Myth: Income mobility makes up for income inequality.
Fact: Income mobility in the U.S. is only moderate, not enough to forgive income inequality.
Summary
Income mobility in the U.S. is only moderate. Most people
see their incomes rise with age, but at some point they usually
hit a plateau in the income distribution, where they fluctuate
mildly for the rest of their careers. The Hubbard study of income
mobility, commonly cited by conservatives, used an extremely biased
sample of unusually successful American families. Its results
are therefore invalid. Allowing a society of extreme income inequality,
even with high mobility, would raise child poverty, because most
parents are young and incomes are lowest during young adulthood.
Argument
Many conservatives admit that incomes in the U.S. are highly unequal, but claim they are
highly mobile as well. That is, people tend to rise and fall considerably on the income
scale throughout the course of their lives, producing a lifetime average which is much
closer to everyone else’s. Furthermore, this mobility tends to be upward; incomes
generally rise with age. Hence, inequality is not as unfair as liberals claim.
There are two ways to rebut this argument: statistically and philosophically. Let’s review
the statistics first:
Income Mobility Statistics
There is moderate income mobility in the U.S., but it is not even close to what
conservatives suggest, and certainly not enough to forgive growing disparities of
income. Economist Paul Krugman writes:
Percentages of families making transitions to and from middle class (5-year period before and after 1980) (2) Before After Transition 1980 1980 ---------------------------------------------- Middle income to low income 8.5% 9.8% Middle income to high income 5.8 6.8 Low income to middle income 35.1 24.6 High income to middle income 30.8 27.6
Conservatives generally ignore these statistics. Whenever they talk about income
mobility, they almost always cite the following study by economist Glen Hubbard of
Columbia University. The results of his study are startling: they suggest that
American workers enjoy huge upward mobility even over a 10-year time frame.
Specifically, 84 percent of those who started in the lowest quintile had left
it by the end of ten years. In fact, of all those who started in the bottom
quintile, more climbed to the top (14.4 percent) than stayed in the bottom
(14.2 percent). Conservatives were thrilled by these (unusual) results; Rush
Limbaugh quoted them in See, I Told You So. (3)
Hubbard’s study tracked a group of 14,351 American taxpayers from 1979 to 1988.
The following chart shows the percentage of those starting in each 1979 quintile
who had moved to other quintiles by 1988. In other words, of all those who began
in the bottom quintile in 1979, 14.2 percent stayed there, 20.7 percent moved to
the second quintile, 25.0 percent moved to the third quintile, and so on.
Income-Group Mobility 1979-1988 (4) Quintile status in 1979: Quintile status in 1988: ---------------------------------------------------------- Top 1% Next 19% Fourth Third Second Bottom Top 1% 47.3% 38.6 7.7 3.8 0.4 2.2 Next 19% 5.3 59.4 20.3 9.4 4.4 1.1 Fourth 0.6 34.8 37.5 14.8 9.3 3.1 Third 0.4 14.6 32.3 33.0 14.0 5.7 Second 0.3 10.8 19.5 29.6 29.0 10.9 Bottom 0.3 14.4 25.3 25.0 20.7 14.2
Sharp readers will note that the numbers add up to 100 percent horizontally, but not
vertically. The reason is because the sample group of taxpayers started out as a cross
section of the nation, but did not end up as a cross section of the nation. That should
immediately raise question marks in any economist’s mind that the study might be skewed.
And, indeed, it is.
The study was limited to only those taxpayers who paid taxes in all ten years. This is
not, however, typical behavior for American families; only half meet this criterion.
Those that are fortunate enough to be employed for all ten years have a strong tendency
to be more successful than average. (5) Therefore the sample group is so biased that
the study is invalid.
But it gets worse. Instead of comparing the group’s incomes to each other, the study
compared them to the nation at large. This introduces a second bias: the fact that
incomes rise with age. This was especially important for this study, since the taxpayers
it identified in the bottom quintile in 1979 had a median age of only twenty-two. Labor
economist Kevin Murphy explains the study’s results this way: "This isn't your classic
income mobility. This is the guy who works in the college bookstore and has a real job
by his early thirties." (6)
But even as biased as the study is, it reveals some embarrassing facts about income
mobility. Draw a diagonal line from the top left corner to the bottom right corner
(marked on this page in boldface). The figures falling on this line are those who
stayed in their quintiles. Notice that these are generally the largest figures (until
you get to the bottom quintile, which is a special case); the next largest figures are
those on either side of them. This shows that there is a strong tendency to remain
either in your quintile or the one next to it -- and movement in and out of these
neighboring quintiles can be attributed to being close to the line in the first place.
Another embarrassing revelation is that nearly half of those in the top 1 percent
in 1979 were still there in 1988, with another third going no lower than the next
19 percent (actually the next 4 percent). Income mobility decreases dramatically the
higher up the income scale you go. Correcting for the study’s biases would not
significantly change these figures, since the super-rich are most likely to pay
taxes in all ten years anyway. For all practical purposes, the top 5 percent is
a closed club with lifetime membership.
What other studies have shown is that although income tends to rise with age, most
people eventually hit a plateau somewhere in the distribution, where they fluctuate
mildly for the rest of their careers. The widening disparity between incomes therefore
remains a critical issue.
Does income mobility make income inequality fair?
The answer to this question is no, for several reasons. Even if we could simultaneously
achieve high inequality and mobility, we could never justify slavery on the grounds
that, for 5 percent of your life, you, too, could be the master. Furthermore, rotating
15 percent of the population in and out of poverty does not negate the fact that 15
percent of our population is in poverty at all times. There is nothing good to be
gained by this; we might as well make incomes more equal. By allowing extreme differences
in income and rotating people in and out of poverty, we would make sure that any one in
society who is near the breaking point would find it as they passed through poverty.
But perhaps the biggest reason why mobility doesn’t make the system fair is because of
child poverty. The United States has the worst child poverty rate in the rich world:
22 percent in 1993. This unconscionable figure stems from two primary causes. The
first cause is that 68 percent of all children in the U.S. are born to mothers under
30, many of whom are single. (7) The second is that income inequality hits young
adults the hardest. Needless to say, by the time these young parents rotate into
society’s good jobs, it will be too late. Their children will have already passed
through their critical developmental years -- and done so in poverty. This is terrible
social policy, one that begs a conservative defense.
Return to Overview
Endnotes:
1. Paul Krugman, "The Rich, the Right,
and the Facts," The American Prospect no. 11 (Fall 1992): 19-31.
2. Cited by Krugman.
3. Rush Limbaugh, See, I Told You So (New York: Simon & Schuster, 1993), p. 125.
4. Chart printed in The Wall Street Journal, Tuesday, June 2, 1992, Page A2.
5. Krugman.
6. Quoted in Krugman.
7. National Center for Health Statistics, Vital Statistics of the United States, 1992.