Income Mobility and Its Discontents

Brian Doherty | May 30, 2007

Tyler Cowen collects some interesting links and observations on the question of income mobility in the U.S. of A. A sample:

So, if everybody's income is 50 percent higher than their parents', that shows up as zero income mobility. On the other hand, if average income stays constant, but a lot of low-earning parents have high-earning children, and vice-versa, that shows up as high income mobility.

That is Arnold Kling.

..........

I once wrote (read the whole thing):

1. "Age-adjusted parental wealth, by itself, explains less than 10 percent of the variation in age-adjusted child wealth."

2. 20 percent of parents in the lowest quintile of the parent's wealth distribution have children who end up in the top two quintiles of their generation. One-quarter of the parents in the highest wealth quintile end up with kids in the two lowest quintiles.

The comments thread on Cowen's post has some interesting back-and-forth on whether or not more Americans really ought to be going to college.

Comments

|5.30.07 @ 2:39PM|#

My father was born in the Depression, on a farm with no indoor plumbing. He retired, upper-middle class (health not country, club), from General Motors. I am middle-middle class with no ambition.

|5.30.07 @ 2:41PM|#

The problem is that you're just looking at income, not wealth. My father-in-law makes a lot of money. Literally, millions per year. His daughter (my sister-in-law) is a lazy bum who's never worked a day in her life. Her income is essentially zero. But, she still has plenty of money and can do anything she wants...

All my wife's friends come from wealthy families, and none of them make high incomes because they don't have to - they have plenty of money in trust, they don't need to save for retirement, they don't buy their own houses or cars, etc.

|5.30.07 @ 2:58PM|#

Sweet deal, Okapi - sounds like your wife must be just as loaded as her sibs.

Is it true what they say about marrying money?

|5.30.07 @ 3:05PM|#

Um, Okapi, if they are living that well & have no income, then their wealth would be declining &, at least within a couple of generations, would be perfect examples of how income between generations is not that highly correlated.

|5.30.07 @ 3:09PM|#

If any of us takes a look at our extended families (cousins & maybe 2nd cousins), I think it would be obvious to most of us that one ancestral source almost invariably leads to a whole range of outcomes within a couple of generations, much of which can be tied to personal decisions. It's certainly true in my family.

We don't even have to go that far. Just look at the last annual statement you received from the Social Security Administration. My lifetime earnings, looked at as annual individual data points, are the picture of a horribly inequitable income distribution, with a large poverty class & a struggling middle class. Now, if one person can produce this statistical result, then maybe the way we look at inequality statistics is a bit inaccurate.

|5.30.07 @ 3:15PM|#

Just look at the last annual statement you received from the Social Security Administration.

Sorry, I can't.
Doctor's orders.
It's REALLY REALLY bad for my blood pressure.

|5.30.07 @ 4:59PM|#

kebko - their wealth only declines if they spend more than the increase in their "equity". In some cases, they are burning through grandpa's money and won't have much left to pass on. In most cases, they won't even come close to making a dent.

All my wife's friends are multi-millionaires with no financial concerns, but you wouldn't know it to look at the way they live (other than the fact that they travel more often and don't work). They don't drive Ferraris, they drive Volvos or Subarus. They don't live in giant mansions - they rent seedy apartments in the city or live on houseboats. I really don't understand them, at all.

|5.30.07 @ 5:04PM|#

One-quarter of the parents in the highest wealth quintile end up with kids in the two lowest quintiles.

Parents of journalists ....

|5.30.07 @ 5:48PM|#

Robert- You have no idea how true that is. I come from a reasonably well-off family, possess an very expensive college education, and am a dirt-poor journalist.

|5.30.07 @ 7:59PM|#

Okapi,

One part of what you said really has stood out to me. Retirement. I have a group of friends who all have family money. One couple in particular:

Their trusts are not huge, but they enable them to live in a 700,000 house with a combined income of 40k. (He doesn't work, she works in a non-profit). The biggest difference? They have no concern about retirement or getting in too much debt. They are just waiting around to be rich and do not need to plan for the future in any way.