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US mobility falls as inequality rises
February 16, 2012, Thursday
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THE widening income gap has become a controversial issue in the United States, as liberals decry the decline of the middle class and conservatives argue that a healthy market economy must reward effort, enterprise and risk taking. But on the related issue of economic mobility, or individuals' ability to move up the income ladder, most people appear to agree: Upward mobility is good.
Indeed, conservatives often cite economic mobility as the reason not to worry about widening income inequality. As long as people can rise, it doesn't matter that some are very rich and others are many rungs below: Economic mobility means people are not trapped where they started.
But a growing body of evidence shows that economic mobility is not as attainable in the United States as many people think. Moreover, various studies show that economic mobility declines as income inequality increases, indicating that in coming years, it could become harder for people to move from poverty to the middle class, or from the middle class to the top.
Less mobile
"Recent studies suggest that there is less economic mobility in the United States than has long been presumed," concludes a study by The Economic Mobility Project, conducted by The Pew Charitable Trusts, The American Enterprise Institute, The Brookings Institution, The Heritage Foundation and The Urban Institute.
"The last 30 years have seen a considerable drop-off in median household income growth compared to earlier generations. And, by some measurements, we are actually a less mobile society than many other nations, including Canada, France, Germany and most Scandinavian countries. This challenges the notion of America as the land of opportunity."
What drives economic mobility? "I believe that one of the great historical advantages of the United States has been the remarkable mobility of the US workforce," says Wharton finance professor Richard J. Herring, referring to workers' ability to move from one location to another to pursue jobs, education and other opportunities for a better life. The chance to rise is key to workers' willingness and ability to move, he argues.
"Historically, this may have come from our origins as a land of immigrants who came to the US to seek a better life and the opportunity to move West whenever economic conditions declined in the East," Herring adds. "It also had much to do with expenditures on public education.... This traditional strength has diminished in recent years, for both transitory and secular reasons."
Economic mobility involves two measurements, notes Wharton finance professor Nikolai Roussanov. First is "absolute" mobility, or the wealth of children compared to their parents. Then there is "relative" mobility, the ability of children to rise to a higher economic position than their parents occupied, as when children of the poor rise to the middle class.
Circumstances of birth
While both types of mobility are important, relative mobility is especially revealing because it shows the extent to which people are trapped by circumstances of birth or are able to rise relative to others.
The Economic Mobility Project study argues that relative mobility determines whether a country has a "meritocratic" society where people rise on effort, a "fortune cookie" society where status depends on luck, or a "class-stratified" society where children tend to end up in the same position as their parents.
Americans have historically viewed theirs as a meritocracy, but data shows that is not necessarily the case. "Most studies find that, in America, about half of the advantages of having a parent with a high income are passed on to the next generation," the Economic Mobility Project study concludes. "This means that one of the biggest predictors of a child's future economic success -the identity and characteristics of his or her parents - is predetermined and outside the child's control."
Clearly, prosperous parents can provide their children with good education and other advantages that are typically not available to people in lower income brackets. While some children of means will fail because of laziness, lack of talent or bad luck, the average person benefits from the initial leg up.
Measuring inter-generational economic mobility by comparing the child's income to the parents', the Economic Mobility Project study finds that Americans are slightly more mobile than people in the United Kingdom, but less so than residents of France, Germany, Sweden, Canada, Finland, Norway and Denmark. In the latter four countries, people have two to three times the economic mobility of Americans.
The article is adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original version, please visit: http://bit.ly/zh3hnd
Indeed, conservatives often cite economic mobility as the reason not to worry about widening income inequality. As long as people can rise, it doesn't matter that some are very rich and others are many rungs below: Economic mobility means people are not trapped where they started.
But a growing body of evidence shows that economic mobility is not as attainable in the United States as many people think. Moreover, various studies show that economic mobility declines as income inequality increases, indicating that in coming years, it could become harder for people to move from poverty to the middle class, or from the middle class to the top.
Less mobile
"Recent studies suggest that there is less economic mobility in the United States than has long been presumed," concludes a study by The Economic Mobility Project, conducted by The Pew Charitable Trusts, The American Enterprise Institute, The Brookings Institution, The Heritage Foundation and The Urban Institute.
"The last 30 years have seen a considerable drop-off in median household income growth compared to earlier generations. And, by some measurements, we are actually a less mobile society than many other nations, including Canada, France, Germany and most Scandinavian countries. This challenges the notion of America as the land of opportunity."
What drives economic mobility? "I believe that one of the great historical advantages of the United States has been the remarkable mobility of the US workforce," says Wharton finance professor Richard J. Herring, referring to workers' ability to move from one location to another to pursue jobs, education and other opportunities for a better life. The chance to rise is key to workers' willingness and ability to move, he argues.
"Historically, this may have come from our origins as a land of immigrants who came to the US to seek a better life and the opportunity to move West whenever economic conditions declined in the East," Herring adds. "It also had much to do with expenditures on public education.... This traditional strength has diminished in recent years, for both transitory and secular reasons."
Economic mobility involves two measurements, notes Wharton finance professor Nikolai Roussanov. First is "absolute" mobility, or the wealth of children compared to their parents. Then there is "relative" mobility, the ability of children to rise to a higher economic position than their parents occupied, as when children of the poor rise to the middle class.
Circumstances of birth
While both types of mobility are important, relative mobility is especially revealing because it shows the extent to which people are trapped by circumstances of birth or are able to rise relative to others.
The Economic Mobility Project study argues that relative mobility determines whether a country has a "meritocratic" society where people rise on effort, a "fortune cookie" society where status depends on luck, or a "class-stratified" society where children tend to end up in the same position as their parents.
Americans have historically viewed theirs as a meritocracy, but data shows that is not necessarily the case. "Most studies find that, in America, about half of the advantages of having a parent with a high income are passed on to the next generation," the Economic Mobility Project study concludes. "This means that one of the biggest predictors of a child's future economic success -the identity and characteristics of his or her parents - is predetermined and outside the child's control."
Clearly, prosperous parents can provide their children with good education and other advantages that are typically not available to people in lower income brackets. While some children of means will fail because of laziness, lack of talent or bad luck, the average person benefits from the initial leg up.
Measuring inter-generational economic mobility by comparing the child's income to the parents', the Economic Mobility Project study finds that Americans are slightly more mobile than people in the United Kingdom, but less so than residents of France, Germany, Sweden, Canada, Finland, Norway and Denmark. In the latter four countries, people have two to three times the economic mobility of Americans.
The article is adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original version, please visit: http://bit.ly/zh3hnd
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