Denmark and Utah, once again
Last month I did a post pointing to a number of surprising similarities between Utah and Denmark. The NYT just found another:
In previous studies of mobility, economists have found that a smaller percentage of people escape childhood poverty in the United States than in several other rich countries, including Canada, Australia, France, Germany and Japan. The latest study is consistent with those findings.
Whatever the reasons, affluent children often remain so: one of every three 30-year-olds who grew up in the top 1 percent of the income distribution was already making at least $100,000 in family income, according to the new study. Among adults who grew up in the bottom half of the income distribution, only one out of 25 had family income of at least $100,000 by age 30.
Yet the parts of this country with the highest mobility rates “” like Pittsburgh, Seattle and Salt Lake City “” have rates roughly as high as those in Denmark and Norway, two countries at the top of the international mobility rankings. In areas like Atlanta and Memphis, by comparison, upward mobility appears to be substantially lower than in any other rich country, Mr. Chetty said.
It doesn’t make much sense to compare inequality in a large ethnically diverse country with inequality in smaller and more homogenous countries. How many Roma (aka gypsies) born in Hungary end up as rich as the typical Vienna resident? And yet both groups are “caucasian” and live only a few hundred miles apart. That’s the “hard problem” that even the Europeans haven’t been able to solve.
However ethnic diversity is not the only factor explaining America’s high level of inequality.
HT: Tyler Cowen
Update: Lars Christensen has a post that discusses an article I wrote for an Australian think tank. I will speak at their conference near Brisbane next month. To save time I’ll quote Lars:
Would you like to read more? You can if you get a copy of Australia’s leading free market think tank Centre for Independent Studies’ excellent quarterly journal Policy. Policy is edited by Stephen Kirchner. Stephen also blogs at Institutional Economics.
You can subscribe to Policy here.
And there is more good news for the Australians. Scott will soon visit the country Down Under. Scott will attend CIS’s Consilium conference next month.
Tags:
22. July 2013 at 11:11
Maybe being Mormon somehow selects for being a reliable worker? Mormons are presumably compliant people who don’t ask a lot of questions of their superiors””otherwise they’d have to leave the church””and there is great cultural pressure on them to get solid middle class jobs right? They are famously easy to get along with, would make much better office workers than myself. (supposedly they also dominate entry and midlevel CIA jobs for these reasons)
If it is the Mormon dynamic at work, I’d wonder how much of it is a treatment effect (i.e. not drinking and being expected to support a family), and how much is simply filtering certain types of people out of the Utah population.
22. July 2013 at 12:07
http://www.aei-ideas.org/2013/07/yes-the-middle-class-has-been-disappearing-but-they-havent-fallen-into-the-lower-class-theyve-risen-into-the-upper-class/
‘Bottom Line: In other words, America’s “middle class” did start largely disappearing in the 1970s, but it was because they were moving up to a higher-income category, not down into a lower-income category. And that movement was so significant that between 1967 and 2009, the share of American families earning incomes above $75,000 more than doubled, from 16.3% to 39.1%.’
22. July 2013 at 12:14
For a good laugh at Paul Krugman’s expense;
http://www.newgeography.com/content/003836-detroit-bankruptcy-missing-point
‘Nobel Laureate Paul Krugman tells us that “sprawl killed Detroit” in his The New York Times column.
‘The evidence is characterized as “job sprawl” – that a smaller share of metropolitan area jobs are located within 10 miles of downtown Detroit than in the same radius from downtown Pittsburgh….’
The punchline;
‘Comparing the “job sprawl” of Detroit and Pittsburgh not only misses the point; it also glosses over differences that render any comparison virtually meaningless.
‘….Nearly Half of Detroit’s 10 Mile Radius is in Canada and a Lake:But other things are not equal. Approximately 40 percent of the area within 10 miles of downtown Detroit is in Canada or in Lake St. Clair. Canadian jobs are appropriately excluded from the Detroit “job sprawl” numbers developed by the Brookings Institution (Figure), and no 10 mile radius comparison can thus be made to Pittsburgh. None of the 10 mile radius from downtown Pittsburgh is in Canada and none of it is in a large lake.’
22. July 2013 at 13:07
Always interesting to adjust for ethnicity or geography. It often changes inter-OECD comparisons remarkably, e.g. life expectancy.
America’s high level of inequality
I proudly support noncoercive income diversity.
22. July 2013 at 13:12
@Justin Irving
I grew up as a Mormon in a heavily Mormon, middle-class suburb of Salt Lake City (Sandy), and I would definitely say there was an expectation that you should work hard and get a job that would support your family, along with a general pro-education push. The “no drugs” factor was important as well, although I knew a couple of people in the ward who were struggling with drug addiction, and one guy my age who overdosed on prescription drugs and died.
This was in a middle-to-upper-middle class neighborhood, though, so I don’t know how much of that would be in common with less Mormon areas.
