JustOneMinute: US Economic Mobility Not Declining?

US Economic Mobility Not Declining?

Some progressive-approved economists upset the narrative; in a further surprise, the NY Times provides coverage:

Upward Mobility Has Not Declined, Study Says

The odds of moving up — or down — the income ladder in the United States have not changed appreciably in the last 20 years, according to a large new academic study that contradicts politicians in both parties who have claimed that income mobility is falling.

Both President Obama and leading Republicans, like Representative Paul Ryan, have argued recently that the odds of climbing the income ladder are lower today than in previous decades. The new study, based on tens of millions of anonymous tax records, finds that the mobility rate has held largely steady in recent decades, although it remains lower than in Canada and in much of Western Europe, where the odds of escaping poverty are higher.

But the crisis continues!

“The level of opportunity is alarming, even though it’s stable over time,” said Emmanuel Saez, another author and a professor at the University of California, Berkeley. Mr. Saez and Mr. Chetty are both recent winners of an award for the top academic economist under the age of 40.

Mr. Saez is half of the Pikkety-Saez duo that has run out the income-tax based income inequality data, the limitations of which are noted by Greg Mankiw here and (in a fascinating paper) here.

Some results:

The study found, for instance, that about 8 percent of children born in the early 1980s who grew up in families in the bottom fifth of the income distribution managed to reach the top fifth for their age group today. The rate was nearly identical for children born a decade earlier.

Among children born into the middle fifth of the income distribution, about 20 percent climbed into the top fifth as adults, also largely unchanged over the last decade.

To compare their results to those for earlier decades, the authors noted that a previous study of children born from 1952 to 1975 — by Chul-In Lee and Gary Solon — found broadly similar and steady levels of mobility. Taken together, the studies suggest that rates of intergenerational mobility appeared to have held roughly steady over the last half-century, Mr. Chetty said.

...

The new study is based on a much larger data set than previous work. The earlier papers had to rely on surveys, while the latest paper examines the tax records, stripped of identifying details, of nearly every American born in a given year.

The article delivers the inevitable comparison to Europe:

Today, the odds of escaping poverty appear to be only about half as high in the United States as in the most mobile countries like Denmark, Mr. Saez said.

Since the results are stable my rebuttal from eleven long years ago is probably stable - Denmark has a much flatter distribution of wealth and income, so skipping amongst the quintiles may be merely a matter of gaining or losing a few thousand dollars of income.

Posted by Tom Maguire on January 23, 2014 | Permalink