USA Is Even Less Socially Mobile Than Economists Thought: It's about your Parents' Money

America Is Even Less Socially Mobile Than Most Economists Thought

And as a result, the policies that would address the situation are even more extreme—and more politically unfeasible.

JOE PINSKER  JUL 23, 2015  The Atlantic-Business

the lesson from this report: Take whatever extreme, politically unfeasible changes everyone thought were necessary to increase economic mobility and make them more extreme and more unfeasible—that might be enough.

Sociologists and economists are probably psyched that the work they’ve been doing on inequality and social mobility for decades has finally gotten attention from the average American. But one downside of having your message saturate the media is that people might start to take your findings for granted, which can obscure something that’s true of any data-based endeavor: Researchers are always learning new things, always trying to better map the extent of a phenomenon.

In this spirit, a Pew report out today tells us things about American social mobility that are new—and at the same time all too familiar. Scads of reports have documented how parents’ income dictates how financially successful someone will go on to be. But this report suggests the effects are at the high end of previous estimates. “One might think we’d have nailed it by now, but there was some uncertainty,” says David Grusky, the director of Stanford’s Center on Poverty and Inequality and an author of the report.

Grusky and Pablo Mitnik, his co-author and colleague at the Center on Poverty and Inequality, use a new data set provided to them by the IRS to show that in the U.S., roughly half of parental income advantages are passed onto the next generation in the form of higher earnings. This proportion increases for the wealthier: For people whose parents are between the 50th and 90th percentiles of earners, about two-thirds of this parental edge is perpetuated. (It’s also worth noting that two-thirds of 90th-percentile earnings is substantially more money than two-thirds of 50th-percentile earnings.)

What Proportion of Parents’ Earnings Advantages Are Passed Onto the Next Generation?

The Pew Charitable Trusts

To make these claims, Grusky and Mitnik are calculating what’s called intergenerational elasticity, or IGE. IGE can be between 0 and 1, with 0 representing total economic mobility and 1 representing the absence of it. It works like this: Comparing children whose parents make $50,000 per year to children whose parents make 20 percent more than that ($60,000), the IGE will indicate how much of that 20-percent edge the latter children tend to retain when they start earning incomes of their own. In the past, estimates of IGE in the United States have ranged from 0.34 to 0.6, but Grusky and Mitnik’s numbers suggest it’s closer to 0.6.

This means that the amount of money one makes can be roughly predicted by how much money one’s parents made, and that only gets truer as one moves along the earnings spectrum. When dollar amounts are used, instead of IGE, the numbers are jarring: Children born to 90th-percentile earners are typically on track to make three times more than the children of 10th-percentile earners.

Children’s Expected Earnings as Adults, Based on the Percentile of Parents’ Earnings

The Pew Charitable Trusts

Interestingly, this effect is much stronger for men than women. When it comes to individual earnings, men have an IGE of 0.56, meaning they retain a lot more of their parents’ advantages than do women, whose IGE is 0.32.

The Proportion of Parents’ Earnings Advantages Passed Onto the Next Generation, by Gender

The Pew Charitable Trusts

But rich women make up for that discrepancy by being more likely to marry—and more likely to marry rich.

How Likely Men and Women Are to Get Married, Based on Their Parents’ Income

The Pew Charitable Trusts

As a result, boys and girls with richer parents go on to live in households that bring in similar amounts of money, even if their individual earnings have diverged.

So what changes could be implemented to promote economic mobility in the U.S.? The authors of the report are tight-lipped when it comes to policy fixes—“It’s really a ‘just the facts’ report,” Grusky insists—but the study’s subtext is that whatever everyone thought we had to do isn’t enough, since the picture is more worrisome than had been previously understood.

In dealing with the persistence of intergenerational wealth, the changes that would be most effective are also the most sweeping: Taking private money out of political campaigns would give more of a voice to people who’d benefit from stronger social policies. Bolstering housing-voucher programs would let poorer families move into better neighborhoods. Increasing taxes at the uppermost end of the income spectrum would redistribute perpetuated wealth. Finding ways to get lower- and middle-income workers to put more money into savings would help them improve their lots.

So, the lesson from this report: Take whatever extreme, politically unfeasible changes everyone thought were necessary to increase economic mobility and make them more extreme and more unfeasible—that might be enough.