Economic Mobility

Matt Zeitlin: Impetuous Young Whippersnapper: "Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago, has a paper which says that “Using administrative data containing the earnings histories of parents and children,the IGE is estimated to be around 0.6. This suggests that the United States is substantially less mobile than previous research indicated.” And, “estimates of intergenerational mobility are significantly lower for families with little or no wealth.”
Or, from Markus Jantti of Abo Akademi University:

The United States, Italy, and France all have high persistence, at 0.45, 0.44, and 0.42, respectively, which with a 12-fold income advantage in the parental generation would translate to roughly three times higher incomes among the children of the richest fifth compared to those of the poorest. Denmark has the lowest persistence at 0.12, and most other countries are quite close to 0.25. These numbers translate to 1.35 and 1.86 times higher incomes among the richest fifth offspring, holding constant the parental income advantage

In summary, “Intergenerational income persistence in the United States is quite high compared to other countries, and that persistence.”

And, from a Center for American Progress report ‘Understanding Mobility in America,’ “By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.”

Brendan Nyhan

Don't miss this extremely valuable story in the Economist on inequality and social mobility in the US. The magazine -- which is no bastion of bleeding heart liberalism -- has issued an important warning:

A growing body of evidence suggests that the meritocratic ideal is in trouble in America. Income inequality is growing to levels not seen since the Gilded Age, around the 1880s. But social mobility is not increasing at anything like the same pace: would-be Horatio Algers are finding it no easier to climb from rags to riches, while the children of the privileged have a greater chance of staying at the top of the social heap. The United States risks calcifying into a European-style class-based society.

The evidence on social mobility is hardly encouraging to those who believe that every American has a solid chance to pull themselves up by their bootstraps:

[M]ore and more evidence from social scientists suggests that American society is much "stickier" than most Americans assume. Some researchers claim that social mobility is actually declining. A classic social survey in 1978 found that 23% of adult men who had been born in the bottom fifth of the population (as ranked by social and economic status) had made it into the top fifth. Earl Wysong of Indiana University and two colleagues recently decided to update the study. They compared the incomes of 2,749 father-and-son pairs from 1979 to 1998 and found that few sons had moved up the class ladder. Nearly 70% of the sons in 1998 had remained either at the same level or were doing worse than their fathers in 1979. The biggest increase in mobility had been at the top of society, with affluent sons moving upwards more often than their fathers had. They found that only 10% of the adult men born in the bottom quarter had made it to the top quarter.
The Economic Policy Institute also argues that social mobility has declined since the 1970s. In the 1990s 36% of those who started in the second-poorest 20% stayed put, compared with 28% in the 1970s and 32% in the 1980s. In the 1970s 12% of the population moved from the bottom fifth to either the fourth or the top fifth. In the 1980s and 1990s the figures shrank to below 11% for both decades. The figure for those who stayed in the top fifth increased slightly but steadily over the three decades, reinforcing the sense of diminished social mobility.
Not all social scientists accept the conclusion that mobility is declining. Gary Solon, of the University of Michigan, argues that there is no evidence of any change in social-mobility rates, down or up. But, at the least, most people agree that the dramatic increase in income inequality over the past two decades has not been accompanied by an equally dramatic increase in social mobility.
Take the study carried out by Thomas Hertz, an economist at American University in Washington, DC, who studied a representative sample of 6,273 American families (both black and white) over 32 years or two generations. He found that 42% of those born into the poorest fifth ended up where they started—at the bottom. Another 24% moved up slightly to the next-to-bottom group. Only 6% made it to the top fifth. Upward mobility was particularly low for black families. On the other hand, 37% of those born into the top fifth remained there, whereas barely 7% of those born into the top 20% ended up in the bottom fifth. A person born into the top fifth is over five times as likely to end up at the top as a person born into the bottom fifth.
Jonathan Fisher and David Johnson, two economists at the Bureau of Labour Statistics, looked at inequality and social mobility using measures of both income and consumption. They found that mobility "slightly decreased" in the 1990s. In 1984-90, 56% and 54% of households changed their rankings in terms of income and consumption respectively. In 1994-99, only 52% and 49% changed their rankings.
Two economists at the Federal Reserve Bank of Boston analysed family incomes over three decades. They found that 40% of families remained stuck in the same income bracket in the 1990s, compared with 37% of families in the 1980s and 36% in the 1970s. Aaron Bernstein of Business Week points out that, even though the 1990s boom lifted pay rates for low-earners, it did not help them to get better jobs.