Compared to most other western countries, America has high levels of income inequality and low levels of social mobility. It is often assumed that the former is responsible for the latter – because, like the rungs on a ladder, the wider the gap between different parts of the income spectrum, the harder it is to climb.
But according to a brilliant article by Aparna Mathur on the Brookings website, growing inequality has not resulted in lower social mobility:
“Over the past 35 years, after-tax real incomes for the top 1 percent have grown by 200 percent, but real incomes for the bottom quintile have only grown by 48 percent.
“But despite this rise in income inequality, economic mobility in the U.S. has remained largely unchanged, according to a new study which measures mobility as the likelihood of a child in the bottom quintile rising to the top quintile in adulthood.”
So is theory wrong? Does a growing gap between the rungs of the income ladder actually make no difference?
Not necessarily. If the stretching out of the rungs is only happening at the very top (i.e. if the gains of the super-rich account for most of the rise in inequality), then the rest of the ladder would stay much the same and thus we’d expect little effect on social mobility.
Mathur tries another test to investigate the degree of correlation between income inequality and social mobility:
“Drawing on data from another recent study by Raj Chetty and his colleagues at Harvard, I plot below the relationship between inequality (income share of the top 1 percent) and a measure of absolute economic mobility for hundreds of metro regions across the country. The correlation between mobility and upper-tail inequality is negative, but very weak.”
This doesn’t mean that we should be relaxed about this kind of inequality – not if it results in most people being excluded from the benefits of growth (see the ConservativeHome manifesto for more). However, on the specific issue of social mobility, an exclusive focus on income inequality is not justified. Indeed, the danger is that other important factors are being ignored – not least, family structure:
“There is a very clear negative link between family structure and mobility. Geographic zones with larger shares of single parents or divorced adults see significantly lower upward mobility than places with a larger fraction of married adults and parents.”
To recap: the relationship between income inequality and social immobility is weak, while that between family breakdown and social immobility is strong. But what about the third side of the triangle i.e. the correlation between family breakdown and income inequality?
This too appears to be strong:
“…Federal Reserve Bank analysis finds that changing family structure accounts for around half (49-52 percent) of the increase in inequality between 1969 and 1989, measured using the 50-10 ratio or 95-5 ratio. Income growth has been markedly higher for families with married parents, according to a recent study by Bradford Wilcox and Robert Lerman, using data from the Current Population Survey. Between 1980 and 2012, median family income rose 30 percent for married parent families, versus just 14 percent for families with unmarried parents.”
It would be great to have equivalent studies for Britain (another country with comparatively high levels of income inequality, social immobility and family breakdown). But it’s not unreasonable apply Aparna Mathur’s conclusions to our situation:
“…the real problem facing us is not rising incomes at the top, but deepening poverty and poor economic opportunities at the bottom, which are strongly correlated with a decline in traditional family structures… . Strengthening the family is the key to American opportunity.”