I’ve been meaning to write about income mobility for a while, and this new piece by one of my favorite economists in town, the Brookings Institution’s Scott Winship, prompts me to finally get around to it. What better way to start the new year than by learning that the American dream still lives on?
In his piece, Winship looks at a recent claim by President Obama that income mobility in the U.S. has declined, which ignores recent studies on absolute and relative income mobility. For one thing, most children are living better lives than their parents did, according to a 2008 Pew Economic Mobility Project study showing that two-thirds of 40-year-old Americans are in households with larger incomes than their parents had at the same age. That remains true even after controlling for the rising cost of living. If anything, this finding understates the progress we have made. Household size has declined in recent decades, meaning that incomes are now spent on fewer family members, leaving individuals better off.
As Winship argued a few months ago, the misplaced fear about the polarization of income stems from liberals’ tendency to “conflate disappointing growth in men’s earnings with growth in household income, which has been impressive. Growth in women’s earnings has also been impressive, but economic pessimists have twisted these bright spots to fit a gloomy narrative.” The Brookings study suggests another explanation for liberals’ pessimism: While the vast majority of Americans are better off than their parents were at similar ages, the improvement is probably not as great as the improvement their parents saw over their grandparents. (My intuition is that the earlier realignment came mostly from the shift from a largely rural agricultural economy to an urban, industrial, and service-oriented one, which was completed soon after World War II.)
While median wage growth has slowed since 1973, it is wrong to assert that income mobility in the United States has declined. Winship has more data to prove it:
The biggest shortcoming of past research is that no one has looked at the intergenerational income mobility of Americans born after the early 1970s, mostly because of limited availability of data. Children born in 1980 are barely 30 years old today, and few data sets exist that tracked them as they grew up.
However, an ongoing Labor Department survey has followed men and women born in the early 1980s, starting in 1997 when they were adolescents. In 2008, the most recent year for which their incomes are available, they were in their mid to late 20s. A predecessor of this survey (also ongoing) has followed a group born in the late 1950s and early 1960s. Using these two National Longitudinal Survey data sets, I can compare children born between 1962 and 1964 to children born between 1980 and 1982, observing their parents’ incomes when they were 14 to 16 and their own incomes twelve years later when they were 26 to 28.
In contrast to the president’s claim of declining mobility, I found that upward mobility from poverty to the middle class rose from 51 percent to 57 percent between the early-’60s cohorts and the early-’80s ones. Rather than assert that mobility has increased, I want to simply say — at this stage of my research (which is ongoing) — that it has not declined. If I include households that reported negative or no income, the rise in upward mobility I find is only from 51 percent to 53 percent, which is not a statistically meaningful increase. But the data provide absolutely no evidence that economic mobility declined, whereas the president said it had fallen by ten percentage points.
Now, this doesn’t mean that everything’s great or that mobility is high enough. But it does mean that things aren’t as bad as we often hear it is. To me, that seems like a reason to celebrate.
Winship’s piece is here. He also has many great posts on income inequality here and here.