Much is made of the low levels of income mobility in the United
States. According to a Pew study released
in July, Americans who are born into the very top or bottom
quintiles are likely to stay there as adults. Last year, in his
celebrated speech in Osawatomie, Kansas, President Obama famously
deplored falling social mobility. After World War II, according to
the president, “a child who was born into poverty had a slightly
better than 50-50 chance of becoming middle class as an adult….
[I]t’s estimated that a child born today will only have a
one-in-three chance of making it to the middle class.”
Social mobility is an integral part of the American Dream. It is
also a relatively recent phenomenon. In fact, the free enterprise
system is the first and only one that enables poor people to become
rich, both in absolute and relative terms. That said, an undue
focus by policymakers on income mobility instead of real issues —
like barriers to economic opportunity and a sluggish economy
suffocated by policy uncertainty — can do more harm than good to
those it is purported to help.
At the present time, the much-discussed fall in income mobility
is an artifact of the data and a symptom of serious problems facing
America’s poor — but not a problem by itself. As Tyler Cowen has
argued on his blog, there is a trivial reason why Europe’s relative
mobility is higher than that of the United States. Europe is a
continent with high marginal tax rates, a plethora of public
service jobs, and generous social services. As a result, many
highly talented Europeans choose to pursue careers that don’t pay
much. However, their equally talented children may choose
otherwise.
In America, in contrast, high-ability individuals of all
generations will almost invariably choose occupations in which they
end up earning high incomes. To the extent that intelligence and
ability are either hereditary or result from high-quality
parenting, children of high achievers will also tend to be high
achievers. As Mr. Cowen
writes, “‘High intergenerational mobility’ is sometimes a
synonym for ‘lots of parental underachievers.’”
Also, the image of the United States as a rigid class society
results from looking only at relative measures of income
mobility, i.e. moves among different income strata of the society.
A look at absolute income mobility provides a more
cheerful picture. Eighty-four percent of Americans have incomes
that exceed what their parents earned at a similar stage in life,
according to the Pew study. The figure is 93 percent for those
raised in the bottom quintile of the income distribution.
True, income mobility in the United States might be falling,
which is an indication of deeper problems — namely the erosion of
the private enterprise system, and the existence of barriers to
economic opportunity for the poorest. In the present economic,
political, and ideological environment, entrepreneurial success is
difficult to achieve, and when achieved, it is taxed, regulated
heavily, and sneered at in the infamous “you-didn’t-build-that”
style.
A concern for income mobility, without an understanding of what
is wrong with the society’s economic and institutional
fundamentals, is a bad guide to policy. If higher income mobility
is what policymakers care about, all they need to do is to tax the
rich at high enough rates, and give sufficiently large handouts to
the poor. Of course, they will have to disregard the disastrous
consequences of such policies, which shrink the size of the total
economic pie.
But the size of the economic pie matters. People, especially
those at the bottom of the income ladder, care whether they see
their prosperity rising — compared to an absolute or a relative
standard — and whether they have an opportunity to succeed in
life, regardless of whether that involves moving to the next income
quintile or not.
Existing barriers to economic opportunity need to be lifted,
especially those with a disproportionately debilitating effect on
economic opportunity for the least well-off. The list is long:
prohibitive regulations of certain professions and uncertainty
about future tax rates, but also minimum wages, unionization, and
constraints on parents’ choice of schools and school districts. To
attempt to increase social mobility, without fixing these problems,
is to put the cart before the horse.
