Income mobility

Some Cities with High Income Inequality Also See High Income Mobility

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The Brookings Institute is out with a new report identifying America's most unequal cities. Interestingly, many of these happen to be the same cities Harvard economists identified as having the highest income mobility. Surprised?

For instance, among Brooking's top ten unequal cities, half of them were also on Harvard's list of top 10 cities for highest income mobility: San Francisco, Washington DC, New York, Los Angeles, and Boston. [1]

This raises the question for whether income inequality signals something completely and unequivocally nefarious is afoot. Without question there are unfair and unjust practices artificially inflating income inequality that we must address (crony capitalism, racism, excessive regulation, among others). However, these data also prompt us to consider if the drivers of income mobility may also contribute to income inequality.

Perhaps more incredible is that despite rising income inequality in the United States, income mobility has remained constant since the post-war era (read more here and here). What this means is that despite the rungs on the economic ladder moving further apart, people are still grasping the next (even higher) rung at the same rate as before. This means higher lifetime incomes; this means a higher standard of living.

Credit: Keppler, Joseph Ferdinand, artist.'"Mark Twain," America's best humorist.' Keppler & Schwarzmann, 1885. Prints and Photographs Division, Library of Congress.

What might surprise some is that during the 19th century's so-called Gilded Age, the era of robber barons, economic mobility was even higher than it is today. Economist Joseph Ferrie has found that in the 19th century "the United States was in fact more mobile both socially and physically than other places, and this remarkable fluidly persisted at least through the 1920s." While correlation is not causation, it is remarkable that income mobility declined after the New Deal was implemented and during the post-war boom. Some point to the 1950s-1960s as exemplary because the bottom quintile's income grew at 2.5% a year; however, if Ferrie's analysis is correct then the rate of economic mobility for individuals declined also during this time period. In other words, as a group the lower income quintile's income grew, but the individual people in that group were less likely to break out of that group.

These data suggest that economic mobility is often a more important consideration than income inequality. As it turns out Paul Krugman partly agrees, and has said "there are some risks in drawing too many conclusions about the distribution of economic welfare from … the distribution of income." Moreover, he's pointed out that economic mobility can make the distribution of lifetime income more equal if it's high enough.

There are two ways one can look at income mobility. First is relative income mobility—how did an individual move relative to others along the income ladder. For instance, using that measure, the Treasury found that about 50-60% of Americans in the bottom quintile in 1995 had moved to a higher quintile by 2005. However, this measure assumes that if the tide lifts all boats an individual's "rank" along the income ladder stays the same.

Perhaps more illuminating is absolute income mobility, which measures how much each individual's wealth changed in real absolute dollars, regardless of everyone else. The Treasury found that households in the bottom quintile in 1995 experienced on average a 91% increase in real income. Breaking these numbers down: half experienced a doubling of their actual real incomes, another 15% experienced a 50-100% increase, and another 17% had up to a 50% increase, while 18 percent had their incomes go down. (I've pasted the charts below)

The persistent and often myopic focus on income inequality instead of income mobility has, perhaps unintentionally, misled people into believing that regular Americans' wealth has not improved since the "good years" of the 1950s-1970s. But for most Americans, this simply isn't true.

Relative Income Mobility

Absolute Income Mobility

[1] To be clear, not all highly mobile cities also had high income inequality and visa versa. For instance, Salt Lake City, Seattle, and San Diego were also in the top eight for income mobility but were not ranked as high on income inequality. Similarly, Atlanta and Chicago were also in the top most unequal cities and had some of the lowest rates of income mobility as well.

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  1. this remarkable fluidly fluidity

  2. perhaps unintentionally, misled people

    That’s a pretty generous “perhaps”.

  3. can we stop treating “income inequality” as something worth discussing?

    1. In general I don’t think it’s a big deal. But our regulations and laws seem to be encouraging not just inequality but a stratification of wealth, which can be dangerous.

    2. but… NOT FAIR!1!!

  4. I’m sitting here in Boston, enjoying all this income mobility, and yet I can’t even buy some alt-text.

  5. SF, LA, Boston, NYC and DC have one thing in common: a lot of cash poor young people (Boston especially with its high number of colleges). Those cities are generally destinations where a lot of young people go determined to “make a name for themselves”. They start out poor but have the education/motivation to do better.

    And apparently Chicago and Atlanta suck.

    1. SF has another issue; there are tons of wealthy people in the SF bay area, and quite a few of them like to live in SF.
      So, given the influx of very wealth people and the abject failure of gov’t ‘anti-povery’ programs, the disparity is no surprise.
      And it’s no surprise that the Chron flogs it on a regular basis.

      1. If you aren’t dirt poor or filthy rich, you are no use at all to the rulers of cities like SF and NY.

        1. “If you aren’t dirt poor or filthy rich, you are no use at all to the rulers of cities like SF and NY.”

          The middle class doesn’t have an ‘organization’ to push the agenda. Most I know just want to be left alone.

  6. my buddy’s aunt makes $74 an hour on the computer . She has been out of a job for six months but last month her check was $12405 just working on the computer for a few hours. visit homepage…………. http://www.mumjob.com

  7. Your first mistake, Emily, is addressing income inequality in a manner that suggests it is a real metric for anything at all other than prog talking points. It’s made up by the academy so that they might have something to gripe about.

    Income inequality is bullshit. The only things that matter are standard of living and income mobility. Mobility is alive and well, and the standard of living has never been higher.

    1. “Income inequality is bullshit.”

      Clearly, not to the progs. That’s what makes it so interesting that blue states have so much more of it than red states.

      1. Proggies love them some poor! They must, since their politics makes so many of them.

      2. progs(socialist) use “inequality” as an emotional lever to gain support and power.

        truth of the matter is that inequality is a natural and necessary part of life. nobody is ever equal as equality is an abstract that doesnt exist in nature. someone or something always will have more
        or less…. Its necessary because without rich entrenepeurs there are no jobs and without CEOs CFOs ect that are well paid then you have no corporations and no jobs.
        As far a as gender and racial inequality there is none. Its based on qualifications which white males and asians have more of because they pursue those skills.

  8. Income inequality is Obama’s and the Democrat’s way of trying to turn the publics attention away from its disaster with Obamacare. They gin up a false emotional crisis that they claim that they will “fix” so they can try to look good to the voters because they know that they are in big trouble in the coming elections.
    They did the same thing with the phony “war on women” scare tactic because republicans thought that birth control should be paid for by the people who are using them and not by institutions who bear no responsibility to provide them.

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