Middle-Income Shares and Mobility

Jim Tankersley discusses a new Center for American Progress report which finds a strong correlation between economic mobility and the share of households that fall in the middle-income range in a given region:

[Ben] Olinsky and [Sasha] Post found that almost none of those variables were as strongly associated with mobility as the size of a region’s middle class — defined as the percentage of area residents who earn incomes between the 25th and 75th percentiles nationally. That’s related to, but not the same as, income inequality between high and low earners, which the original research team found to be more modestly correlated with mobility.

The original study shows only two variables more strongly associated with mobility than middle-class size, and both were linked to decreased mobility: the region’s share of single mothers and its divorce rate.

I would caution against overemphasizing the importance of the size of a region’s middle class. Raj Chetty offers one cautionary note:

He also offered a few caveats for interpreting the finding. Principally, he noted that for the 50 largest urban areas in the country, his group’s research shows the middle-class/mobility relationship breaks down. What’s more important, he said, is income segregation — whether poor people are isolated in where they live from middle-class and wealthier people.

The share of households that fall in the middle-income range can be compressed from either direction — from a large share of households earning less than the 25th percentile nationally, from a large share earning more than the 75th percentile, or some combination of both. Imagine a metropolitan region in which the share of low-income and high-income households is quite high, thus squeezing the number of middle-income households. If low-income individuals live within close proximity to high-income individuals, or if they have good access to them via transit or other means (car-sharing and low levels of traffic congestion), they will have an easier time climbing the economic ladder, at least for the first few rungs. Problems might arise as low-income individuals enter the middle-income range, at which point they might develop a greater appetite for space or they might need their disposable income to stretch further as they lose access to various means-tested benefits. This is the point at which middle-income individuals might leave high-productivity, high-amenity, high-cost, relatively-unequal metropolitan regions with constrained housing supplies for low-productivity, low-amenity, relatively-equal metropolitan regions with unconstrained housing supplies. (See our discussion of Chenoa Flippen’s work on domestic migration and relative status.) It’s possible that the middle-income share of a region’s population will tend to increase as barriers to entry, like restrictive local land-use regulations, are lowered. But it is also possible that the low-income share of the population would surge, as would the high-income share as formerly middle-income people work longer hours as they outsource household production to less-skilled, low-wage workers. Would this be such a bad thing? 

Bill de Blasio has centered his campaign for mayor of New York city around the perils of income inequality. Yet one of the reasons incomes are unequal in New York city is that the city’s productivity and wealth attracts less-skilled, low-wage workers. It is far from obvious that the country would be better off if these individuals were relegated to living in low-productivity regions, as Matt Yglesias recently argued:

[T]he stark inequalities existing in the city are in part a bit of statistical gerrymandering. If you ride the 6 train north from the financial district through the Upper East Side and across the river into the Bronx, you’ll naturally be struck by the immense gap in wealth and income visible along the route. That said, the fact that Manhattan and the Bronx are part of a single amalgamated city is a bit of a historical quirk. Had Greater New York never been assembled, the Bronx as an independent city would not be a particularly inegalitarian place, it would simply be a poor one, situated across a narrow river from a much richer one. Conversely, if you visit America’s numerous prosperous suburban towns you’ll find a low level of inequality not because of progressive policy triumphs, but because exclusionary zoning is keeping the poor out.

Which is to say that on some level the stark inequality of New York City is a municipal success story. New York is a place that lots of very rich people want to live in (unlike, say, Newark), but it’s also a place that hasn’t locked the poor out of housing and transportation services (unlike, say, Bergen County). There are lots of things New York and other high-demand cities could do to improve the lives of the nonwealthy, starting with the construction of more plentiful housing and continued efforts to improve the quality of local schools. But realistically these things aren’t going to make a dent in local inequality. If anything, more affordable housing will make your city’s inequality statistics look worse by importing more people of modest means rather than pushing them into Jersey City.

Rather than fixate on inequality or middle-income share, we ought to focus, as Chetty tentatively suggests, on combating economic and social isolation. This is easier said than done, but it will tend to involve policy efforts we should be pursuing regardless, e.g., more effective crime control, easing land-use regulations, and reducing commute times (by reducing congestion, improving transit options, or perhaps making low-cost car-sharing or car loans more readily available as an alternative to transit investment).

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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