Reexamining American Economic Mobility

By Lee Russ

Sunday, May 06, 2007 at 01:10 PM

An enduring belief of most Americans is that we have greater mobility than folks in other countries. It's the poor boy makes good, every kid can grow up to be president ideal. In June's edition of The Atlantic, Senior Editor Clive Crook calls that into question in his article, "Rags to Rags, Riches to Riches."

According to Crook:

Most researchers now give America much lower marks than they used to for intergenerational economic mobility. ...

America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all 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.

I don't know what data Crook was talking about, but I found a study by Tom Hertz, of American University which he conducted for the Center for American Progress. Dated April 26, 2006, this is the study's summary:

This report discusses two aspects of economic mobility in the United States. The first is the question of intergenerational mobility, or the degree to which the economic success of children is independent of the economic status of their parents. A higher level of intergenerational mobility is often interpreted as a sign of greater fairness, or equality of opportunity, in a society.

The second aspect is the short-term question of the amount by which family incomes change from year to year. By studying short-term mobility we can determine whether incomes are rising or falling for families at different points in the income distribution. We can also determine whether the size of these income variations, or the level of annual income volatility, is changing over time. Increased volatility is undesirable to the extent that it represents an increase in economic insecurity.

The key findings relating to intergenerational mobility include the following:

• Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance.
• Children born to the middle quintile of parental family income ($42,000 to $54,300) had about the same chance of ending up in a lower quintile than their parents (39.5 percent) as they did of moving to a higher quintile (36.5 percent). Their chances of attaining the top five percentiles of the income distribution were just 1.8 percent.
• Education, race, health and state of residence are four key channels by which economic status is transmitted from parent to child.
• African American children who are born in the bottom quartile are nearly twice as likely to remain there as adults than are white children whose parents had identical incomes, and are four times less likely to attain the top quartile.
• The difference in mobility for blacks and whites persists even after controlling for a host of parental background factors, children’s education and health, as well as whether the household was female-headed or receiving public assistance.
• After controlling for a host of parental background variables, upward mobility varied by region of origin, and is highest (in percentage terms) for those who grew up in the South Atlantic and East South Central regions, and lowest for those raised in the West South Central and Mountain regions.
• 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.

Key findings relating to short-run, year-to-year income movements include the following:

• The overall volatility of household income increased significantly between 1990-91 and 1997-98 and again in 2003-04.
• Since 1990-91, there has been an increase in the share of households who experienced significant downward short-term mobility. The share that saw their incomes decline by $20,000 or more (in real terms) rose from 13.0 percent in 1990-91 to 14.8 percent in 1997-98 to 16.6 percent in 2003-04.
• The middle class is experiencing more insecurity of income, while the top decile is experiencing less. From 1997-98 to 2003-04, the increase in downward short-term mobility was driven by the experiences of middle-class households (those earning between $34,510 and $89,300 in 2004 dollars). Households in the top quintile saw no increase in downward short-term mobility, and households in the top decile ($122,880 and up) saw a reduction in the frequency of large negative income shocks.
• For the middle class, an increase in income volatility has led to an increase in the frequency of large negative income shocks, which may be expected to translate to an increase in financial distress.
• The median household was no more upwardly mobile in 2003-04, a year when GDP grew strongly, than it was it was during the recession of 1990-91.
• Upward short-term mobility for those in the bottom quintile has improved since 1990-91, with no significant offsetting increase in downward short-term mobility.
• Households whose adult members all worked more than 40 hours per week for two years in a row were more upwardly mobile in 1990-91 and 1997-98 than households who worked fewer hours. Yet this was not true in 2003-04, suggesting that people who work long hours on a consistent basis no longer appear to be able to generate much upward mobility for their families.

Those year-to-year income movements findings are as grim as the intergenerational findings.

It is very difficult to make these measurements with any precision, of course, and there are many different aspects of "income mobility" that could be measured. A study titled The Many Facets of Economic Mobility by Gary S. Fields of Cornell University, published in July 2005 is a good source for anyone wanting to get into more detail. But Crook's article and the Center for American Progress study don't bode well for our self image as Americans.

The Pew Trusts, at a cost of over $2 million, plan to fund a joint study of the ability of Americans to improve their economic status both during their lifetimes, and from generation to generation. The study is to be performed by four Washington think tanks: The American Enterprise Institute, The Brookings Institution, The Heritage Foundation and The Urban Institute.

On the Pew web site, the project is described as follows:

For the first time, data related to economic mobility in the United States will be consolidated and presented in terms the American public and policymakers can understand, debate and discuss. How do my children’s opportunities for economic advancement compare to mine, to those of my parents? Is mobility thriving in other countries while waning here in the U.S.? How much economic mobility is there for people in poverty? To what extent is mobility affected by inherited wealth? How is mobility impacted by gender, race, and level of education?

Sounds like it will be worth reading if the representatives of those four think tanks can actually agree on the state of things.