Economic mobility and family income in the US

Economic mobility - children being able to rise to a higher economic position than their parents - is a central part of the American dream. Unfortunately, the reality is that there is less economic mobility in the US than our national narrative supposes. Recently released data on multi year trends in family income suggest that this situation is is not likely to improve in the near future.

Economic mobility in many developed countries was described in a recent OECD report. This report demonstrated that the United States has lower economic mobility than most other members of the OECD:

A recent report from the Census Bureau provides some troubling information that, taked with data on increases in price of higher education, suggest that increases in economic mobility are unlikely in the short run. This Census Bureau report discusses real (inflation corrected) mean household income (by quintiles, and top 5%) from 1967 through 2011: 

 While there are no real surprises in this graph, it provides a stark reminder of what has happened to households in the US over the past decade. Although it is a bit difficult to see with the scale of the figure above, all of the economic groups were seeing increases in mean income until roughly 2000. The average annual increases up to 2000 in the bottom 4 quintiles were very small, but still positive. The top quintile, and the top 5% showed strong average increases until 2000. After 2000, of course, there was an overall drop in median income for all groups.

The current slow recovery has been felt differently by the different income groupings, with the lower quintiles seeing slower recovery than the higher income groups. One can get a feeling for the recovery rates by looking at the pre-2000 year in which the median income was closest to 2011, as shown on the table on the right. Obviously, the lower the income, the slower the recovery - the more years of income growth that have been "lost". However, all income groups shown are still at levels of the mid to late 1990's.  

The average real published price of both private and public higher education has increased greatly since these mid 1990's "equivalent years", of course - by about 70% for the private sector, 125% for the public sector. In addition, many public institutions are limiting admissions because of budget constraints.  One has to worry, then, about the impact of all of this on college attendance, especally for the children of the lower income families. Lower income families are, of course, often those where the parents have only a high school education of less. Since educational mobility is increasingly the driver of economic mobility, anything that decreases educational mobility should be a concern to us all. 

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There is an interesting graph from Bloomberg Businessweek that relates economic mobility to income inequality: The Great Gatsby Curve.

We are all sophisticated enough to know that correlation does not imply causation. Nevertheless, this correlation over many countries is troubling, especially in the light of the most recent trends in income inequality in the US. 

 

Comments

[Trident University]

It's surprising that economic mobility is so slow since the U.S is generally thought of as the land of opportunity; many people in the world dream of living here.

Lloyd comments: interesting how reality and perception may differ.