Income inequality is in the news again these days, in
particular as President Obama has made it one of his policy concerns for this
year and as New York City's new mayor ran on a platform that included actions
to correct it. The gap between rich and
poor has indeed widened, and pretty consistently so, extending back as far as
35 years. In the US income distribution
in 2012 (latest available information), the average household income of those
at the 90% level, $146,000, was almost 12 times the income of those at the 10%
level, $12,236; back in 1975, this
multiple had been "just" 8-1/2.
Too, these income measures – both low and high – have decreased since a peak in 2006, adding to
concerns.[1] Does the US still offer
hope for gains, especially for low income people? Are we still a "land of
opportunity"?
Indeed, taken at face value, developments like the increase
in the rich/poor income ratio might suggest that something is fundamentally
wrong and requires any number of redistribution tactics to be taken as
correctives.
Ah, well. As with
many issues we meet here at Ways of the World, the "face
value" of this trend in a set of numbers turns out to tell only part of
the story. Two brand new reports from
well-known economist scholars of the inequality situation bring out two very
significant aspects that cast all this in a different light for the United
States.
People's Probabilities for Moving Up Have
Been Remarkably Steady
These reports are produced by The Equality of Opportunity
Project, headquartered at Harvard University and including scholars from there
and the University of California at Berkeley; see its website here:
http://www.equality-of-opportunity.org. The scholars, Raj Chetty of Harvard, Emmanuel
Saez of Cal Berkeley, three other senior scholars and a research staff[2], have
conducted massive analyses of IRS income tax data, using millions of individual
returns, which have been "de-identified". They are coded in such a way that a specific
person's history can be followed through a lengthy span of years, beginning as
a child-dependent of their parents and extending through their ultimate career situation
at, say, age 30 or 40. These authors can
thus make the statement that if someone grew up during the 1970s as a child in
a family in the lowest 20% of income earners, that person has an 8.4% chance of
reaching the top 20% in their own adulthood.
The point Chetty, Saez and associates make in the first of
their studies is that this probability did not change noticeably for kids born
in the 1980s who are now in their late 20s.
Moreover, other writers who've analyzed earlier periods, covering kids
born back as far as 1950, also find the same general probability
relationship. People's chances of moving
up in the world have not measurably changed despite the fact that the top has
gotten higher. Here are two pictures from the
Equality of Opportunity website: the rungs of the ladder are now farther apart,
but the analytical work shows that our ability to climb the ladder is just as strong
as when the ladder was shorter.
So, in one sense, this is a great statement about
opportunity in America. We have farther
to move to catch up to the high-income group, but Chetty, Saez and their
associates show that we still have as much expectation of being able to do that
as older people did, and other authors carry this back even to our own parents' generation.
Other Countries Do Better at Lifting People
Upward
Some argue – perhaps some of you – that other countries do a
better job of lifting people up than the US does. In international comparisons compiled by the
OECD, the correlation of income brackets between generations is closer in the
US than in most western European countries, Canada and Australia: that is, whatever level your parents are in,
you are more likely to be stuck there in the US than in nine of 11 other
countries. The correlation measures are
in fact about three times lower in Denmark, Norway, Australia and Finland. So children seem to have far better chances
of moving ahead of their parents' economic position there than in the United
States.[3]
But Some US Cities Are as Effective as Denmark
Chetty and Saez have a response to this seeming indictment
of the US in their second study, "Where Is the Land of Opportunity? The Geography of Intergenerational Mobility
in the US".[4] The US is, of
course, a huge country with widely varying climates and cultures in its
regions. Because Chetty and Saez have
examined millions of tax returns, they can break out their information by
cities as well as for the nation as a whole.
In some pioneering work on these topics, they find great differences in
mobility for people who grew up in the different cities: Salt Lake City and San
Jose have populations as economically mobile as those of Denmark and its
neighbors, while mobility is far lower in other places, including some in the
South and the upper Midwest, lower even than in any developed nation for which
such figures have been published. New
York and Boston rank sixth in rankings of the 50 largest metropolitan areas
while Charlotte, NC, ranks 50th.
These differences immediately beg the question: what on
earth accounts for these positions? Aren't
New York and Boston places where classes are really well defined? and the
opposite for Midwest and Southern locales?
So Chetty and Saez and their associates looked at some characteristics
of the cities that might help explain.
