A new working paper by economists Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner discusses changes in intergenerational economic mobility for people born between 1971 and 1993. The headline finding is that, when taken nationally, the economic mobility within the United States has been both stable and low throughout this timeframe, though there are large regional variations. I’m still drilling into the newly released data but I wanted to make a few comments about some of the initial discussion around their findings.
American Enterprise Institute blogger James Pethokoukis argues that this “shows the 1% didn’t kill the American dream.” Other commentators have made similar arguments about economic inequality not impacting economic mobility. These claims are not supported by the research and I will respond in four parts.
First, economic inequality has not been the only factor changing over the last forty years. In an interview on the PBS News Hour on Friday, Raj Chetty suggests “…significant improvements in civil rights, expanded access to higher education, and a number of other anti-poverty efforts that might have offset that detrimental effects of other forces in the economy.” And, my colleague, Heather Boushey, specifically highlighted economic growth. From 1971 to 1993, U.S. real Gross Domestic Product increased from $5.0 trillion to $9.7 trillion (accounting for population growth, the real per-capita Gross Domestic Product grew by 54% in the same time period). So an alternate framing of this story would be that the U.S. economy nearly doubled in size but mobility did not budge. In the context of rising inequality, having economic growth without economic mobility starts to make more sense. But, while growing inequality offers one explanation for the lack of an increase in mobility, careful study is needed.
Second, while the inequality-naysayers are correct that the amount of income going to the top 1% is not strongly correlated to changes in economic mobility as measured by quintiles, that is kind of like someone on CSI using a regular flashlight (instead of a black-light flashlight) to say there is no DNA at a crime scene. By definition, the top 1% of the national distribution is only one-twentieth of the top quintile. Thus, it is not surprising that the changes in quintile measures of mobility are not consistently statistically significant as a function of the income captured by the top 1%. The mobility data pooled by quintiles are too coarse to detect these effects in most cases.
Third, unlike the measure focusing on the top 1% of the income distribution, other measures of economic inequality included in the data are provided in quartiles (e.g. the size of the middle class and the income gap between the lower middle class and the upper middle class) and are more useful to examine the quintile measures of upward mobility. Using the initial set of data from the Equality of Opportunity Project, the quartile measures of inequality were strongly associated with their measures of economic mobility that are based on quintiles.
Finally, if the economy has grown substantially since 1971 and economic mobility has stagnated as evidence suggests, it should not be surprising that economic inequality has risen. That is to say, it is possible the causality runs from low mobility to higher inequality. The difficulty of people rising above their birth lottery coupled with the economic growth being captured by the highest earners could be leading to growing inequality. It is notoriously difficult to establish causality, but more research into these relationships is needed.
The detailed analysis by the Equality of Opportunity Project team provides a textured look at the U.S. that deserves serious study rather than glib remarks passing as analysis. Low mobility in spite of growth is threatening America’s future as the land of opportunity. We should focus more of our efforts on understanding what makes economic growth more equitable so that future generations will see increased economic mobility. That is what we at the Washington Center for Equitable Growth hope to explore.
Carter Price is a Senior Mathematician at the Washington Center for Equitable Growth.