What is economic mobility?

Tim wrote a thoughtful rebuttal to my posts on economic mobility, but it seems we’re at least partly talking past one another.

One of Tim’s central arguments is that some of the studies I highlighted miss the point he has in mind—whether “someone from a poor or lower-income family has the same or better chance of attaining such a position than in an earlier generation”—and instead reflect the fact that part-time high school and college workers rise to higher income brackets over time.

King for a Day, Reconsidered

A couple of weeks ago, I critiqued a number of David’s pieces on the topic of income inequality. In those pieces, David seemed to accept that income inequality had grown over time, but claimed that it was no big deal because people move up and down the income distribution over the course of their lives—what economists call ‘income mobility’. I pointed out that one of the main sources for David’s claims—a study conducted by the U.S. Treasury in 2007—seemed to 1) confirm the notion that income mobility is low in the U.S., yet still managed to 2) overstate the amount of income mobility we actually have. David promptly composed a follow-up post responding to the former but ignoring the latter, arguing that

A deeper look at economic mobility

I recently wrote several posts on the issue of income differences. My central argument is that, to meaningfully measure the economic gap, one must observe individuals and how they fare over time.

Regrettably, most studies instead take a snapshot of statistical categories in time—such as the “top one percent” and the “bottom 99 percent”. Problem is, categories are not people, which is why major studies that track individuals over time contradict the popular studies.

My counterpart Tim differs with me, and in a recent post he makes his case in large part by critiquing a study from the U.S. Treasury, which shows high income mobility. There are a few points he raises that are worth further reflection.

King for a Day

Over the past few months, David has posted several times on the topic of income inequality (for example, see here, here, and here), which he deems to be a non-issue. To support his case, a recurring point of his is that comparing percentiles of the income distribution—such as the ‘top one percent’ and the ‘bottom 99 percent’—is fallacious. In a recent column, David explains that

"The late economist Joseph Schumpeter compared income groups to hotel rooms: just as the former ranges from high to low, so the latter ranges from high-end to low-end. But the different categories fail to reflect who occupies them and whether occupants move to higher categories over time." 

In other words, if we have high income mobility—that is, lots of movement up and down the income distribution—then comparisons between different portions of the distribution are meaningless. But unfortunately, we don’t have high income mobility.