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Why We Should Wage a War on Immobility Instead of Inequality

Scott Winship | 01/16/2014 |

With long-term unemployment historically high and still-pervasive economic insecurity in the wake of the Great Recession, it is understandable that many Americans have grown more concerned about the nation’s levels of inequality. Too many families struggle in poverty, too many workers have given up on finding fulltime work, and too many young adults have graduated into a weak economy that will lower their lifetime earnings.

At the same time, it is important to note that it is the fragility of the economy that lies behind concerns over inequality. Inequality was high and rising during the late 1990s, but because the growing economy was largely benefitting everyone, few people were worried about income concentration at the top. 

In long-run perspective, living standards have improved for the poor and middle class even as income inequality has grown. And contrary to claims that rising income inequality has hurt inequality of opportunity, the evidence of a link between the two is weak. 

Income inequality within the bottom 80 percent of households has grown only modestly, primarily during the 1980s, and hardly at all since then. Indeed, a wealth of research, including by the Congressional Budget Office, indicates that earnings and income inequality between the middle class and poor have not risen since the mid-to-late 1980s. 

Nor can the modest rise in middle-poor inequality be attributed to income stagnation: average income in the middle fifth rose 66 percent between 1969 and 2007 and 55 percent in the bottom fifth. It is true that this growth was much slower than in the 1950s and ‘60s, but there is little reason to think that the slowdown should be attributed to rising income concentration. The slowdown began in the 1970s before income concentration started to take off.

Even when it comes to income concentration at the top, there are good reasons to believe that the increase has been overstated, especially since the 1980s. The oft-cited estimates of Thomas Piketty and Emmanuel Saez and of the Congressional Budget Office are problematic for a number of reasons. Earnings concentration estimates from another paper by Saez are less so and show that the top one percent’s share rose only from 11 percent to 13 percent between 1989 and 2004 (versus 14 to 20 percent in the Piketty-Saez data). A careful recent paper coauthored by economist Richard Burkhauser found that household income concentration at the top fell between 1989 and 2007.

Not only has income inequality not grown as much as many suggest, but intergenerational mobility has probably not declined much—if at all—in the past three decades. To be clear, no research shows a sizable increase in mobility since the mid-twentieth century, but the most common finding is a change so modest (up or down) as to be statistically indistinguishable from no change at all. In my own forthcoming research, I find that today’s thirty year olds have experienced no less mobility than did thirty year olds in the mid-1970s.

Faced with such an unsupportive research base, some proponents of the view that inequality has hurt mobility have turned to cross-national evidence, a line of argument that culminated in the Obama Administration’s popularization of the “Great Gatsby Curve.” This chart, showing a strong statistical relationship between countries’ inequality levels and the extent of mobility their citizens enjoy, is problematic as evidence for a number of reasons. But the most damning shortcoming is that it uses a measure that by construction produces lower mobility when the growth in inequality is greater than in other countries. 

Recent research by economist Miles Corak, the originator of the Great Gatsby Curve, measures mobility by focusing on the relationship between parent and child income rankings, so that differences in inequality between nations do not mechanically affect mobility comparisons. Corak finds that Sweden and the United States have the same mobility levels by this measure. These two countries had the lowest and highest levels of inequality, respectively, in the Great Gatsby Curve. The implication is that there may be no cross-national relationship between inequality and mobility when the relationship is not baked in mechanically.

While upward mobility has not diminished over time, and while it has not been hurt by rising income inequality, it has nevertheless been stuck at unacceptably low levels for decades. If past patterns hold, 70 percent of poor children today will fail to make it to the middle class as adults. Four in ten will be mired in poverty themselves in midlife.

These are not the kind of odds those of us solidly in the middle class would accept for our children. The American Dream is in poor health if children who grow up in the bottom can aspire only to fill the same sorts of jobs as their parents hold.

The challenge is to identify real solutions to the problem of limited upward mobility. Fifty years after Lyndon Johnson’s declaration of war on poverty, we should establish a second front against immobility. Attacking inequality, however, is unlikely to mitigate either problem.

 

Scott Winship is the Walter B. Wriston Fellow at the Manhattan Institute for Policy Research. You can follow him on Twitter here.

This article is adapted from a Congressional Statement before the Joint Economic Committee. Read the full statement here.


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