Monday, January 27, 2014

Study finds little change in poor to rich mobility over past 25 years: Notes for a Lecture, "E Pluribus Unum? What Keeps the United States United."

Study finds little change in poor to rich mobility over past 25 years

Contrary to the hand-wringing in Washington, the rags-to-riches American dream is not impossible — and in fact has grown ever so slightly easier over the past couple of decades, according to a study last week by economists from leading universities.
That’s not to say that mobility is particularly great. It’s tougher to go from poor to rich in the U.S. than it is in many other major economies. But the findings, published in a National Bureau of Economic Research paper, suggest that the poor can, and occasionally do, get rich — and the rich can get poor.

“What our results suggest is that over the last 20 to 25 years, the extent to which people move up or down the income ladder hasn’t changed,” said Nathaniel Hendren, an assistant professor at Harvard University who helped write the National Bureau of Economic Research paper along with four other economists from Harvard, the University of California, Berkeley, and the Treasury Department.
The economists cautioned that while the likelihood of going from bottom to top remained, the gap between the richest and poorest has grown, making the consequences of what they called the “birth lottery” much bigger.
The numbers sent academic circles atwitter. The findings challenged conventional wisdom that even the report’s authors thought their research would back up.
But the numbers have yet to work their way into the policy conversation in Washington, where President Obama and his fellow Democrats have vowed to make income inequality a campaign issue in the run-up to November’s congressional elections.
White House advisers fanned out to the Sunday political talk shows to make their case, saying Mr. Obama is prepared to use executive action to try to make headway against income inequality. Congressional Democrats return to Washington this week prepared to reopen the case for extending another round of federal unemployment benefits to the long-term jobless, and plan to push for an increase in the federal minimum wage.
The researchers behind the paper said it’s unclear to what extent government supports have been in promoting income mobility over the past few decades.
“That’s one of the biggest questions we’re hoping to explore,” Mr. Hendren said. “The extent to which that’s promoted mobility is an open question.”
The researchers looked at Internal Revenue Service data stripped of personal identifiers, comparing parents’ income with their children’s income at age 26. They divided the population into fifths, or quintiles, then tracked to see how many children born to parents in each quintile made it to the highest quintile by the time those children were 26.
Those who started on the bottom rung in 1971 had about an 8.4 percent chance of making it to the top by the time they were 26 — a chance that improved to 9 percent for those born in 1986. Children who started on the top rung had slightly better than a 30 percent chance of being at the top at age 26.
The researchers also found that college attendance rates have improved slightly. In 1971, children of the wealthiest quintile were 74.5 percentage points more likely to attend college than those on the low rung. By 1993, that dropped to 69.2 percentage points, “suggesting that if anything intergenerational mobility may have increased slightly.”
Other reports have come to different conclusions about mobility. A paper released in 2011 by Katharine Bradbury, a senior economist at the Federal Reserve Bank of Boston, argued that the generous social safety net in the U.S. increased income mobility in the 1970s and 1980s, but “its impact has since waned.”
For example, she found that 45.3 percent of those in the bottom quintile in 1975 had moved up by 1985. But 20 years later, the rate had dropped to 41.9 percent.
Among the wealthy, she found that 50.9 percent of those in the top quintile in 1975 had fallen out of it by 1985. Fast-forward two decades and that number had dropped to 45 percent.
Ms. Bradbury didn’t return a message seeking comment.
Polling shows that voters aren’t quite sure what to make of the government’s role in addressing income inequality. Although surveys repeatedly show a generous populace willing to offer government benefits to the less fortunate, a Fox News poll said Americans also accept income disparities.
The survey, released last week, found that 62 percent were OK with income disparities “because that’s just how the economy works.” Another 21 percent said they didn’t like the disparity but said the government “shouldn’t get involved” in trying to do anything about it.

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