Pethokoukis, Economics, U.S. Economy

New economic mobility study shows the 1% didn’t kill the American dream

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President Obama got it half right. Kind of. Last month, he declared the “defining challenge of our time” was “a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain … .” Obama, shorter: What’s good for the 1% isn’t at all good for America. In fact, extreme income differences are toxic for the rest of us — and for equality of opportunity.

But new data tell a different, more complex story about income inequality and economic mobility and causality. A landmark study from the Equality of Opportunity Project — which includes rock-star economists Raj Chetty and Emmanuel Saez — examined millions of tax records and found that mobility has change little in nearly half a century.

Children born in 1971 in the bottom 20% of household earners, according to The Wall Street Journal, had an 8.4% chance of eventually making it into the top 20% of earners by their 20s or 30s vs. for 9.0% kids born in 1986. And about 20% of children born into the middle fifth households in the mid-1980s climbed into the top fifth as adults, also largely unchanged from earlier. Upward mobility has not been declining.

Hold on a second. Progressives like the president argue that extreme income inequality has been hurting mobility. They point to research from Saez and fellow economist Thomas Piketty finding the share of market income going to the top 1% of the population has more than doubled since the 1970s. Maybe so, but that phenomenon — driven mostly by technology and globalization — doesn’t seem to be hurting mobility. Indeed, the EOP study inconveniently found that when you looking mobility across geographic areas “upper tail inequality is uncorrelated with upward mobility … .”

True, the study also found that inequality, as measured by the Gini index, within the bottom 99% “remains very highly strongly correlated with upward mobility.” But that kind of inequality has been far more stable than high-end inequality. As Northwestern University economist concluded in a 2009 study: “The rise in American inequality has been exaggerated both in magnitude and timing. … The income share of the 91st to 95th percentile has not increased since 1983, and the income ratio of the 90th to 10th percentile has barely increased since 1986.”

Left-liberals also argue that social programs such as Head Start have managed to offset rising inequality. But the EOP study found “much of the difference in intergenerational mobility across areas emerges before children enter the labor market.” And as for Head Start, the results from a large randomized trial found no differences in elementary school outcomes between children who had vs. had not attended Head Start as four-year-olds.

Besides, inequality isn’t the factor most correlated with mobility. Family structure is. Again, the EOP study on mobility across areas: “The fraction of children living in single-parent households is the strongest correlate of upward income mobility” among all the variables the research team explored. Social capital is also key since “high upward mobility areas tend to have higher fractions of religious individuals and greater participation in local civic organizations.” Good schools and less sprawl — thus less segregation — also also important factors. Here’s how the study sums things up:

The United States is often hailed as the “land of opportunity,” a society in which a child’s chances of success depend little on her family background. Is this reputation warranted? We show that this question does not have a clear answer because there is substantial variation in intergenerational mobility across areas within the U.S. The U.S. is better described as a collection of societies, some of which are “lands of opportunity” with high rates of mobility across generations, and others in which few children escape poverty.

The key issue, then, is not whether mobility is getting worse but whether there is just too little opportunity, especially from the bottom, than we would like. As Saez told The New York Times, “The odds of escaping poverty appear to be only about half as high in the United States as in the most mobile countries like Denmark.” Surely we can do better. It should matter less who our parents are, especially if the top rung on the ladder is further away than ever. And America can do better if all of us, including the president, focus on real problems — such as the emerging impact of automation on work and income, education, family structure, transportation, cronyism, and the level of economic growth — not scoring political points in an election year.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

31 thoughts on “New economic mobility study shows the 1% didn’t kill the American dream

  1. Why is there no mention of immigration in the study? I’d be interested to see how current immigrants are fairing historically and what impact that has compared with other countries.

  2. ok, kids born in the 70s were as upwardly mobile as those born in the 20s and 30s…

    but that doesnt tell us much about the upward mobility of kids born in the 90s…

  3. Jimmy P. You dump all over Picketty & Saez IRS data when it comes to income inequality at every available opportunity yet you laud Chetty & Saez IRS data when it comes to income mobility. What gives? Cognitive dissonance.

