Stable Income Mobility: Not a Muddle At All

January 23rd, 2014 at 9:38 am

The morning papers are all abuzz with an interesting piece about whether the rate of income mobility—movements up and down the income scale as you age—has changed over time.  The conventional wisdom, as I’ve stressed in many places for many years, is that is has neither decreased nor increased.

In that regard, it’s surprising for this stability to be labeled a surprise, or, as the WSJ puts it, a finding that “muddles the debate” on mobility or inequality.  To be fair, researchers and politicians do sometimes lapse into claiming that the rate of mobility has decreased, and I know of one quality paper that finds a slight, though statistically significant, decline in the rate (here), but one paper doesn’t change the CW.  Most economists in this debate recognize that the rate of mobility has been relatively stable—nothing at all wrong, and a lot right, with a high quality new paper confirming this stable trend.  But it’s not new so I’m not sure why it’s news.

Also, while it’s certainly positive that the rate of mobility is unchanged, in tandem with the demonstrably sharp rise in inequality, stable mobility is in itself problematic.  As per the WaPo:

The findings also suggest that who your parents are and how much they earn is more consequential for American youths today than ever before. That’s because the difference between the bottom and the top of the economic ladder has grown much more stark, but climbing the ladder hasn’t gotten any easier.

I’ve got a picture of this dynamic here.  As the income distribution widens—as inequality increases—it requires an increased rate of mobility to move from say the 10th to the 50th percentile.  In this regard, stable mobility amidst increasing inequality poses its own challenge.  You’re no more or less likely to move up and down the income scale relative to your birth cohort, but the distance between you and those above and below you is a lot greater.

Second, the other concern that many of us in this research have expressed is that higher inequality, through a channel by which both parents and society are unable (parents) or unwilling (governments) to invest in their children, could eventually lead to diminished mobility.  See such references here, here, here, and here.

It is human nature to assume that stability is what we want, and in this regard, the finding of this paper could be misconstrued.  While stable mobility is unquestionably better then declining mobility, as the rungs of the ladder become more distant, it takes bigger steps to climb.  And given the disinvestment in less advantaged kids, the risk of diminished mobility is real.

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6 comments in reply to "Stable Income Mobility: Not a Muddle At All"

  1. Robert Buttons says:

    Ganzach, “A dynamic analysis of the effects of intelligence and socioeconomic
    background on job-market success”Intelligence 39 (2011) 120–129

    The New Economic (Keynesian) analysis typically expects equivalent outcomes, without taking into account differing inputs. Ganzach finds that SEB (socioeconomic background) does indeed have a positive effect on entry level wages. In the long run, however, intelligence is the determining factor in social mobility. Further, and I will leave you to form your own conclusion, there is a large and growing body of work (Robert Plomin’s twin studies for example) documenting a genetic basis for intelligence.

    • smith says:

      If you check Mankiw’s defense of the 1%, he uses that argument too, about inputs, meaning smart people are rich, and surprise surprise, their smart offspring are rich too. Unfortunately for Mankiw, he reverses the actual conclusions of the research he cites to supposedly back up his case. Instead, it turns out environmental factors have nearly double the influence of genetic factors in determining outcomes (especially level of mother’s education for adopted children). None of the genius critiques of Mankiw seemed to have noticed this. Plomin’s work figures very prominently in catching this mistake.

    • Michael says:

      And how exactly does scoring well on the Armed Forces Qualifying Test (or any such test of equal merit) compare to being born wealthy and having tier-1 access to such things as educational opportunities? Are not wealthy people going to be able to afford more educational accoutrements that assist their children in scoring well, undermining the value of such tests as a measure of intelligence to begin with?

      Let’s take the SAT. A poor student can still gather the materials needed to study for the test, but their access to resources beyond the most basic are limited. Contrast that with a student of strong financial means who has access to tutors, test-specific study material and instruction. Are we really all that surprised that children of the wealthy score better on these tests than those who aren’t? Is this really a strong sample of the intelligence of the rich or an educational bias hard-wired into the system itself.

      Furthermore, based on the strength of those SAT scores, what are the chances of two similar students, of equal intelligence but of different socioeconomic backgrounds, being able to gain access to a quality higher education? Ivy League schools, for example, are NOT based around the merit system.

      “The Ivy League institutions are estimated to admit 10% to 30% of each entering class using [legacy admissions]” Wikipedia

      Having up to 30% of an Ivy League university’s class reserved for ‘favored alumni’ undermines the financial and ‘intelligent’ determination of this socioeconomic gatekeeper, and it’s future indicator of both success and intelligence. In addition, if such a single application of socioeconomic influence is occuring at this level of statistical impact, how many other such factors are also being put into play that also skewer the success/intelligence ratio so that it reflects what those who succeed want it to say?

      • Robert Buttons says:

        Q1. how exactly does scoring well on [an IQ-type test] compare to being born wealthy?
        A1. The Ganzach paper I cited answers that: Intelligence is more important than you think and wealth is less important than you think.

        Q2. A poor student[‘s] access to resources beyond the most basic are limited. [..] a student of strong financial means who has access to tutors, test-specific study material and instruction.
        A2: The gains from coaching are minimal, no more than 15 pts. (Dominigue & Briggs “Using Linear Regression and Propensity Score Matching to Estimate the Effect of Coaching on the SAT” 2009.) I don’t have data on SES, but if we use race as an SES marker, blacks and hispanics are MORE likely to participate in test prep than whites.(Byun & Park, 2011)

        Q3: what are the chances of two similar students, of equal intelligence but of different socioeconomic backgrounds, being able to gain access to a quality higher education.
        A3: Considering IMHO, the average state school provides EXCELLENT opportunity, I’d say highly likely.

        Q4: Ivy League university’s class reserved for ‘favored alumni’ [..]and it’s future indicator of both success and intelligence.
        A4: Richard H. Sander touched on this issue (Stanford Law Review 57:367-). He found that average students accepted into a highly competitive school for reasons other than academic achievement (“over their heads” intellectually) had poor outcomes (passing the bar was his marker) and these students would fare better in schools that better fit their abilities. Now I don’t have an answer if you are asking about outcomes of rich kids with basket weaving degrees from Harvard.

        Further Reading
        An excellent review article re: SES, intelligence and achievement Lubinski.”Cognitive epidemiology: With emphasis on untangling cognitive ability and socioeconomic status” Intelligence 37 (2009) 625–633

  2. Dave says:

    Thanks. This was actually news to me. I didn’t realize mobility was stable.

    However, I have always realized that being good at a job doesn’t usually offer upward mobility. Who you know is much more important. Research proving this is ubiquitous.

    So the fact is that mobility needs to increase to keep up with inequality. I don’t expect it to happen since mobility is largely a socially-ingrained phenomenon. So if we are to fix this problem, it has to be fixed through the reduction in inequality.

    Again, great data!

  3. Larry Signor says:

    This is all just white noise. The jobs are not existent so obviously upward mobility is impaired. Income and wealth inequality is increasing, this aids upward mobility? Support for education is floundering, incarceration rates are the highest in the world, a broken health care system, these seem to be more headwinds to upward mobility Larry Summers conversation about secular stagnation should give us many clues about the nature of mobility. It is difficult to reconcile an economy that needs unusual events (bubbles) to generate growth and demand with stable economic mobility, Until the jobs arrive, I don’t think upward mobility is an issue that can be debated or determined with any certainty.

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