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.