Charles R. MorrisFebruary 10, 2014 - 10:54am2 comments
Two important new papers by a team of leading scholars have upended some of the standard assumptions about American equality and economic mobility. Conventional wisdom holds that greater equality means higher economic mobility and, therefore, that rising inequality will impair mobility. That has not held true in America, at least not since the 1980s. Despite large increases in inequality, economic mobility has been quite stable. Poorer kids have been about as mobile as richer kids, and there has been little change in mobility over the sixteen birth cohorts old enough to show adult income data.
Looking more closely at the data, however, leads to a more nuanced understanding of recent changes in American income distributions.
The papers measure mobility by comparing the income rank of children with that of their parents. For each set of parents and children, therefore, there are two rank numbers—the rank of the children’s income at ages twenty-six and thirty and the rank of their parents’ income when the children were in their late teens. The measurement the scholars were interested in is called “elasticity.” If sales boom after a store owner lowers his prices by a few percent, then sales are highly elastic with respect to price changes. Likewise, if the incomes of children are highly elastic with respect to the incomes of their parents, then a difference in the latter will have a big effect on the former. In that case, there will be lower...