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Land of opportunity
November 14, 2007
The Wall Street Journal’s editorial writers are impressed by a new study on income mobility:
The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.
I would call this a case of being prematurely stunned. Studies of this kind always and everywhere show people rising out of lower quintiles and dropping out of higher ones: this pattern merely reflects the ebb and flow of income during the course of a typical career. Students or the unemployed in the lowest quintile subsequently get jobs; the highest-earners subsequently retire. By themselves these numbers tell you very little about the life-chances of people who are born poor compared with the life-chances of people who are born rich (mobilty) or for that matter about the gap between rich and poor (inequality).
Changes over time in the ratios tell you more. The WSJ notes that the study finds no great change in relative income mobility over the past ten years. But, concentrating on mobility, international comparisons are what you need to test the view that the United States really is the land of opportunity, as compared with other places. What do those comparisons say? Thank you for asking:
Most researchers now give America much lower marks than they used to for intergenerational economic mobility—the ease with which successive generations move up or down relative to their parents. As flaws in early postwar studies have been addressed, estimates of mobility have fallen. Before the 1990s, researchers tended to put the correlation between parents’ incomes and their children’s at around 20 percent, implying a high degree of mobility between generations. (Zero would imply no connection at all; a correlation of 100 percent would imply that parents’ incomes entirely determined the incomes of their children.) In the 1990s, using better data and techniques, experts tended to put that figure at about 40 percent. Recent estimates run as high as 60 percent. The finding is not that mobility has fallen since World War II—the studies point to no clear trend. It is that as methods of measuring mobility have improved, the result, across a span of recent decades, has gotten worse. The earlier view that postwar America was an economically mobile society is less and less borne out. Perhaps it was once (before data became available to track such things accurately); but it isn’t now.
More telling, maybe, is the international comparison. America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all of the Scandinavian countries, and possibly even Germany and Britain (the data are imperfect, and different studies give slightly different results).
Strikingly, the research suggests that mobility within America’s middle-income bands is similar to that in many other countries. The stickiness is at the top and the bottom. According to one much-cited study, for instance, more than 40 percent of American boys born into the poorest fifth of the population stay there; the figure for Britain is 30 percent, for Denmark just 25 percent. In America, more than in other advanced economies, poor children stay poor. Other data show that in America, more than in, say, Britain, rich children stay rich as well.
You can read the rest of my recent Atlantic Monthly column on the subject here (subscription required).
It is my pleasure to comment on the article Land of Opportunity by Clive Crook. The income mobility depends on the situation in the US economy. Therefore, we have to understand that there will be no income mobility upward in the time of severe recession in the US. The Wall Street Journal is a state controlled mass media, hence the results of customized study, which was published recently, shouldn’t take us, European FT readers, by surprise. The WSJ can tell us a lot of unbelievable stories, however there are real numbers about the US economy performance, which give us an exact understanding that the US is close to the complete collapse as a result of the execution of unwise governmental strategies in the US and abroad.
Posted by: Viktor O. Ledenyov, Ukraine | November 14th, 2007 at 5:19 pm | Report this commentI think Clive misses the point - see, it’s your side that first brought up the issue of quintiles. You can’t represent that the quintiles represent the divide between “rich and poor” and then, when it’s demonstrated that they represent the divides among entry-level workers, retirees and experienced-level workers, just discount the mobility…. If mobility among the “quintiles” overstate “real” mobility then the quintiles similarly and equally overstate “real” inequality.
Either way it gets you back to the same place - true, chronic poverty, even before you get to the Robert Rector points about poor people having color tv and satellite dishes - is dramatically overstated.
There is no reason to “adjust for age” - nobody ever said that graduates of the Central Catholic High School Class of 1987 will all make the same incomes over time - all we said was that the differences among the “quintiles” reflect not permanent differences but differences between the class of 1987 and the class of 2007. And this study like all the others shows that to be the case.
