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How much social mobility for America? More, but it won’t happen without inclusive growth

October 24, 2016
shania-twain

Shania Twain, the legendary country-pop music star, personifies the “rags to riches” mobility at the core of the American Dream, and what’s so amazing she’s not even American. (Click image to read her bio.)

A common way to think about social mobility is in terms of “rags to riches” movement, a type of mobility that is central to the great defining metaphor of the United States, “The American Dream.” Indeed, policy makers often frame their discussion of social mobility in these terms, as for example in a May 2016 speech by the Chairman of the Council of Economic Advisers.

Upward movement is a natural way to think about social mobility, and Americans should have more of it. But this won’t happen without lowering the chances of intergenerational cycles of poverty, and promoting inclusive economic growth.

A one-in-five chance of moving from rages to riches is a natural benchmark for judging whether social mobility is too low

If our statistics are framed in terms of a five-fold division of parents and children depending upon rankings in their respective income distributions, then the natural benchmark in judging whether or not social mobility is high enough would be a one-in-five chance of moving from rags to riches.

If there were no relationship at all between parent and child incomes, then each child would face an equal probability of standing on a particular rung of a five-rung income ladder regardless of the rung upon which their parents stood. Whether your parents were in the bottom fifth, or in the top fifth, or anywhere in between, the probability you will end up at the top—or for that matter in any of the five slices of the income distribution—would be 0.2.

One-in-five chances should not be thought of as optimal, or as a goal for public policy, but rather as a first cut for appreciating whether mobility is as high as we could possibly imagine, or extraordinarily low.

And another important thing to keep in mind is that these probabilities need to add up in a precise way: the chances of moving from the bottom to the top can’t keep increasing and increasing without some give at the top, requiring downward mobility for those who started life in the top 20 percent.

Just as in the tale of Garrison Keillor’s fictional hometown of Lake Wobegon, where “all the children are above average,” there is an adding-up constraint that prevents more than one-fifth of the population being in the top 20 percent!

In other words, we are being forced to think of social mobility entirely in relative terms, which is both a strength and a limitation. It is a strength by clarifying that the chances of moving up are interconnected with those of both being stuck in the bottom, and of falling out of the top. Richard Reeves of The Brookings Institution skillfully relates this perspective.

Intergenerational cycles of poverty put limits on upward mobility

There is more give if we look at sub-national geographies, the transition probabilities governing position in the national income distribution for children raised in particular communities. The interlocking relationship between the probabilities of moving between income ranks is looser the smaller the level of geography.

Some communities may experience significant economic growth that will lift their children up the national rankings, while other communities may better prepare them to move and seize opportunities elsewhere. The upshot is that there can be significant differences in rags to riches movement, and intergenerational cycles of poverty and privilege across regions of the country. But also, for any particular community upward mobility from the bottom need not be tightly constrained by little downward mobility from the top.

rags-to-riches-social-mobility

The chances of moving from the bottom fifth to the top fifth of the income distribution for children raised in each of over 700 Commuting Zones are not constrained by intergenerational cycles of privilege, but are lower the great the chances of cycles of poverty. (Click on image to enlarge.)

 

These sub-national indicators of social mobility are available at the level of Commuting Zones from the online tables accompanying the paper by Raj Chetty and his colleagues published in 2014. They are depicted in above figure.

The left panel showing in the vertical direction the probabilities of a movement to the top fifth for children raised by bottom-fifth parents—labeled as “Rags to Riches”—against the probabilities of staying in the top for children raised by top-fifth parents, labeled as the intergenerational “Cycle of Privilege.”

The right panel again plots the bottom-to-top probabilities, but this time against the probabilities of staying in the bottom for children raised by bottom-fifth parents, the intergenerational “Cycle of Poverty.”

The horizontal and vertical dashed lines are drawn at 0.20 for reference, and the general tendencies in the relationship between the indicators are summarized by the curved lines.

The first thing to note is the pervasiveness of intergenerational cycles of privilege and poverty. Virtually all Commuting Zones show a greater than one-in-five chance of staying in the top given top-earning parents. Basically, no matter where you live in the United States, the most likely way to get to the top is to start at the top.

This kind of intergenerational stickiness is mirrored at the other end of the income distribution: more than 90% of these communities have bottom-to-bottom probabilities greater than 0.2, with the chances of an intergenerational cycle of poverty being greater than one-third in over 40% of these more than 700 communities.

These two facts are the foundation of my call for more social mobility. They set the bounds for upward mobility of the least advantaged.

In fact, it is rare that the chance of moving from bottom to top is higher than one-fifth. This is the case in only 22 Commuting Zones, and less than one-in-seven have a probability above 0.15. That there is a pretty clear negative relationship between “rags to riches” and “intergenerational poverty” should not be a surprise.

This tells policymakers that promoting broad-based social mobility is about more than just an efficient cream-skimming of the most innately talented children of the least-advantaged parents. It has to involve raising the chances of escaping low-income across this entire population of relatively disadvantaged.

Absolute mobility and inclusive growth promote social mobility

At the same time, it is important to note that, perhaps surprisingly, there isn’t a strong negative relationship between “rags to riches” and “intergenerational privilege.” Just the opposite.

the-us-labor-market-american-enterprise-institute

The top echelon has not been cornered by the children of the rich. Many communities with rather strong stickiness of high status across generations are also communities with higher movement into the top from the bottom. As the chances of intergenerational privilege rise above about one-third, the chances of upward mobility from the bottom tend to be higher, not lower.

This tells policymakers that not everything about social mobility has to do with relative standing. Some communities offer children a start in life that allows them to benefit from strong growth of absolute incomes.

For children from these communities economic growth proves to be an upward escalator not just for those with an advantaged family background, but also the well-placed children of the least advantaged who are also able to ride this escalator to higher incomes, and hence higher rank.

For many this most likely means moving to other communities with higher growth rates and more economic opportunities. Being forced to think of social mobility entirely in relative terms is a limitation in the sense that it does not fully capture the role of absolute income mobility in both our sense of well-being and as a lubricant for relative mobility.

[ This post is an extract and slightly adapted version of my contribution to a book edited by Michael R. Strain, and published by the American Enterprise Institute under the title: The US Labor Market: Questions and Challenges for Public Policy. You can download the entire book from http://www.aei.org/publication/the-us-labor-market-questions-and-challenges-for-public-policy/ ]

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One Comment
  1. I’ll say “hear hear!” to all the above!.

    Quote: “A one-in-five chance of moving from rages to riches…” I believe the customary expression is “…rags to riches…” – but on the other hand you could say that there are a lot of rages coming from people “…in rags…”. Not surprisingly!

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