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.