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 elseís. 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. Letís 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:

One study, by Greg Duncan of the University of Michigan, measured income mobility during two time periods. In the first, 1975 to 1980, incomes were more equal than they are today. In the second, 1981-1985, income inequality began soaring. And what happened to income mobility during these periods? Duncan found that the middle class began shrinking after 1980, with correspondingly more people leaving the middle class (for either the upper or lower class) than entering it. Here are the exact figures:

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)

Hubbardís 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 economistís 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 groupís 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 studyís 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 studyís 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 doesnít 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 societyís 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.

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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.