Examining inequality and mobility: New research raises, answers questions; Economic growth & education help workers advance

Income inequality and upward mobility continue to drive policy debates, particularly in the wake of new research from economist Raj Chetty and colleagues. Last January, we wrote about the tension inherent in the inequality/mobility debates, citing some contemporary survey research. (We also addressed the subject here and here.)

The politics of inequality can be, as we’ve seen, divisive and fraught with unintended consequences. It’s encouraging to see that most Americans favor the more unifying and optimistic policy roadmaps that focus on stimulating upward mobility and expanded opportunities. That’s the roadmap set out in our priorities for prosperity: education (Achieve), transportation (Connect) and Employ (economic vitality).

Chetty’s new research reaches a provocative conclusion:

We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s.

We’ll get to some of the analysis that we find more hopeful and more helpful. But let’s first consider how the findings are being viewed.

Brookings Institution analysts Dimitrios Halikias and Richard V. Reeves take the conclusion and run with it, offering this depressing graph (fortunately, there’s reason to believe it overstates the trend).

mobility

 

They write,

It is hard to overstate how dramatic these findings are. If only one in two Americans are better off, in real terms, than their parents, it is not hyperbole to wonder about the death of the American Dream. 

And, pointing to what’s sure to drive a lot of debate in the coming months, they note,

There are two possible factors for the decline in mobility: slower overall economic growth or greater inequality. Both of these have a role to play, but the findings suggest that rising inequality explains the lion’s share of the decline in mobility.

That perspective will likely again focus attention on mistaken policies to combat inequality rather than policies that promote upward mobility. 

Economist Scott Winship, writing at The Foundation for Research on Equal Opportunity, closely examines the Chetty analysis and offers a compelling alternative interpretation. 

I began reading the new Raj Chetty paper—what Richard Reeves calls the “new Chetty bomb”—not wanting to believe it, because it shows a large drop in absolute social mobility. But I also suspected that it might be right.

Partly, that’s because the Chetty team has done such great work on mobility previously. But I also knew that income growth unambiguously has slowed since the 1960s. That’s very different from saying that incomes have declined, which they’ve not. But the rate at which our living standards have improved has diminished.

We recommend reading Winship’s paper in its entirety (it does get a bit data-dense). Here, though, are some significant conclusions he reaches. 

So I’m pretty confident the trend in the Chetty paper is right. I have two beefs with the paper, however. First, because it is about the trend, the authors are less focused on getting the level of absolute mobility right in any given year. That’s unfortunate because much of the media coverage focused on the paper’s finding that just half of today’s 30-year-olds are doing better than their parents. That’s almost certainly an underestimate…

For adults who were poor children, absolute mobility rates almost certainly remain above 90 percent. This is hardly evidence that the American Dream is “fading,” as the paper’s title claims. The period from 1939 to 1969 was one of exceptionally strong income growth. That growth translated into very high absolute mobility rates. Income growth has slowed since then, though it has not reversed. Thus, absolute mobility rates have fallen, though most people still do better than their parents did at the same age.

His analysis of the data, assumptions and adjustments suggests a true mobility rate of about two-thirds, more consistent with previous research.

And,

Chetty and his coauthors succumb to inequality alarmism when they say, “higher GDP growth itself cannot increase absolute mobility unless it is more broadly distributed.” Their own analyses show that if we’d had the growth rates of the 1940, 1950s, and 1960s while inequality grew as it did, absolute mobility for the 1980 birth cohort would have been 62 percent instead of 50 percent. And as noted above, these levels are underestimates of absolute mobility levels. A 12-point increase in absolute mobility from stronger growth would raise a 65 percent true mobility rate to 77 percent.

…Absolute mobility remains robust, especially for poor kids. Americans are as rich as they’ve ever been. Faster economic growth would improve income growth and absolute mobility without obvious risks to the economy. Reducing inequality might increase absolute mobility too. In particular, there may be growth-promoting policies that reduce inequality by, for instance, reducing crony capitalism or expanding competition. Those policies are worth pursuing because they would promote growth, not because they would reduce inequality per se.

Most of all, what we need is a conversation nuanced enough to recognize that there are tradeoffs to achieving perfect mobility rates and there are some social and economic changes that we cannot alter via policy.

The Opportunity Priorities for Shared Prosperity identifies policies that will contribute to greater economic growth, more widely distributed within the state, and at the same time make sure Washington students and workers have access to the education required to participate fully in the expanding economy. Economic growth and education, together, offer the best promise of reducing poverty and increasing upward mobility. That must continue to be our policy objective.