Posted by: Patrick Trombly | November 15th, 2007 at 1:33 am | Report this comment“The stickiness is at the top and the bottom…more than 40 percent of American boys born into the poorest fifth of the population stay there; the figure for Britain is 30 percent, for Denmark just 25 percent”
This is the point.
An inescapable underclass and a self-perpetuating elite are bad for any democratic society.
Posted by: Dave | November 15th, 2007 at 12:37 pm | Report this commentAnd he misses the point with respect to relative mobility - - - relative mobility is the ability to go form 70th percentile to 20th - which means less in absolute terms in countries where there is less divergence of incomes - - - in other words, if the ability to go from 70th to 20th is the same in the US and in Scandinavia, that means an American’s ability to increase his real income by $40K is the same as the ability of someone in Scandinavia to increase his income by $15K. I’d rather be the American, wouldn’t you?
Posted by: Patrick Trombly | November 15th, 2007 at 2:40 pm | Report this commentDave the evidence is very clear, this notion of an “inescapable underclass” is dramatically overstated.
What I don’t understand is the lack of honesty and objectivity, and the amount of obfuscation on the issue. The surveys, the BLS data, and tax return studies all say the same thing. Yet the tax return surveys are attacked on the ground that, if your income is low enough, you don’t pay an income tax - except that you’re still required to file a RETURN….
Then it’s all this “share of the income” garbage - if you usually get a $5K bonus and your neighbor gets a $3K bonus, and one year you get a $10K bonus and your neighbor wins the Megamillions, your “share of your block’s income” will “decline measurably” - it’s true, technically, but that version of it really implies the opposite of what happened, it implies that you’re worse off than you were - yet that is how the New York Times and Boston Globe would report it. “Equality” has always been achieved by keeping everyone DOWN, not by raising anyone UP. That’s what a progressive income tax does - it kicks you back 7 steps, instead of 4, for every 10 you take. How is that supposed to help people who took only 3 steps forward? It’s not like Bush RAISED taxes on anyone, he just cut tax rates - benefiting everyone but yes, benefiting especially those who paid the most taxes. How that HARMED anyone I have no idea - tax revenue has since skyrocketed and the top income earners still pay almost all the tax burden, so the notion of “leaving more for the rest of us to pay” simply doesn’t square with the facts.
Simply put, there is no tendency back to the mean - once you lift the cap off of incomes, whoever’s income went up by the most will end up on top - even if everyone else’s income goes up faster than it used to, it will always be the case - by definition - that if you re-state their incomes relative to whoever’s income went up by the most, their gains will look small by comparison. And that’s precisely what Krugman does and what Phillips did before him to try to make it sound like those absolute gains aren’t there. It’s what Greenstein does with non-military domestic spending, which is up by over 1/3 under Bush, to make it look like it isn’t up - except he relates it to GDP. They restate absolute increases “relative” to something that went up faster, even though there’s no reason to do so, to make it sound like there was no increase in the absolute. It’s transparent to those of us who know what we’re looking at, but most people’s eyes gloss over when you start talking about income statistics, and they believe the headlines (and unfortunately most of them read the Boston Globe and not the Wall Street Journal).
The only remaining question is, what is the motive - WHY do the Krugman-types play these shell games with the numbers? Clearly it’s not meant to help the people they claim to want to help - because they’re trying to hide the fact that they HAVE been helped. It would appear that they’re trying to keep them DOWN. My sneaking suspicion is that the growing proportion of the US electorate that is NOT “one bad event away” from dependence upon government largesse scares Democrats - because that voter dependence is what ensured them a base level of votes for several decades. Some, like Edwards, think they can put that cat back in the bag. Others, like Hillary Clinton and Ted Kennedy, realize that they cannot, so they try to come up with an alternative form of dependence - healthcare - or a new financially-dependent class - illegals-turned-citizens through an amnesty bill.
It’s shameful. They are like drug pushers, but instead of pushing dependence upon a chemical, they are pushing dependency upon government.
Posted by: Patrick Trombly | November 16th, 2007 at 8:54 pm | Report this comment