Neighborhoods remain the crucible of social life, even in the internet age. Children do not stream lectures — they go to school. They play together in parks and homes, not over Skype. Crime and fear of crime are experienced locally, as is the police response to it.

But wide income gaps and America’s legacy of racial segregation result in wide differences between neighborhoods on a range of measures. Two major new studies from Harvard economists Raj Chetty and Nathaniel Hendren show that neighborhoods matter not only for daily life, but for the life chances of the children raised there.

Drawing on a unique data set based on the tax records of 44 million households, the first study shows that locality matters a great deal for the future income of children. The second study of roughly 13,000 children is smaller but packs a big policy punch, since it directly contradicts recent evaluations of a major policy initiative — Moving to Opportunity (MTO) — carried out by leading social scientists.

In short: MTO seems to work, after all.

MTO, Act I: Ideals

MTO was started in 1994 by the Department of Housing and Urban Development. In a handful of large cities, a few thousand public-housing residents were randomly assigned to one of three programs:

An experimental group that received a rental subsidy (voucher) but had to move to a low-poverty neighborhood for at least one year A Section-8 group that received a voucher but no restriction on movement A control group that received no voucher.

Economists love random assignment, because it helps overcome one of the biggest problems in social science: isolating causation from correlation. It’s like a social science pharmaceutical trial. Around half the experimental group “took their medicine” and moved to less poor areas; that is, the proportion living in neighborhood poverty fell by roughly half, from 40 percent to 20 percent. There were limits, however: the voucher didn’t allow them to buy their way into affluent neighborhoods with great schools, so much as somewhat less poor neighborhoods with schools that were slightly better.

Teams of economists and other social scientists published analyses of MTO data in leading academic journals (see the table at the end of the piece).

MTO, Act II: Disappointment

These studies were disappointing, especially for those, like myself, who believe that harmful neighborhood qualities have impeded the social progress of the poor. The key findings were that:

Neighborhood poverty has no effect on adult earnings or employment. Neighborhood poverty has no consistent positive effects on the behavior of children or their academic performance. Neighborhood poverty improves some aspects of adult mental and physical health.

MTO Act III: Reflection

These findings, especially the second, contradicted a large body of social science theory and non-experimental evidence, mostly from sociologists, like William Julius Wilson and Douglas Massey. They and other sociologists suggested that the limitations of the study explained the absence of observable effects. In a very recent example, Massey and I found that neighborhood income during childhood strongly predicts adult incomes. Our evidence suggested a causal effect, too, since neighborhood income even explained differences in sibling incomes.

Less noticed, the first wave of MTO findings also contradicted a powerful body of experimental evidence from school lottery and voucher programs. These studies had consistently found that attending better schools—measured in various ways—boosted the academic performance (and eventual earnings) of children, especially those from poor families.

MTO Act IV: Vindication

With their new study, Chetty and Hendren (along with Lawrence Katz, an author of many of the previous studies) provide very strong evidence for the positive impact of MTO. Specifically, moving to a less poor neighborhood in childhood (i.e., before the age of 13):

Increased future annual income by the mid-twenties by roughly $3,500 (31%) Boosted marriage rates (by 2 percentage points) Raised both college attendance rates (by 2.5 percentage points) and quality of college attended

The age of the child moved was a critical factor: moving to a less poor neighborhood in the teenage years had no significant impact on later earnings or other adult outcomes.

Lessons from MTO evaluation

There was nothing wrong with the earlier round of MTO evaluations in themselves: the main problem was that the positive effects of leaving poor neighborhoods as a child could not be observed until the children were old enough to finish college and enter the adult labor market. In measuring adult outcomes, scholars of MTO thought creatively about capturing alternative outcomes, like mental health, that had not previously been studied in this context.

Still, some of the scholars who conducted earlier studies were too quick to write off MTO specifically and, more importantly, neighborhood effects more generally. As Chetty and his colleagues show, even a few extra years of data can make all the difference. Now we can be even more confident that when it comes to equality and opportunity, place matters.