Income Inequality and Income Mobility Go Hand in Hand

Income Inequality and Income Mobility Go Hand in Hand

I have previously written about the stunning state of income inequality in America. Two necessary ingredients of Americanism — meritocracy and momentum — are missing in America today. This article looks the relationship between income inequality and income mobility.

We define income inequality as the extent to which income is distributed in an uneven manner among a population. We define income mobility as an individual’s income rises (or drops) enough to move that person into a different economic class.

A new report, Income Inequality Matters, but Mobility Is Just as Important, documents changes in income mobility over the past 40 years, during which income inequality has spiked. The authors draw one incontrovertible conclusion: How much our parents make has an outsize effect on how just how far we ourselves will rise or fall during our lifetimes. Our ability to move into a different economic class is thus dependent at least in part on the inequality facing our parents before we are even born.

The following graph shows  the relationship between income inequality and intergenerational earnings mobility:Income Inequality and Income Mobility Go Hand in HandThe relationship plotted above is called the “Great Gatsby Curve.” As you can see, greater income inequality goes hand in hand with less income mobility. As explained by the report’s authors, wealthy Americans are solidifying their own status and passing it on to their children. As a result, class divisions are hardening:

In the United States, children born into families with higher-than-average income have a sizable advantage over their less fortunate peers. Against the backdrop of rising inequality . . . intergenerational mobility could be reduced as advantage breeds further advantage over time.

“Income Inequality Matters, but Mobility Is Just as Important,”
Daniel R. Carroll and Anne Chen

According to the report, only 25% of all children born into low-income households ever improve their economic status. Contrast that with the 60% percent of children born in the richest families who manage to improve their economic status.

And economic class torpor is the rule at every income level. The report found that 64% of the poorest households stay in the same income group for at least 10 years. And so do 72% of the richest households. Note also that developed countries with less income inequality also had greater income mobility.

Not All Economists Agree on Income Mobility

Another report from 2013 found “little evidence of a relationship between individuals’ economic mobility and the income inequality they experienced when growing up.” And other researchers have concluded that “mobility does not appear to have risen in tandem with [the] rising inequality” of the past few decades. But these conclusions seem counterintuitive to me. Tyler Cowen, professor of economics at George Mason University, points meekly to the silver lining:

While it’s sadly true that productivity and income growth have lagged since the 1970s, to the extent that we’re concerned primarily with relative progress through the income ranks, the best research suggests that income mobility in America has been flat for at least 20 years. Upward mobility hasn’t increased, but at least it hasn’t declined.

We should not celebrate flat class mobility. All Americans should hope for greater income mobility —  if not for themselves, then for their children. Americans rightly consider sacred the notion that individuals should be rewarded for hard work. Every American should be able to move up the social ladder. The relationship between income inequality and income mobility is predictably correlative and strengthens the policy argument for reducing income inequality.

About Brian V. Lee 393 Articles
Brian V. Lee provides bankruptcy, foreclosure defense, business turnaround, and litigation services to clients in the District of Columbia, Virginia, and Maryland. Brian was the Washington, D.C. state chair of the National Association of Consumer Bankruptcy Attorneys from 2016 to 2018.