Jan 05, 2012 at 8:32 am
For a very useful review of what’s known about the extent of economic mobility across time, countries, and generations, read this Jason DeParle piece from this AM’s NYT. I’ll have more to say about this later, but for now, I wanted to amplify one point about something that’s too often misunderstood in these discussions: the negative relationship between inequality and mobility, i.e., how higher inequality—greater distance between income classes at a point in time–can itself reduce the rate of mobility—the ability of families to move across those distances over time.
In terms of the causal link between these two dynamics, I’ve stressed issues like access to quality education, better neighborhoods with better resources (libraries, parks, healthy environments)…to the extent that higher levels of inequality separate families along those dimensions, common sense would dictate that such differences map onto mobility differences.
But there’s also a related technical point that DeParle makes in the piece:
The income compression in rival countries may also make them seem more mobile. Reihan Salam, a writer for The Daily and National Review Online, has calculated that a Danish family can move from the 10th percentile to the 90th percentile with $45,000 of additional earnings, while an American family would need an additional $93,000.
The graph below shows what’s going on here (hat tip: JC). The figure shows the income distribution of two countries, say Denmark (“low inequality”) and the US (“high inequality”).
Suppose we’re measuring the percent of families that move across income fifths over time, say from the bottom fifth of the income scale to the middle fifth. Well, there’s simply a lot less economic ground to cover in Denmark relative to the US. In other words, part of the higher mobility in low-inequality countries is a function of lower inequality itself. It’s easier to move up and down the income scale when “up” and “down” are shorter trips.
This simple insight is important, because we hear a lot of conservatives–Rep Paul Ryan, for example–arguing that we shouldn’t worry so much about inequality, because mobility will offset it. First, that’s wrong in ways I note in the link above (we need increased mobility to offset increased inequality, and we don’t see that). Second, as the evidence in the NYT piece shows, we actually have less mobility than other advanced economies. And third, most importantly in my view, increasing inequality itself makes it harder to achieve greater mobility, due both to diminished access to mobility-enhancing opportunities and to the distance problem shown in the figure above.
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