Jue Insight: Beyond Students: Effects of University Establishment on Local Economic Mobility

Abstract

How does the presence of a university affect local economic mobility and inequality? Existing work on universities' role in economic mobility have focused on students but have not examined the effect on local communities. We exploit historical natural experiments to answer these questions, using "runner-up" counties that were strongly considered to become university sites but were not selected for as-good-as-random reasons as counterfactuals for university counties. We find that university establishment causes greater intergenerational income mobility but also increases cross-sectional income inequality. We highlight four channels through which these effects operate: universities "hollow-out" the local labor market and provide greater opportunities to achieve top incomes, both of which increase cross-sectional inequality, while at the same time increasing educational attainment across the income distribution and fostering social interactions to high-socioeconomic status individuals, which both prevent inequality from perpetuating into intergenerational immobility.