Economic growth won’t guarantee it
I grew up in an old steel town not far from Cincinnati. It is exactly the kind of place that people have in mind when they talk about the end of economic mobility in America: With bad public schools and businesses closing by the day, Middletown, Ohio, is an awful place to get ahead.
It wasn’t always like this. When my grandparents moved there from the extreme poverty of Appalachian Kentucky, Middletown was a kind of oasis. Lured by the promise of well-paying jobs in the steel mill, thousands reestablished themselves in Middletown. It was ground zero for the American Dream — a home for those willing to strive for a better life. Now Middletown typifies something else: the precipitous decline of economic mobility.
In America, poor children are more likely to stay poor than almost anywhere else in the developed world. When economists measure the correlation between the incomes of parents and those of their children, they find that it is stronger in America than in all other developed countries except Britain and Italy. What this means for America is depressingly clear: To a large degree, who your parents are determines your fate.
This wasn’t always true. When economist Joseph P. Ferrie studied American social and economic mobility from the mid 19th century through the 1950s, he found a society infected with what Tocqueville called a “longing to rise.” By the 1970s, though, that fever had passed. It’s not entirely clear why — Ferrie suggests that our former willingness to relocate to seek new opportunities had faded. Whatever the cause, it was, Ferry declared, “the end of American exceptionalism.”
That’s probably a bit dramatic. As our understanding of economic immobility grows, we learn that America is far from monolithic in this regard; opportunity for the working class is largely dependent on where one grows up. In their massive new study on equality of opportunity, economists Emmanuel Saez and Raj Chetty track the income-tax records of parents and children to better understand economic mobility. They find that the American Dream is alive and well in Boston, Salt Lake City, and Omaha. In the South and the Rust Belt, by contrast, a poor child is almost as likely to be hit by lightning as he is to rise to the top of the American income ladder.
To many on the left, the lack of mobility is hopelessly linked with inequality. Alan Krueger, for example, chairman of the president’s Council of Economic Advisers, purports to show with the “Great Gatsby curve” that the nations with the highest inequality also have the least social mobility. He finds that, on the whole, income inequality and intergenerational income elasticity — the extent to which a person’s income is determined by that of his parents — are linked. But within the U.S., the strength of that correlation varies (sometimes wildly so) from region to region. Whatever the connection, there is little evidence that income inequality causes immobility.
Nor is economic immobility simply a result of race. Some of the least upwardly mobile regions in the United States are almost exclusively white — Washington Court House, Ohio, and London, Ky., to name just two. And mobility in some red states is high, while in some blue states it’s low, so the political disposition to enact programs of assistance for the poor can’t explain the gap.
As liberals obsess over economic inequality, conservatives focus too much on economic growth. Economic growth and mobility are not the same. In some cases, they’re not even related. Columbus, for example, is flush with growth, but it appears that most of the new, high-paying jobs go to newcomers to the city. Children born there are significantly less mobile than those from Pittsburgh, which Newsweek in 2001 dubbed one of America’s “dying cities.” It’s tempting to reach for an easy solution — to argue that if only there were more or better jobs, economic mobility would take care of itself. But the Chetty study cautions otherwise. Even (and sometimes especially) in our fastest-growing cities, economic mobility is hard to come by.
It’s tough to square the new data with the old way of talking about opportunity. In what was hailed as a landmark speech on poverty and opportunity, Republican vice-presidential nominee Paul Ryan admirably described the plight of America’s poor and working class, and urged us to change it. Yet in advancing a solution, Ryan argued that “above all else is the pressing need for jobs.” Jobs are undoubtedly important, and Republicans justifiably worry about the anemic recovery of the past five years. But there was an opportunity crisis long before Barack Obama was president, and unless we do something about it, there will be one long after he’s gone.
Think back to 2005: The economy was humming, household wealth was growing, unemployment was low, and consumer confidence was high. George W. Bush’s America was pretty great. Few among us would rather live in today’s world of slow growth and grim jobs numbers. But the chances that a person in the bottom fifth would rise to the top fifth were about the same then as they are today — in many parts of the country, dismal. The crisis of opportunity is an altogether different crisis from our passing economic troubles. We should not assume that a solution to one is a solution to the other: It hasn’t been in the past, and it probably won’t be in the future.
