Opportunity, inequality…big dog, little dog

June 5th, 2015 at 1:48 pm

An extended piece, co-authored with Ben Spielberg, on what public policy can do to help increase the mobility of those on the wrong side of the inequality divide, over at the Atlantic (note cute picture above lead).

This work led me to do a deep dive into the rich economic mobility literature. I’ll have more to say about this in coming weeks, but the Atlantic piece comes out of a paper we wrote for the Peterson Foundation (Scott Winship of the Manhattan Institute wrote a paper on the same theme; also at this link).

A few topline thoughts to which I hope to return:

–The mobility data are non-trivially  limited. I believe the stuff that shows low levels of mobility here relative to other countries and the stuff that shows “stickiness in the tails” of the income distribution (see the article). But it’s hard to discern trends over time, especially when you consider that you’d need to observe families across many decades to reliably determine where someone ends up economically relative to where they started. Moreover, most of the data use income, when wealth is probably a more important determinant (and given that wealth inequality has gone up even more than income inequality, the mobility differences may not be trivial; OTOH, there’s some new wealth out there as well, implying greater mobility, so it’s not clear what better measures would show; OTOOH, it’s heavily racially concentrated, so we can be pretty certain shifting from an income to a wealth focus would show minority mobility to be even more limited than it already is).

–The positive impact of some safety net programs on future earnings, education and health outcomes is highly germane and really interesting; here’s a useful review of what’s known.

–As the work of Chetty et al in this space reveals, measurement choices matters a lot. They show, for example, that some measures of inequality, especially those most sensitive to dispersion in the middle end of the income scale, correlate significantly with mobility, while other measures (top 1% income shares) do not.

–Too often, participants in this debate lack a counterfactual. Without some idea of what you’d expect to happen given all the countervailing forces–inequality pushing mobility rates down; anti-poverty interventions pushing them up–no one knows what to make out of observations like “the rate of mobility has been flat.” Compared to what?!

Bottom line, we’ve got a lot of inequality and not enough mobility in this land. That means that if you’re stuck in the bottom, the rungs of the ladder going up are further apart than ever. As Ben and I argue, we need to provide the less advantaged with a lot more opportunities, and like it or not, that’s going to require going after inequality.

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4 comments in reply to "Opportunity, inequality…big dog, little dog"

  1. Smith says:

    I would like to remind all that inequality is paramount, and everything else is trivial, distracting, and in that sense as attention is directed elsewhere, highly destructive, especially mobility and equal opportunity.
    Here then is the case against mobility and equal opportunity:

    Mobility, think about it, not one person is allowed to climb out of the bottom 1/5 without getting someone to take their place. That is a mathematical fact. Not one person is admitted into the top fifth without knocking out someone already there. That pretty much demolishes the idea that mobility helps society. It only helps individuals by hurting other individuals. One other feature that must be considered is the rising tide lifting all boats, although it does nothing directly about inequality or mobility. One could argue (and conservatives certainly do) that lifted boats are a viable alternative to less inequality. I would disagree. One could also argue lifted boats eventually promote mobility, which I don’t doubt. But it is small consolation to think just as your boat has risen, you were knocked out into a different and lower boat. So much for the mobility of rising tide boats.

    Equal opportunity is just as bad a bargain. It says the goal is not just to promote mobility but to do it randomly, by chance, your life is controlled by sheer luck, a roll of the dice. It may not work like that in real life, but that is the essential result of those who aim for true equal opportunity. At birth, one would have an equal chance of landing into any one of the five socioeconomic quintiles, regardless of which fifth your parents were stuck in at the moment you were born. You’d have a one in five chance of being in the bottom fifth earning $13,500 or less and one in five of earning at the top, greater than $62,000 *

    Mobility and equal opportunity are mostly sham arguments used to halt efforts to promote equality. Equality doesn’t mean everyone earns the exact same amount of money. That’s because some people would rather work less and thus earn less. Some people with more experience or skill are more productive and deserve to be paid more. Supply and demand of skills also can be partially allocated by incentives from wage differentials.
    But how that translates into someone’s time being worth two or three times more than another’s, let alone ten or a hundred times more, is a bit of a mystery in a modern developed integrated society.

    *figures from 2010 census as tabulated here and adjusted for inflation thus in 2015 dollars http://en.wikipedia.org/wiki/Personal_income_in_the_United_States#Income_distribution

    • Smith says:

      Here is an interesting survey result that sheds light on the mobility question and I believe reinforces my argument: http://www.nytimes.com/2015/06/09/upshot/give-to-those-at-the-bottom-sure-as-long-as-they-stay-there.html
      Couple points
      1) Unfortunately those at the bottom do not anticipate the ripple effect, very likely a rising minimum will have the most impact on those just above the minimum.
      2) The results suggest people understand instinctively my point that mobility means for everyone going up, someone goes down, although raising the minimum actually does not that at all.
      3) It suggests a way to lower inequality by emphasizing taking from the rich doesn’t affect 90%
      4) It shows a very significant obstacle to cutting inequality, when one’s place seems threatened from below.

  2. Martin Norred says:

    I’m sorry, but the surveys I’ve seen(don’t remember where) refute your basic argument. They reported that the number of millionaires and billionaires are growing all of the time. Also, if you’re poor and are able to move up, 9 times out of 10, someone poorer than you will move up to take your place.

    • Smith says:

      The recent literature says otherwise. Economic reports show that wages have actually declined for lower wage earners over the past 20 years, especially males. But even college graduate earnings have been stagnant the past 15 years. I’m not surprised that there are more millionaires because the top fifth gained a larger share of the economy, that’s the basis of rising inequality.
      But again, the basic math holds. If you divide up income levels into fifths (or any fraction), when someone moves up, someone goes down. There are studies on mobility to show who moves where and how frequently, where they came from, where they go. The mobility illusion (the effort to make it important) is all the more worse because income distribution is not normal (bell curve). It’s a children’s slide so even when you move out of lower quintiles, you haven’t reached the average (a surprisingly large $70,000/year when capital gains and corporate earnings are included, use national income as the base, and take out 6% employer social security tax and imputed rent, etc, divide by 130 f/t p/t employees)
      It’s like the politician who worries half the students are performing below average.