Social Mobility and the Deficiencies of Measure

Social Mobility and the Deficiency of Measure

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 identifies a deficiency of the most popular measure of economic mobility.  Measuring the movement from income groupings can conceal a lack of mobility, showing mobility taking place when the gain may be insignificant.  

Instead of data being collected and presented to show a mobility taking place when someone in one quintile moves to the next, a better measure of mobility would be the median and average gain in income from each quintile.  Instead of data revealing that 28% of people in the bottom 20% reach the next quintile, the average and median amount of the increase would be more illustrative of what mobility is actually taking place, where a few percentage points of income is insignificant and should not be considered mobility.   

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

Beginning in the 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 20% to where in the 20 to 40% are these people moving? Is it mobility if your income is in 19%, and suddenly you find yourself at 22%? 

In both aspects of mobility, possessing the means to create opportunity, and an improvement in 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.  This means a person may go from being in the 19th percentile to the 21st percentile, which in actual dollars is very indistinct circumstantially.

15% of the bottom 20% made their way to the 40 to 60% of income earners. 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.  I’m not arguing that movement into the 4th quintile from the bottom quintile is insignificant, only that if he or she is moving into the lower end of the 60 percentile, although there are definite improvements by being able to afford a more comfortable quality of life, the individual is unlikely to be positioned to comfortably accumulate wealth, due to their income still being nearly equal to their expenses. 

This is the place where the state economist will place the responsibility of a lack of wealth accumulation on the population.  He will use the logic that if an individual was able to survive in the bottom 20% of income earners and he finds an income opportunity that triples his income, why can’t he live as he did in the bottom 20% and save his new found excess?  The response is the bottom 20% and even the next 20% are in a position where they do not make enough to meet their expenses, as is evident by the fact that the bottom 40% of wealth holders possess negative wealth.  Most are living assisted by others, in cooperation with others, or going without what at least half the country would consider basic necessities like a car, or basic conveniences.  Otherwise such a person accumulates debt in effort to maintain semi normal standards. 

I consider being in the 60 to 70% decile of income earners as being able to semi comfortably afford normal expenses.  With the median individual income being only 31k per year, being in the 60 percentiles, it is still unlikely individuals at that income level can afford much if they want to live alone.  The reason someone in the bottom 20% cannot live as they did when they reach the 60 percentiles, is because when they were living in the bottom 20%, they were likely going without many things that people in this country consider as being normal necessities.              

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 negative 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%) possesses only 2%.

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 the comfort class and potentially become capable of creating their own opportunity to a meaningful degree.

Beginning in the 20 to 40%

Of those who begin in the 20 to 40% range, 18% will decline into 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.

Beginning in the 60 to 80%

Of those beginning in the 60 to 80 percentiles, 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, and the stability that accompanies an income sufficient to provide for your needs and save money. Money that can be used to create opportunity.

Beginning in the 80 to 100%

Once in the top 20% of income earners 80% will remain there, with 12% who were probably near the 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 individual’s 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.

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 in the 19% and moves to 22%, has represented social mobility when the real income gain may be as little as $30 per week. In consideration of beginning in comfort and reverse mobility, the same applies: if someone is in the low 80s and descends into the high 70s the slide is not that significant but it suggests that failing for a person with money is more probable than it actually is. 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%.

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. I 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 who saved $50 a week for 20 years.  There will be other exceptions where people have negative wealth because of a great amount of debt that exceeds a great amount of assets.  Still the most predictive quality of being without wealth or having negative wealth is an income ranking in the bottom 40% of the distribution for a sustained period of time.  

More telling than income mobility is 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.  If we really want to measure wealth, if we exclude the equity in one’s house, we would discover that people in the bottom 70% of the wealth distribution probably have almost no wealth from income accumulation.  Where if they were not able to purchase a home and their mortgage was rent, they likely wouldn’t have any wealth at all the same as the bottom 40%.

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