Upward Mobility Has Not Declined, Study Says

New York Times, January 23, 2014

By David Leonhardt

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.

Raj Chetty, a professor of economics at Harvard and one of the authors, said in an interview that he and his colleagues still believed that a lack of mobility was a significant problem in the United States. Despite less discrimination of various kinds and a larger safety net than in previous decades, the odds of escaping the station of one’s birth are no higher today than they were decades ago.

Raj Chetty, one of the authors, said he thought problems still existed. Evan McGlinn for The New York Times

The results suggested that other forces — including sharply rising incomes at the top of the ladder, which allows well-off families to invest far more in their children — were holding back talented people, the authors said.

“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.

The study has the potential to alter the way Mr. Obama and other public figures talk about mobility trends.

“The facts themselves are pretty unassailable,” said David Autor, an economist at the Massachusetts Institute of Technology who has read the paper, which the authors will soon submit to an academic journal. “How you want to interpret them is the question.”

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.

Another earlier study — of the late 19th century, by Joseph P. Ferrie — suggested that mobility was higher then in the United States than in England, Mr. Autor noted. Sometime after the 1920s, though, social mobility in the United States appeared to have declined, the Ferrie study found.

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.

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 subject of mobility has become politically popular, as Democrats make the case that the affluent are choking off opportunity from others, and Republicans contend that a large, intrusive government is the culprit.

In a December speech at the Center for American Progress, Mr. Obama said, “The problem is that alongside increased inequality, we’ve seen diminished levels of upward mobility in recent years.” Mr. Ryan, the chairman of the House Budget Committee and a Republican vice-presidential nominee, argued in a speech at the Brookings Institution last week that a smarter, smaller government would allow the country to “get back to those days of upward mobility.” The new study focused on a measure known as relative mobility, which tracks where people end up in a national ranking of incomes compared with where they started. If a child ends up in roughly the same place in the income distribution as his or her parents, even if the country as a whole becomes richer, he is not considered to be especially mobile.

But even a second measure — absolute mobility, which examines people’s annual incomes relative to their parents’ — produces a mixed picture.

Absolute mobility has continued to improve in recent decades because incomes have risen; median family income is about 12 percent higher today than in 1980, adjusted for inflation. As a result, most adults today have more income at their disposal than their parents did at the same age.

Yet the growth rate of absolute mobility has slowed, as economic growth has slowed to a disappointing level over the last 15 years. The incomes of middle-class and poor families have slowed even more sharply, because a large share of recent economic gains have gone to a small slice of affluent workers — often described in political shorthand as “the 1 percent.”

Besides Mr. Chetty and Mr. Saez, the other authors of the study are Nathaniel Hendren of Harvard; Patrick Kline of Berkeley; and Nicholas Turner of the Office of Tax Analysis, at the Treasury Department.

As part of the same project, some of the same researchers released a study last summer showing that the odds of escaping poverty in some parts of the United States were much higher than in others.

In the most mobile metropolitan areas, such as Salt Lake City and San Francisco, mobility rates are similar to those in western Europe. In the least mobile areas, including Atlanta, Charlotte and much of the industrial Midwest, the odds are much lower.

The variation, Mr. Saez said, offers hope that researchers will be able to learn more about the factors that contribute to upward mobility.

For all the continuity over recent decades, the authors emphasized that parents appeared to cast a longer shadow over their children’s lives, in some ways, than before. As inequality has risen, pushing the rungs on the income ladder further apart than they once were, the average economic penalty of being born poor has grown over time.

“It matters more who your parents are today than it did in the past,” Mr. Chetty said.

 

Original Article