  4. “Hold on a second. Progressives like the president argue that extreme income inequality has been hurting mobility.”

    Hold on yourself. What I hear him say is that trickle-down is BS, that 30 years of tax cuts have not lifted all boats.

    What then? This study has a pretty good road map. Mobility is best — best in the world in fact — in areas that have integrated income groups, good schools and two-parent households. The first leads to other two in my view. In mixed income neighborhoods, a subset of parents have the means to hold schools to account. Mixed income areas mean commerce and decent jobs that encourage dads to stick around. And they offer role models for kids who would otherwise see affluent America as a foreign country. It is quite doable in gentrifying cities.
    Paul Ryan is the only national pol at this point talking about ending the quarantine of the poor. I hope he is serious.

    • No, that is another incorrect conclusion, Turd.

      1. Growth under tax cuts is far superior to interventionism, under both parties
      2. We have far more interventionism now than we did even 5 years ago (when we had a lot)
      3. Growth has been diminishing steadily with government expansion.

      You’re not a very good reader, Turd.

      LBJ declared a “War on Poverty” 50 years ago, and government massively expanded its socioeconomic reach.

      Poverty won.

      Turd: leave the erroneous conclusions to professionals like me ™

      • And Mesa, not content with his army of strawmen, now gives us a false choice. Banks are sitting on $1.9 trillion in excess reserves. Money market funds are sitting on $2.7 trillion in idle cash. The collective cash reserve of the Fortune 500 is $2 trillion. Question of the day: If supply creates its own demand, what are they waiting for?

        Now Mesa is going to muster his false choice again, as if a company with a great idea will be put off by Obamacare. http://www.forbes.com/sites/edwindurgy/2012/10/05/who-got-rich-this-week-a-new-billionaire/

        (At last, Ocwen Financial found the key to underwater mortgages: offer investors a share of appreciation to put borrowers right side up and motivated to stay in the home.)

          • Me write real slow. Braves have much wampum to increase supply if demand follow supply down forest path. Braves stay in tee pee instead. Mesa say braves also afraid of Spirit Father in Washington. Me say braves either act like squaws or don’t believe supply-side medicine man.

            Mesa: Started his company with nothing; has half of it left.

  5. Solution to many ills of our economy would be to eliminate all Minimum Wage Laws , restore the dignity of a job and allow our youth to assist their families with work . Allow value to replace Progressive good intentions within the marketplace and opportunity to flourish .

  6. Basically what this says is that welfare limits upward mobility because it keeps people down. Two parent households and work ethic are the keys.

  7. Read Charles Murray’s “Coming Apart”. The bottom 40% have CHOSEN not to participate in the mainstream American society. Finishing high school is “acting white”, and you can live quite comfortably on welfare and never work a day in your life. And of course you can earn extra welfare money by having kids without the benefit of marriage. And you can supplement your welfare by committing crimes. The people at the bottom have REJECTED mobility. Handing them more free money will simply encourage more people to drop out.

  8. The reason we cannot move forward in this country is perfectly highlighted in these posts: people who are emotionally unintelligent and resort to name calling and acting like three year olds with no control over themselves. We have totally lost basic respect for our fellow man. It is really sad.

  9. The data presented is flawed or at-least requires more study. The top 20% of the income distribution means that an individual makes about $42,000 a year (www.whatsmypercent.com) which many Americans would not consider “The American Dream”. The very fact that income inequality has been rising since the studies start year of 1971 explains why income mobility has stayed the same as many american’s don’t feel that they have “made it”. Rising income inequality means that reaching the top 20% doesn’t mean anything anymore. To feel like you’ve actually moved up, means hitting the top 10% or 5%, a much harder goal in today’s economy.

    • Not to mention, that none of this considers the rising student loan debt, taxes and cost of living that are not figured into the study, post-income.

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