When we focus on opportunity, there is much that speaks to traditional conservative concerns. We’ve known for a while that family breakdown inhibits mobility, and the Chetty study provides further evidence that two-parent households produce children who are more upwardly mobile than those from broken homes. Dig a little deeper, however, and it’s clear that the solution — if one exists at all — is not obvious. Conservatives have argued (rightly) for years that the tax code is littered with counterproductive marriage penalties. These make little sense, and we ought to get rid of them. But the reason many young working-class women aren’t getting married isn’t that the tax code gives them incentives to stay single. It’s that too many of their male counterparts aren’t worth marrying.
When Nordic researchers compared their own countries with the United States, they found that while American men were much less mobile than their Nordic counterparts, there was no significant difference between American girls and Nordic girls. American daughters, it turns out, are doing much better than American sons. In poll after poll, young women indicate their wish to marry, but they’re having trouble finding suitable men. Those who do marry find themselves working just as much outside the home as do their husbands, who do significantly less of the cooking, cleaning, and caretaking. Our marriage crisis, then, is as much about the inadequacies of American men as it is about family values or economic incentives. And that’s a problem you can’t fix with tax reform.
You can’t fix it with minimum-wage increases, or stronger labor laws, or reduced corporate compensation, either. Median wages in the United States have grown very slowly since the 1970s. Commentators often bemoan this fact and argue that economic duress is the cause of America’s declining marriage rate. But if the problem is entirely economic and not at all cultural, then why are girls doing so much better than boys? Girls live in the same economy and face the same set of struggles (or more of them, some would argue). Even if slow wage growth is a problem, it’s an entirely different one from that of men doing less around the house than their wives do.
Also contributing to our opportunity crisis is the design of our entitlement programs. The perfect welfare system would do two things. First, it would guarantee that everyone had the basics. Second, it would encourage movement out of poverty; opportunity means more than not starving to death.
The welfare system is designed largely with the first goal in mind. When LBJ went to Appalachian Kentucky during his “War on Poverty” tour, children in the towns he visited were eating charred furnace coals to fill their empty bellies. Now, thanks to fast food, a technological revolution in agriculture, and food stamps, almost no American child is truly hungry. This is something we should all be proud of. But it has become abundantly clear that the way we accomplish the first goal sometimes works against the second.
When my grandparents moved from Appalachia to Ohio, they had to. There weren’t any jobs in Kentucky. The poverty rate then, as now, was astonishingly high. In the 1940s, before food stamps, it could have been their children eating furnace coals when the president came to town. So they moved north.
Today, this type of movement happens less and less. In 1980, 47 percent of all U.S. residents had moved within the previous five years. By 2010, little more than one-third had done so. This is hardly surprising. First, the costs of staying put are lower now than three decades ago. If you can’t find a job, Supplemental Security Income, Social Security Disability Insurance, and food stamps make it possible to squeak by. In guaranteeing the basics, we’ve made it easier not to move beyond them.
On top of that, decades of bipartisan housing policy have trapped many in the least economically mobile regions of the country. From Carter’s Community Reinvestment Act to George W. Bush’s “ownership society,” our government resolved to expand home ownership. And as it succeeded, it made moving to new opportunities more and more difficult: It’s hard enough to sell a house in good times; it is virtually impossible to do so in the post-crisis market. Economists have long recognized that geographic movement is an investment in one’s earning potential. The combination of antipoverty programs and housing policy increased the costs of that investment precipitously.
This is not to say we should do away with all entitlements. But we ought to reform them to encourage movement out of poverty, not just to ensure subsistence within it. Right now, many western states suffer labor shortages. The primary reason the Chamber of Commerce and other business groups support comprehensive immigration reform is that our industries have jobs but lack individuals willing or able to fill them. So a conservative effort to promote equal opportunity might start by paying people to move toward work instead of paying them to do nothing.
Additionally, Saez and Chetty suggest, certain types of tax reform promote economic mobility, while others inhibit it. The Earned Income Tax Credit, for example, has encouraged it. Additional wage subsidies would give further incentive to young men to enter the workforce, while equipping them with skills that both they and the labor market need.
Meanwhile, as our states move away from income taxes and toward growth-promoting consumption taxes, it’s important to design such reforms so that their burdens don’t fall on the poorest citizens. We should also continue to work on school choice and other measures that give poor children greater access to educational opportunities.
These suggestions are far from a comprehensive remedy for our opportunity crisis. But the first step is to recognize the problem, and that requires understanding that growth and opportunity are not two sides of the same coin. Growth is imperative, but unless we address the sad state of opportunity, we may one day find that everyone has woken up from something our forefathers called the American Dream.
– Mr. Vance, a recent graduate of Yale Law School and a Marine Corps veteran, is working on a book about the social mobility of the white working class.