Land of Opportunity?

Clive Crook agrees with Paul Krugman that a recent WSJ editorial on income mobility doesn't tell us much. He also compares income mobility in the U.S. to mobility in other countries:

Land of opportunity, by Clive Crook: The Wall Street Journal's editorial writers are impressed by a new study on income mobility ... I would call this a case of being prematurely stunned. Studies of this kind always and everywhere show people rising out of lower quintiles and dropping out of higher ones... By themselves these numbers tell you very little about the life-chances of people who are born poor compared with the life-chances of people who are born rich (mobilty)...

Changes over time in the ratios tell you more. The WSJ notes that the study finds no great change in relative income mobility over the past ten years. But, ... international comparisons are what you need to test the view that the United States really is the land of opportunity, as compared with other places. What do those comparisons say? Thank you for asking:

Most researchers now give America much lower marks than they used to for intergenerational economic mobility... As flaws in early postwar studies have been addressed, estimates of mobility have fallen. Before the 1990s, researchers tended to put the correlation between parents’ incomes and their children’s at around 20 percent, implying a high degree of mobility between generations. (Zero would imply no connection at all; a correlation of 100 percent would imply that parents’ incomes entirely determined the incomes of their children.) In the 1990s, using better data and techniques, experts tended to put that figure at about 40 percent. Recent estimates run as high as 60 percent. The finding is not that mobility has fallen since World War II—the studies point to no clear trend. It is that as methods of measuring mobility have improved, the result, across a span of recent decades, has gotten worse. The earlier view that postwar America was an economically mobile society is less and less borne out. Perhaps it was once (before data became available to track such things accurately); but it isn’t now.

More telling, maybe, is the international comparison. America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all of the Scandinavian countries, and possibly even Germany and Britain (the data are imperfect, and different studies give slightly different results).

Strikingly, the research suggests that mobility within America’s middle-income bands is similar to that in many other countries. The stickiness is at the top and the bottom. According to one much-cited study, for instance, more than 40 percent of American boys born into the poorest fifth of the population stay there; the figure for Britain is 30 percent, for Denmark just 25 percent. In America, more than in other advanced economies, poor children stay poor. Other data show that in America, more than in, say, Britain, rich children stay rich as well.

Comments

[save_the_rustbelt]

Just a hunch, but I think mobility within the US may vary more by geography than perhaps in the past, as the economy becomes more regional.

[lonesome moderate]

Does anyone here subscribe to the Atlantic Monthly? I wonder if the answer to Save the Rustbelt's (very good) question might lie behind their firewall, in Crook's original column.

[reason]

str...
But aren't people in the US PHYSICALLY more mobile than in other countries?

[anne]

http://krugman.blogs.nytimes.com/2007/11/14/a-republican-dilemma/

November 14, 2007

A Republican Dilemma
By Paul Krugman

Michael Gerson says * that Republicans need to face up to the problem of declining social mobility. But he doesn’t say anything about what they should propose.

Meanwhile, the Wall Street Journal insists * — based on misleading statistics — that social mobility is just great. And of course the Journal has to say that — because taking inequality and declining social mobility seriously would mean questioning the central dogma that tax cuts solve all problems.

Someday, the GOP will abandon that dogma, and do once again what it did in the Eisenhower era: make its peace with the welfare state. But now this election, and probably not until the GOP has suffered a series of major election defeats.

* http://www.washingtonpost.com/wp-dyn/content/article/2007/11/13/AR2007111301834.html?hpid=opinionsbox1

** http://krugman.blogs.nytimes.com/2007/11/13/the-wsj-goes-green/

[anne]

Correction to Paul Krugman's comment:

"Someday, the GOP will abandon that dogma, and do once again what it did in the Eisenhower era: make its peace with the welfare state. But [not] this election, and probably not until the GOP has suffered a series of major election defeats."

[Patrick Trombly]

Ah the 'ginni index' canard. It's the same canard whether discussing America vs a more progressively-taxed country or America now vs America when we were more progressively-taxed. Simply put, there's more relative mobility when you limit the ability to move up in the absolute.

The gap between 70th and 20th percentile, in terms of real income, is much greater now in America than it is now in Europe or was in America a generation ago.

And the gap continues to widen faster in the US than it did and than it does in Europe - not because 70th moves down in absolute terms but because 20th moves up faster.

Thus, to go from 70th to 20th in the US requires a bigger jump in your inflation-adjusted income than it used to and than it does in Europe - yet, people are doing it at the same rate they used to and at the same rate they do in Europe.

In other words, your odds of increasing your real income by $20K in the US are the same as your odds of increasing your real income by $8K in Europe......

Where would you rather be?

[Mark Thoma]

If you want people to think you know what you are talking about (though I can't see any reason why they should), you might try spelling Gini correctly.