The CIA thing may be due to all the missionaries who come back at 21 years of age and can speak a foreign language. That might be why the NSA is opening up a big place near Salt Lake City.
22. July 2013 at 13:56
Will be great to have you in Oz, Stephen. Any chance you will meet people from the RBA? After complimenting their staff – including their ‘janitors’ – so effusively, they owe you some tea and biscuits at Martin Place.
22. July 2013 at 13:56
Oops, sorry , I meant Scott!
22. July 2013 at 15:26
“Fifty-one percent of survey respondents said monetary policy is too easy, compared with 10 percent who said that the current stance is too tight.”
http://www.bloomberg.com/news/2013-07-22/fed-seen-tapering-qe-in-september-by-half-of-economists-surveyed.html
22. July 2013 at 15:36
Wait wait wait. This can’t be right.
Denmark can print its own currency. Utah cannot.
22. July 2013 at 16:20
@ Patrick Sullivan
A rejoinder to the AEI post is to take into account the fact that median income has increased over the same period, from roughly $42K to $54K at its peak, or about a 25% increase. So of course households are moving upwards, if all you’re looking at is total inflation adjusted income. This is why quintiles are preferred over absolute income levels to understand distribution.
Someone making $25K in 1967 was making 60% of the median, while someone making $25K in 2000 was making only 46% of the median. Overall the AEI chart demonstrates widening income disparities, more than disproving them.
22. July 2013 at 16:39
Justin, The Mormon factor certainly plays a role.
Patrick, Excellent links. I can spend hours at that geography site.
Rajat, I hope to meet a few.
ChargerCarl, That’s why I say professional macroeconomists caused the Great Recession.
Alan, But surely it matters whether inequality is caused by the middle getting richer, or the middle getting poorer.
22. July 2013 at 16:55
Scott,
I am not sure the middle is getting richer but rather working longer hours. The participation of women in the labor force has steadily increased since the 60’s and I suspect this accounts for much of the increasing household income. The lower income group, I suspect, are largely single breadwinner households.
22. July 2013 at 17:56
What’s the Seattle equivalent of Salt Lake City’s “Mormon factor”? Seattle is a rich, well-educated, ethnically diverse city with the same degree of social mobility as Denmark, which is also rich and well-educated, though not as diverse. What do you make of that?
p.s. I live in Seattle and have no idea what to make of it.
22. July 2013 at 18:30
Certainly there is an argument that middle and upper class women are monetizing more of their activities.
The study that is a subject of this post I find interesting, but I wonder how different it would be if it used city specific income quintiles instead of national income quintiles? Or if it adjusted for cost of living, or otherwise used consumption?
In some of the cities studied, the median household and per capita income is quite high (Raleigh, Atlanta), but the income among people at the very top of those distributions is not quite so high. At the same time, the cost of housing (and other things, but housing is the big one) is fairly low, so the standard of living is high.
North Carolina in generally is a fairly poor state by income measures (12th poorest), but has been growing quite a bit since the cost of living (esp. housing) is low. Someone who is top quintile in NC may not be top quintile in the USA by an income measure, but may easily be so by a consumption measure.
Many of the cities that in the study have supposedly low mobility are very popular destinations for internal US migration, whereas many of the cities that have high mobility have net migration away for internal US residents, though many have high immigration from overseas. (Note that the study looked at US citizens over time, as it had to.) It certainly seems strange that so many cities that are such hot destinations for internal migration would score poorly on such a stat.
Also note that the study found a strong positive correlation between high housing prices and high income mobility– but doesn’t it seem odd that people who were poor and presumably renting would be helped by high housing prices?
22. July 2013 at 18:36
I think that the study partially found that areas where a greater percentage of the people have household dollar incomes in the national top 20% have more people who grow up there poor end up in that national top 20%. That may not be the whole thing, but it’s part of it.
Areas with lots of immigrants do well, and Seattle is one. Some children of immigrants do count (if their children were born in the US in 1980 or 1981), and there certainly are immigrants who come to the US with high cultural capital but low cash incomes initially, and then do well for themselves.
22. July 2013 at 19:54
@AlanInAZ
I agree. As Tom Sowell says, any time someone uses household data, you can be sure they’re up to no good.
It is hard to make sense of stagnant CPI-deflated wages (or any deflator) and the supposed rise upper income families as a share of total. Women working more and better jobs might be behind it. I don’t buy the divorce argument (which I smell coming) without hard data either. A divorced woman with a child is a ‘family’, but gets an often outlandishly lavish income stream from the former husband. So the women-working-effect could well bias intertemporal comparisons of family income.
