Social Mobility and the Deficiencies of Measure

Social Mobility and the Imprecision of Substantive Measure

Abstract

The following was a note to substantiate the assertion “social mobility is very limited in the United States with most people ending up where they started or not far from it”.

In addition to citing the numbers associated with income mobility and explaining the significance, the article demonstrates the deficiency of the most popular measure to demonstrate mobility in economics. Which is to measure the movement from income groupings which can hide a lack of mobility, showing mobility taking place when the gain may be insignificant.

Numbers and Explanation

Social mobility as measured by quintile income groupings beginning with the bottom 20% of income earners.

Bottom 20%

Of those who come from the bottom 20%, 39% will stay in the bottom 20%.

28% will move to 20 to 40%, which to some, being a little more than 1 in 4 people is evidence of the opportunity for mobility. However, from where in the bottom to where in the next bracket are you moving? Is it mobility if your income is 17, 18, or 19% and suddenly you find yourself 22, 23, or 24%? In both aspects of mobility, possessing the means to create opportunity and an improvement in the quality of life, the effects are nearly unperceivable. For the reinforcement of the American Myth, these are numbers that qualify the great opportunity that exists as a result of the US economic and political systems. We should bear this in mind for all brackets because what you will see, is that most mobility, what little there is of it, takes place from one bracket to the next, and rarely do people move two brackets. Again, this means a person may go from being in the 18th percentile to the 21% which in actual dollars is very indistinct circumstantially.

15% of the bottom 20% made their way to the 40 to 60% of income earners. Surely this is mobility of significance, even if it is reached by only about 1 in 8 people at the bottom? The bottom 60% possess only 1.9% of wealth. Which tells us what about their income? It tells us the income of someone in the bottom 60% rarely earns enough for the creation of wealth. Wealth is surplus income, meaning those without wealth have an income that barely meets their expenses. Now, the bottom 60% of wealth holders may not be the same as the bottom 60% of income earners, but chances are there are very few who earn higher or lower incomes and are any significant degree different on the scale of wealth holders.

11% of the bottom 20% will reach 60 to 80% of income earners. Where one falls in this quintile is of great significance. In terms of wealth holdings, 60 to 70% possess 3.2% of wealth, which is slightly more than the entire bottom 60% combined, and roughly about a third of what this decile would possess if all wealth was distributed evenly.

Only 7% of people who begin in the bottom 20% will make it to the top 20%. Moving from the bottom 20% to the bottom 40 or even the bottom 50% is mobility of very little significance. The bottom 50% possess 1.2% of wealth which tells us people in the bottom half of income earners are without an adequate amount of income to meet expenses and have money left over. The bottom 40% possess -1.2 percent of wealth, meaning their income is not sufficient to meet their expenses and have what most consider to be necessities they go without. 2 out of 3 people who begin in the bottom 20% of income earners are going to stay poor, as even achieving mobility to the upper echelon of the next bracket at 40% still leaves you without the ability to accumulate wealth. The bottom 50% possess only 1.2 % of wealth, while the next decile (60%) possess only 2%.

Some may contend that I am trying to not give credit to the mobility that is taking place, but I acknowledge the movement, even if it is only moving from the top of one quintile to the bottom of the next, but what I am bringing to peoples attention is the significance of this mobility. What do the numbers mean to the people being counted? I’m simply pointing out that in many cases movement between quintiles that has little or no impact on an individual’s quality of life is irrelevant movement and speaks to the limited amount of opportunity that exists for Americans in the bottom 60% of income earners and wealth holders.

2/3rds of the bottom 20% remain poor, and only about 12.5% (movement to the top 80 to 100 and ½ of 60 to 80, counting 70 and up as half) or 1 in 8 will reach a comfort class and be capable of creating their own opportunity to a meaningful degree.

20 to 40%

Of those who begin in the 20 to 40% range, 18% will decline into to the bottom 20%, 35% will remain in the 20 to 40% range, meaning over half will stay the same or be worse off.

24% will reach the next quintile, 40 to 60% of income earners. Mobility that doesn’t become significant if we are talking about a few points from the high 30s to the low 40s, or much of a difference overall until we reach the 50s, where some in this income range are able to at least meet their expenses.

13% will reach 60 to 80%,

10% will reach 80 to 100.

I will comment on the trend as we progress through the remainder of the numbers.

60 to 80%

Of those beginning in the 60 to 80 percentile, 39% will remain there and 37% will enter the top bracket.

Those in the 60 to 80 percent of income earners are in the comfort class and once you’re in the comfort class, remaining there and moving up is not that difficult. Which speaks to the advantages the comfort class has over the rest of the population, generally free of the constant stress and struggle of meeting necessary expenses, the stability that accompanies an income sufficient to provide for your needs and save money. Money that can be used to create opportunity.