[Alan]

Note that the study referenced by the WSJ dealt with personal mobility, while Crook writes of intergenerational mobility. I am dubious about the WSJ position -- that a 25-year old's income goes up over ten years does not seem to me to show much about mobility. On the other hand, the studies of intergenerational mobility have to come up with an appropriate operational definition. That's not easy -- are we talking aobut personal or household incomes? at what point in life? suppose the parents got divorced? is the income of step-parents counted? Some of the studies I have read compare fathers' (imputed) "permanent income" with that of sons, but this approach is obviously limited.

[gordon]

The Wall St. Journal has been here before. So has the New York Times. At moments like these I tend to go and re-read Aaronson & Mazumder (2005), which I think is still a good starting point.

It's notable that the Pew Centre is doing a project on inequality, too.

The situation will not be improved (particularly in the US and the UK) with the sort of child care revealed by the UNICEF Report Card which came out earlier this year.

[Patricia Shannon]

We also don't know whether the government numbers have been deliberately falsified or distorted, as they have done in so many other instances.

Just in the past week, a person who worked for a government agency in the last five years told me of how the agency deliberately managed the processing of financial information forms to make the government economy look better. I can't get more specific, because my source asked that I not do so, in case they want to work there again, so I can't specify whether it was federal, state, county, or city, or what department. But it's a safe assumption that it is not the only case.

[Jim]

Is this a measurement of mobility or ability? Home and family count for something.

[MadJock]

Patrick

Where did you pull those numbers from? You seemed to pull those $20k and $8k numbers from nowhere.

As a Brit living in the US I'll throw in my reasons for why mobility is better in Europe than the US:

Better Primary and Secondary education that is less based on where you live (i.e. how rich you are) Not perfect, but better.

Free or low cost tertiary education that is as good as the US university system (or better in many cases). The knowledge that unless you take a law or business degree you'll never pay off your debts is not a concern - people can work where they want/excel.

Free health care and preventive services. Check out the infant mortality rate in the US and Europe. Same for childhood illnesses. Rich Americans do well. Poor Americans do terribly. Hard to study when you are sick all the time.

No stress related illnesses from worrying if medical insurance will cover you.

Freedom to move jobs/start a company without fear of losing medical coverage for yourself or family.

Effective public transport. Easy access to a wider range of employers and educators at low cost. No need to own a car to be economically viable.

A tax system that gives higher personal exemptions and lower starting tax rates to give people at the bottom a fairer shot at getting started.

Centuries more experience that money left in the hands of the idle rich becomes destructive. Make the spawn of rich people work for their cash over the first few million, and level the playing field a bit more for everyone else.

And I'd not tell a European about payment in dollars, they may laugh at you as they know exactly what a dollar is worth these days.....

Finally, to whoever asked about mobility in Europe: It depends on the country. Britons are highly mobile within Britain and internationally, Eastern Europeans are spreading everywhere, Germans tend to stay at home.

[gordon]

Sorry, forgot to mention Corak's paper Do Poor Chilcren become Poor Adults?

http://ftp.iza.org/dp1993.pdf

[reason]

MadJock,
did you know that there is a very popular TV series in Germany about people who have emigrated. And that Germany is concerned about the level of emigration (actually ESPECIALLY of young doctors to the UK). I think your information is dated.

[MadJock]

I do business in Germany regularly and meet with Germans all the time. They are emigrating more, but the base level was so small it's still negligible. I haven't seen any evidence that it's significantly larger - if anyone has such data I'd be interested to see it. Germans don't even want to move within Germany. And the Austrians are worse......

[calmo]

Good to see your tag again, Madjock. So sticky prices are nothin after you've come face to face with a real German? These nationalist sentiments, this premium on "the homeland"...I wonder how much they have to do with language, the actual vernacular? Izit the same as pining for your childhood...when things were more fun and you were so much larger and that environment so much more intimate?
Ok, cm who posts here regularly, is a non-sticky German who might have something to add.

[MadJock]

Good to see you too calmo. I have been lurking constantly, but a heavy workload prevents any regular postings.

I think post-WWII Germany very quickly became such a good place for work, and for unemployment benefits when out of work, that why would anyone ever move away?

The UK on the other hand had some turbulent years and the declining Empire made people look abroad for opportunities. The native English speaking benefit, relatively easy emmigration to Commonwealth and colonies, combined with all the benefits noted above, meant moving abroad could result in a substantial increase in standard of living for a Briton of above average capability or drive.

These days, the gulf is narrow, and I'm now seeing jobs back in the UK I could apply for that pay more than the US equivalent. I have reasons to stay in California for another 1 to 2 years, but after that it is highly likely I will return to the UK as economic conditions appear better for me there. That of course may change but if I were an American, I'd find it very disturbing how much lead the US has lost in 10 short years.