Diminished Income Mobility: A Warning

November 6th, 2011 at 8:30 am

In various posts (e.g., here), I’ve stressed the relationship between inequality and mobility in the American income distribution.

Although someone’s always going to complain about the evidence, it’s widely accepted that income inequality has grown considerably over the last few decades.   What you sometimes hear about this is: “sure, inequality’s gone up, but there’s enough mobility in our economy to offset it.”  I recently dinged Rep Paul Ryan for this rap.

Well, yesterday I ran into the estimable economist Katherine Bradbury from the Boston Federal Reserve; Katherine does some of the most careful and important research on the topic of mobility, so when she told me about a new paper, I immediately checked it out.

The paper provides a comprehensive look at the most important questions regarding income mobility in the US.  By looking at data tracking families’ income positions since the late 1960s, Katherine’s able to evaluate the “acceleration” claim made above.

Let me explain.  It’s not enough to say, “because we have mobility—i.e., families move up and down the income scale—greater inequality is not a problem.”   You have to account for the dynamics: to offset greater inequality requires a higher rate of mobility.

Using the analogy I raised in the first link above, the floors of Hotel Income are further apart now due to higher inequality, so we need the income elevator (mobility) to move faster between those floors if we hope to offset the greater distance between them.

Earlier research showed no increase in mobility and suggested perhaps a decline.  Bradbury’s paper is particularly germane right now because it’s the first I’ve seen that clearly documents a statistically significant decline in the rate of mobility.  The slowdown isn’t huge—I’d call it slight (as does Bradbury).  But it’s there in the data.

The figure shows four measures of family income mobility over ten-year spans: the percent or rich (poor) families who move down (up) the income scale, and the percent of each who move “far,” meaning they move across more than one income fifth.

Source: Bradbury (2011), link above.

The top two lines show that there’s not much change in the percent of poor moving up over time, but there’s about a 10 percentage point decline in the share of rich families moving down, a symptom of diminished mobility.

Similarly, the share of families crossing more than one quintile in the income scale drifts down over time.

As Bradbury puts it:

Overall, the evidence indicates that over the 1969-to-2006 time span, family income mobility across the distribution decreased, families’ later-year incomes increasingly depended on their starting place, and the distribution of families’ lifetime incomes became less equal.

This notion that where you start is an increasing determinant of where you end up poses a fundamental challenge to a basic American value.  Most of us don’t seek policies to ensure equal outcomes, but we do seek equal opportunities.  The combination of increased inequality and decreased mobility suggests the violation of both: less equal outcomes and diminished opportunities.

Moreover, I believe these two results are not simply correlated over time, as Bradbury shows, but causally related.  That is, higher inequality is itself driving a chain of events that leads to lower rates of income mobility.

There are various links to this chain—and this is just a hypothesis at this point (but I’ll bet I’m right).  The relationship between income concentration and political power is one important link.  The austerity measures we are now contemplating, the regressive changes to the tax code, the sharp cuts in discretionary spending (a part of the budget that pays for, among other things, various investments in human capital targeted at less advantaged populations)—the general and pervasive view that we a) can’t afford the investments and social insurance we need, and b) can’t raise taxes to pay for them—is not an objective fact based on analysis.  It’s a political call based on power.

And it goes deeper.  I fear that the excessive level of inequality we now face is also leading to a diversion of opportunities within our communities: one group can provide their children with the libraries, parks, museums, trips to mind-expanding venues; the other group cannot.  Such inequalities will surely, and causally, raise the correlations between the income position in which families start out and where they end up.

In this regard, Bradbury’s formulas, tables, graphs, and statistical tests are providing us with a stark warning about the direction in which the nation is heading.  We ignore her warning at our peril.

 

 

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12 comments in reply to "Diminished Income Mobility: A Warning"

  1. azlib says:

    To conservatives, economics is a morality play. They see economic success as a virtue and economic failure as a vice. If you are poor and stay poor it is your fault. If you are wealthy, you got their by hard work. Taken to its logical conclusion this meme leads to more regressive taxation policy and less investment in the public commons.

    I do not think income inequality worries conservatives. The poor simply get what they deserve because they are immoral and make bad choices. Liberals need to come up with a counter meme which resonates in our culture. The 99% is a start, but it needs to move beyond that opening salvo.


  2. ReaderOfTeaLeaves says:

    Wow.
    I sure wish someone had the resources to mix this up with education data.
    How do you motivate students to academic success when you don’t believe that it will get their foot in a door they want to enter? Particularly if income inequality means there are fewer doors that open.

    IMVHO, and also reasonably well-informed opinion, there are significant educational implications for the data explained in this post.

    It seems quite likely that inequality is *causing* shifts in attitudes that translate to kids short-circuiting their education because they recognize, astutely, that the deck is stacked against them and the chances of moving out of their income/family background feel too small to risk years of college debt and toil.


  3. Auros Harman says:

    It’d be nice if we could devise a metric that did not depend on the quintiles. For instance: put a rolling ±2 percentile window around each percentile point from 2 to 98, and then ask, within that window, what were the median and average changes in both absolute income and percentile position a decade later. I think those four graphs might be more informative than the quintile-based stuff, where you get some weird artifacts at the edges that increase apparent mobility.