80 to 100%

Once in the top 20% of income earners 80% will remain there, with 12% who were probably near border anyway falling to 60 to 80%, which is still comfort class. Only 8% will ever see an income level ranking in the bottom 60%.

As I have stressed in other areas, an individuals ability to create opportunity depends on the money they possess or have access to which is demonstrated by the fact that there is little economic mobility for the bottom 60 to 70% of the country. Reminiscent of the Adam Smith truism that with a small amount of money one can grow a large fortune but the difficult thing is finding the little to begin with.

This data comes from the DC area and I chose it because the semi -recent studies I seen on national social mobility lack the straightforward information of who goes where that is present in this study. Far from cherry picked however, as an intergenerational study from a UC Berkely paper cites a Cambridge source that follows the income from 1979 to 2000 and demonstrates that 45% of people born to the poorest quintile remain in the poorest quintile with 27% moving to the next highest quintile which would be even more supportive to substantiating the assertion “social mobility is very limited in the United States with most people ending up where they started or not far from it”. Some would say the data is not current which is a somewhat fair criticism except for the fact that it is still in line with the most recent data. What I liked about the DC study is it is a very large sample size (22,000) of the overall people it represents (693,000).

The truth is, all social mobility studies tell us very little about social mobility. It tells us people from a very large group have achieved enough of a gain to qualify them to be considered part of another very large group. What they do not tell us is how far those people went. This relates back to what I wrote above that someone who is 18 to 19% and becomes 21 to 22% has represented social mobility when the real income gain may be as little as $30 per week. In consideration of economic security the same applies, if someone is in the low 80s and descend into the high 70s the slide is not that significant but it is suggestive that someone from the top can fall. I would risk asserting that scarcely are any of the top 20% of income earners who descend into the lower classifications from the top 10%, and likely none are from the top 5%. This should not represent mobility.

What is needed is a study that shows individuals who make x amount per year now make x amount per year. The data exists but it is expressed in these large groupings either due to academic laziness and ease of expression, to obscure results, or the deficiency of the trained academic mind to recognize a flaw in an orthodox method of study and analysis, and creatively overcome the flaw to provide more useful information to the public.

The greatest deficiency of this note is comparing income groupings to wealth holding groupings. I did assert that the middle and bottom of wealth holders probably correspond to the middle and bottom of income earners and I know this is not completely accurate, but risked the assertion because I haven’t seen a study of the comparison and feel like it cannot be that far off. Of course there will be exceptions of rare people living thrifty on 30k per year and saved $50 a week for 20 years. The same as there are probably exceptions of someone earning 100k per year and has little more than a house and a few cars to show for it.

I rarely cite income numbers and groupings because wealth is a better indicator of ones quality of life. At what point does one become able to meet their expenses and have money left over? This is the reason why my class distinctions break down differently than common groupings. I typically view distinctions beginning in the bottom 80% compared to the top 20% because of how little financial wealth is held by the bottom 80%, roughly 4% from 50% to 80%, less than 1% for the bottom 50%, and 95% held by the top 20%. Then I distinguish between the top 20% in 19.9% and the .1%. You have a large underclass with varying degrees of quality and opportunity in life represented by the bottom 80%, despite the overlap of the 70 to 80% being the bottom members of the comfort class. The 19.9 percent representing the affluent comfort class, and the .1 percent representing the ruling interest.

Financial wealth is more important than wealth overall because financial wealth represents assets that are easily convertible into cash, which either is, or is easily convertible to capital and ones ability to create their own opportunity. Whereas overall wealth includes assets that serve a purpose of necessity like a car or house.

More telling than income mobility would be wealth mobility and even more telling would be financial wealth mobility. But using wealth as the measure of mobility would be a fruitless endeavor because it would demonstrate that there is nearly no mobility for the bottom 70 to 80%. A few percentage points representing people who accumulate near the middle and upper middle, with probably 10ths of a percentage point for those at the bottom ever achieving any holdings of any significance.

The article from The Atlantic, written by Alana Semuels, entitled “Poor at 20, Poor for Life” dated July 16th 2014 quotes the findings of a research paper written by economists Michael D. Carr and Emily E. Wiemers of The University of Massachusetts, Boston. The research consisted of comparisons between two 15 year periods and measured how social mobility decreased from one span (1981 to 1996 compared to 1993 to 2008). Carr found “the probability of ending where you start has gone up, and the probability of moving up from where you start has gone down”. Contrary to popular belief, education did not have a bearing on ending up better than where you started, as a college education did not lead to increased economic mobility.

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