Freeman

IT JUST AIN'T SO

Economic Mobility Is a Sham?

We Live in a Land of Opportunity

JULY 01, 2000 by DAVID SCHMIDTZ

Filed Under : Poverty

In “Why Decry the Wealth Gap?” (New York Times, January 24, 2000), W. Michael Cox and Richard Alm say the Federal Reserve Bank’s latest survey of consumer finances showed, in a nutshell, that the rich are getting richer and the poor are getting poorer. Cox and Alm’s response is: So what?

High school dropouts average $26,207, while workers with a professional degree average $127,499. Census figures show that many of the states with the widest income gaps have greater diversity in education levels. Twenty-six percent of those over age 24 in New York—the state with the greatest income disparity—have a college degree, whereas in Indiana, among the seven states with the lowest income disparity, only 16 percent do. Cox and Alm wonder, “Should we be lamenting that so many New Yorkers went to college?”

Another key factor, Cox and Alm note, is increasing immigration rates. Immigrants tend to cluster in low- and high-income groups. Thus it is no surprise that in the seven most unequal states, about 13 percent of the population is foreign-born. Among the seven states with the smallest income disparities, the immigrant population is only 3.8 percent. Cox and Alm conclude that America isn’t a caste society, and studies that track individuals’ incomes over time show that Americans have a remarkable ability to propel themselves upward.

A few weeks later, in “America’s Rags-to-Riches Myth,” Michael M. Weinstein (New York Times, February 18) responded. Americans, Weinstein says, “cling to the conceit that they have unrivaled opportunity to move up and, alas, down the income ladder.” But the conceit, he says, is nothing more than that.

Weinstein is aware that a 17-year study of lifetime earnings by the Federal Reserve Bank of Dallas found that only 5 percent of people in the economy’s lowest 20 percent failed to move to a higher income group. In a similar study by the Treasury Department, covering 1979 to 1988, 86 percent of Americans in the bottom fifth of income earners improved their status. But Weinstein dismisses such studies because many who moved up were students when the studies began. “This upward mobility of students hardly answers the enduring question: How many grown-ups are trapped in low-paying jobs?” Oddly, though, Weinstein asks this question as if Cox and Aim had no answer, but they do. Specifically, 5 percent of the poorest 20 percent don’t move up. If Weinstein has reason to think the number is wrong, he gives no indication.

Weinstein rests his rather more gloomy conclusion on his reading of a study by Peter Gottschalk and Sheldon Danziger, who separated children into quintiles according to family income. Weinstein says, “About 6 in 10 of the children in the lowest group—the poorest 20 percent—in the early 1970s were still in the bottom income group 10 years later . . . . No conceit about mobility, real or imagined, can excuse that unconscionable fact.”

Since Weinstein relies so heavily on Gottschalk and Danziger, I checked their study. They were looking at children five years of age or younger as their ten-year study began—ten years later they would still be classified as children. So, how upwardly mobile should we expect people to be in the first ten years of their lives? What we have is a cohort of mostly very young couples with babies, such that ten years later only 40 percent of them had moved into higher quintiles. Is that bad? On its face, it looks neither bad nor good. Note, though, that at the end of the study the parents were in their early 30s, still 10 years away from when they become most upwardly mobile. And of course the kids are 30 years away from when they become most upwardly mobile. What should we expect?

I myself would have been one of those kids they’re talking about. I grew up on a farm in Saskatchewan. The farm failed when I was 11, and we moved to the city where my father became a janitor and my mother a cashier in a fabric shop. We moved up a lot, at least in absolute terms, during my first ten years. We got indoor plumbing when I was about three years old, for example. But we easily would have still been in the bottom quintile. Thirty-five years later, my household income is in the top 5 percent of the distribution. In my case, the problem with childhood poverty was not lack of money. Money was never a problem. Lack of knowledge was a problem. Lack of role models was a problem. (My parents received sixth-grade educations. I did not know what a university was until we moved to the city.) And I suspect that what was an obstacle for me remains an obstacle for poor kids today.

According to Gottschalk and Danziger, among children in bottom-quintile families that received welfare in the early 1970s, only 2.3 percent managed to escape the bottom quintile. Likewise, bottom-quintile children living in single-parent families had only a 6.4 percent chance of moving beyond the second quintile. But how can we be shocked that households with one adult generally bring in less income than households with two adults, and therefore will be found in the bottom quintile? How can we be shocked to find more income disparity in countries where single-parent families are more common? If there is a problem, surely it has nothing to do with income and everything to do with single parenthood (and I do not pretend to know how to solve that problem). According to Gottschalk and Danziger, there is a big difference between being poor and white and being poor and black. Blacks are more likely to stay at the bottom. I would not presume to quarrel with them on this point, and yet, according to Gottschalk and Danziger’s own figures, “black children had a higher chance than white children of escaping poverty if they made the transition from a single-parent family to a two-parent family by the end of the decade (67.9 versus 42.6 percent).”

Gottschalk and Danziger say that between 1970 and 1980 the overall probability of a child’s escaping poverty did improve, although the improvement was not significant. For the record, the probability of escaping poverty improved from 43.2 percent to 51.2 percent. If an eight percentage point swing does not count as significant, what does? Gottschalk and Danziger say the only group to show a “significant” improvement consists of “children in two-parent families.” Their chance of escaping poverty improved from 47 percent to 65 percent. Now, recall that we are talking about the chance of escaping poverty before the age of 15. So what Gottschalk and Danziger’s numbers are telling us is that about two-thirds of poor kids in unbroken homes escape poverty before they even earn their first paycheck. To me, such numbers suggest that it is a fact, not a myth, that we live in a land of opportunity.

What should we conclude? I conclude that there is no systemic problem of vertical mobility. The real problems are more specific than that. In general, poor people do move up. It is people from broken homes who have a problem.

—David Schmidtz

University of Arizona

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July 2000

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