Social Structures, Not Economic Ones Make
the Main Differences
Surprisingly, at least to us, a city's economy has had
little to do with the economic mobility of its residents. The mix of industries and the concentration
of managerial and professional occupations had such weak relationships with
mobility measures that the authors didn't even bother listing any numbers about
them. There are just loose correlations
with overall labor force participation and the role of manufacturing. Two economic items do have noticeable
effects, existing income inequality and the teen-age labor force. The existing income distribution seems
logical as a force for or against mobility.
We'll comment further below on the teen-age workforce.
Otherwise, the really significant forces pushing on mobility
are social ones. And they come into play
early in people's lives, not just when they are graduating school and doing
entry-level career planning.
1.
Race. Areas with large shares
of African-Americans have weaker mobility.
Please note that this is a numerical fact, not a subjective comment. Also, it reflects more than skin color, since
whites in those regions also have weaker mobility than in other areas. Greater degrees of segregation of races and
of groupings of affluent and impoverished populations also exacerbate mobility.
2.
K-12 school systems.
Elementary school test scores and the high school drop-out rate are
highly significant. Teacher-student
ratios and spending per student in a city have only a mild impact. The point this suggests is that it's the
results of primary education, not just inputs to education that are
important. Also, while college
attendance has an obvious and structural influence, the presence of colleges
right in a given city doesn't noticeably help or hinder mobility in that city.
3.
Social capital. This jargony
term calls attention to people's participation in society besides their jobs. Do they vote?
Do they return Census forms? Do
they belong to local civic associations?
These items constitute a social capital index. Important separately in its own right, do
people belong to religious groups?
4.
Family structure. The factor
with the closest relationship to economic mobility is family structure. Specifically, children born to single mothers
face the biggest odds against moving ahead later in their own lives. In general, on the contrasting side, cities
with the largest proportions of parents who are married and with the lowest
divorce rates provide more support to children moving ahead.
These social factors, education, socialization and family
structure, all impact young people. Again,
that's "young" people, in childhood and the teen years. As we noted above, teen-age labor force
participation is also important in helping set people up to move ahead into and
through adulthood. Learning work skills,
routines and disciplines gives a measurable boost toward a better future as
well as an introduction to financial responsibility. There is an additional aspect to the
segregation issue, and that is commuting distance to work. Cities with a preponderance of short commutes
are more supportive of mobility. A
concentration of corporate parks in suburbs or the need to take a train and a
bus to work put added barriers in the way of lower income families.
Ideas about Policies That Might Help
The factors that show as most closely related to mobility
point to some public policies that might be more supportive. Working with single mothers and encouragement
of marriage would help. The need for
strong public education comes up time and time again, and the statistical
results we cite here add to that emphasis; in particular, "teaching to the
test" would seem to be effective as well as encouraging teen-agers to stay
in school and also to get jobs. Perhaps
many city governments have policies that might shorten commutes by encouraging businesses
to install facilities in low-income neighborhoods, but more could clearly be
done. Making commuting easier also
argues for upgrading transportation systems and city infrastructure.
We knew there was no simple answer to inequality issues, but
some of the inputs we learned about here are not necessarily the ones we'd have
thought of first. Supposedly simple
approaches, such as raising taxes on the rich may help on the surface, but
those funds shouldn't automatically just be distributed through low-income
family welfare programs. Instead, more structural qualitative policies
and attitudes are needed for the long-run changes and real shifts in inequality
relationships that are desired. Not all
of this comes from governments. Even, we
see, churches have an identifiable role as they support the dignity of every
human being, promote community participation by low-income people and mix low,
middle and upper income people in common settings and organizations.
_____________________
[2] Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel
Saez and Nicholas Turner. "Is the
United States Still a Land of Opportunity?
Recent Trends in Intergenerational Mobility". National Bureau of Economic Research Working
Paper 19844, January 2014. Available
without cost on http://www.equality-of-opportunity.org.
[4] Raj Chetty, Nathaniel Hendren, Patrick Kline and
Emmanuel Saez. "Where Is the Land
of Opportunity? The Geography of
Intergenerational Mobility in the US".
National Bureau of Economic Research Working Paper 19843, January
2014. Available without cost on http://www.equality-of-opportunity.org. Ratios and numerical factors for the cities covered
in this study are available for download without charge from the website, as
the authors encourage further analysis by anyone interested in these issues.
Other recent discussions of this material:
and
Labels: American Society, Economy, Government Policies
