhoods. These include higher levels of pollution; worse public services, especially education; and fewer prospects for jobs and training. Some of these can be changed by moving individuals and families to better neighborhoods, while the effects of a polluted environment on the development of 0- to 5-year-olds have long-lasting and often irreversible consequences. These factors have kept the “American Dream” of equality of opportunity and the ability to save and build wealth as individuals and households out of reach for significant portions of society. There is renewed interest in infrastructure investments and place-based policies to address this opportunity gap, which, due to its scale, is beginning to be recognized as having negative implications for the aggregate economy. Economists should maintain their focus on these important questions and continue to improve data sets as the range of assets in which people can build and store wealth grows.