  4. perplexed says:

    Thanks for keeping this inequality discussion at the forefront Dr. Bernstein! Even a cursory review of Bradbury’s paper reveals the complexities and difficulties of even measuring the “income mobility” of a society. Its no wonder Republicans choose this as their rationale for allowing extreme income & wealth inequality; even with the evidence stacked against their theory, they’ll just claim that all of this “science” stuff is over-rated.

    I’ve often wondered just where the “break-even point” is though. Just what level of “mobility” do we need to achieve to offset the damage caused by inequality to those left behind? How much relief to those that moved to the next “quantile,” coupled with benefits to those already at higher “quantiles,” offsets the misery of those left behind? Actually, not only to those left behind, but to those that went through it before breaking into the next “quantile?” as well?

    Obviously, by our allowing this extreme inequality, we’ve determined somehow that the “benefits” exceed the “costs” of a more humane policy. But where is the quantification of these benefits and costs? Who’s job is it to measure these outcomes and what is their model? What statistics capture the costs to society of such a drastically unequal distribution of wealth and income as we have in this country? Are the people at the lowest (and at risk of falling to the lowest ) “quantiles” adequately represented in the political system? Where are their lobbyists and what protections do they have against wealthy interests pressuring politicians to vote against what’s good for them? What would happen instead if we had 100% publicly financed campaigns and these “voters” were allowed to direct where 1/5 or 1/4 of the campaign financing went?

    Maybe we shouldn’t allow wealth or income Gini’s above .5 until those that suggest allowing such levels can clearly demonstrate that these extreme levels are in the interest of the country, and not just in the interests of the wealthy beneficiaries?

    Just wondering.


  5. Jim Z. says:

    Across metro Denver, library branches are cutting back hours and in some cases closing. Upside down priorities!


  6. Jill SH says:

    In your analogy of Hotel Income you talk about the elevator having to move faster to go between the different floors.

    I’m someone who usually takes the stairs. Then the whole image of the energy it would take to rise to a higher level becomes more daunting. Especially if you visualize those levels having higher and higher ceilings the further up you go.


  7. cat says:

    “The top two lines show that there’s not much change in the percent of poor moving up over time, but there’s about a 10 percentage point decline in the share of rich families moving down, a symptom of diminished mobility.”

    Figure 2 above shows the wealth who move down is around 50% for the first part of the line and then seems to settle around 45% in the last few decades.


  8. celjr says:

    What we are witnessing is Social Darwinism on steroids. The fittest survive and thrive because they are the best suited for this environment. The poor are a drag on society and resources devoted to their survival are wasted and society is better off by not wasting these resources. Herbert Spencer was pretty successful in selling this to the American people in the late 19th century although it was largely discredited.

    This environment is one that the elite helped to create with their influence over policymakers and until that influence is countered the policies will remain in place and the outcomes will be the same. We can comment about this until we are blue in the face. I’d rather see some solutions being offered.


  9. Tom Cammarata says:

    There are currently 261 millionaires in Congress, just shy of half of our lawmakers. They are the guardians who are keeping income inequality growing and economic mobility shrinking. The game is rigged. Them that has, keeps. Them that don’t, sorry. Wait for the next revolution.


  10. the buckaroo says:

    …am reminded of the access elevators to the penthouse in Blade Runner…or on the lighter side, Mr. Burns booted out of the Billionaires Club. It’s a wilderness on the other side of the barrier.

    Must be something about gatekeepers.


  11. Richard M. Mathews says:

    I love your blog and depend on your insight; but in this case, I think you might have missed a detail.

    The units used to do measurements are important. In your analogy with an elevator, you correctly state that the elevator must move faster if the floors are farther apart in order to pass as many floors. It must move more feet per minute to make the same progress past the floors. On the other hand, if we measure in floors per minute, it would by definition make as much progress without any numbers changing.

    It seems to me that the Bradbury measurement is in quartiles per year (the equivalent of floors per minute) rather than in something like real dollars per year (feet per minute). Yes, it takes more dollars to move between quartiles; but Bradbury’s data already includes that by measuring in quartiles. If the data showed no change in mobility measured in quartiles per year, that would mean that mobility kept up with the increase in inequality.

    Of course, that isn’t what Bradbury finds. She finds a slight decrease as measured in quartiles per year. Perhaps if measured in real dollars per year, that would show up as a slight increase in mobility, but it means that any mobility increase is not enough to overcome the increase in inequality.

    Seen this way, the measured decrease can actually be thought of as merely a measurement of the increase in inequality. It is not so much that “higher inequality is itself driving a chain of events that leads to lower rates of income mobility,” but rather higher inequality directly affects this measurement to produce a lower reading of income mobility.

    You are right to characterize the decrease shown by Bradbury as “slight,” but perhaps it is even “more slight” that you realized.


  12. Sagittarius A says:

    There are so many things I want to ask about this subject.

    1. what about geography? Are some parts of the country more mobile than others? Why? How much of the “upward mobility” that we DO see result purely from people moving from low-income cities/states to high-income cities/states?

    2. how much of the decline is due to people not feeling the need to rise up the income scale because lifestyles have improved so much with new technology? (i.e. why pay a ton to go to school and risk sinking into debt when you can buy iPods and iPhones with $35,000 a year and when you can get a brand new car for $12,000?)

    3. are Conservatives more socially mobile than Democrats? If you trust the meme, Conservatives should be all about personal accomplishment and hard work. So do they accomplish more? Are they more likely to move up the ladder? Or do they also wallow in immobility but continue to sing the personal responsibility gospel?!?

    That’ll do for now.

    Thanks!


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