22. July 2013 at 20:37
What do you think about Kirchner’s earlier post?
http://www.institutional-economics.com/index.php/section/australia_as_poster_child_for_the_new_market_monetarism_march_quarter_editi
23. July 2013 at 05:08
People really should not mention “mobility” in the USA without mentioning the War on Drugs. The US has (depending on which drug and which study you believe) 2-5 times the drug use of Europe (the UN says 2x for pot, 5x for opioids and heroin), and a much higher incarceration rate.
A significant fraction of the poor are concentrated in urban areas, which are also associated with high crime. Pittsburgh never had the high concentration of urban poor that Baltimore and Chicago do.
In the inner city the war on drugs crates a viscous circle of incarceration and imprisonment and crime that basically dooms people. Once you have a felony drug conviction, no matter how hard you try to clean up your life, its very hard to get a job (even Walmart does background checks). Baltimore is a mess. Regardless of which economic policy you favor, it does not help people who have a drug conviction.
There are other complicating factors that contribute – many cities like Detroit have very high structural deficits (i.e. unfunded pensions) and people / companies move out because a large chunk of govt revenue goes to debt service not services like schools and police.
poor services + concentrated urban poor + war on drugs = no mobility. I am kinda hoping that Detroit will provide a model for urban renewal (bankruptcy) if the Fed govt stops enforcing the stupid drug laws now that states are moving to decriminalize.
23. July 2013 at 06:32
Prof. Sumner,
Have you seen this new post by Noah Smith?
Is the interest rate on reserves holding the economy back? No!
http://noahpinionblog.blogspot.com/2013/07/is-interest-rate-on-reserves-holding.html
23. July 2013 at 06:35
Lots of parents work hard to succeed in life specifically because they want to give a better life to their children.
This presents a paradox: if a society has perfect income mobility, it’s probably because the affluent don’t have any family values.
Of course, the reverse is true, too. If there is no income mobility, it’s because society isn’t a meritocracy.
What’s the right way to balance that?
23. July 2013 at 07:05
‘A rejoinder to the AEI post is to take into account the fact that median income has increased over the same period, from roughly $42K to $54K at its peak, or about a 25% increase. So of course households are moving upwards, if all you’re looking at is total inflation adjusted income. ‘
I thought median income had ‘stagnated’? But, since both $42K and $54K are within the $25-$75K range, what’s your point?
23. July 2013 at 07:37
Alan, I have lots of posts pointing out that income inequality data is almost meaningless. I’ve spent time in all 5 income quintiles (8 years in the bottom), and that says nothing about how I was doing in any meaningful sense.
I have doubts about the claims that Americans work harder than before.
Greg, It may depend on the type of diversity. Metro Seattle has relatively more Asians and fewer blacks than many other US cities. Asian immigrants often do much better than their parents. High tech industries also lead to upward mobility. That’s just a guess.
John and dwb, Good points.
Steve, I don’t know.
23. July 2013 at 07:45
Saturos, Kirchner may be right. That’s why they call Australia the lucky country.
Travis, IOR may or may not be important, but not for the reasons outlined by Noah. Monetary policy works by changing NGDP via the hot potato effect, not by changing the amount of bank lending. Lower IOR makes base money more of a hot potato.
23. July 2013 at 07:46
What has the blogosphere changed your mind about? (It changed Cardiff Garcia’s mind about NGDPLT) http://www.cardiffgarcia.com/blog/2013/07/the-econ-blogosphere-has-changed-my-mind-about.html
23. July 2013 at 08:13
Top 20% of cash income for a household in the US is about $105k/ year. Various online cost of living calculators suggest that $105k / year in the Washington-Arlington-Alexandria MSA is equivalent to only $70k / year in Atlanta or Raleigh. $70k / year is 65th percentile in household income.
The difference in Atlanta and Raleigh median and mean household incomes is much narrower than that cost of living difference.
Therefore, one might expect that even if it’s harder for someone poor to end up with at least $105k / year in household income in Atlanta or Raleigh, it may be easier for them to end up with at least $70k / year.
I just have a tremendously hard time believing a study that suggests that high housing prices are good for the poor.
23. July 2013 at 08:33
Scott: “Alan, I have lots of posts pointing out that income inequality data is almost meaningless. I’ve spent time in all 5 income quintiles (8 years in the bottom), and that says nothing about how I was doing in any meaningful sense.”
That may be a valid point in some different context, but we are talking about inter-generational mobility. That is compare your income in your 30-40ties to your parent’s income in their 30-40ties.
But I have an open mind on this one so it would be very good to have some pointer to an actual source that provides good critique of various inequality measures by taking into account the best defense arguments of the methodologies.
23. July 2013 at 09:53
With nearly 500 votes in, a solid third of voters on MarketWatch think money is too tight: http://blogs.marketwatch.com/capitolreport/2013/07/23/poll-should-the-fed-fear-inflation-or-deflation-more/?link=sfmw
23. July 2013 at 09:55
Prof. Sumner,
Have you seen this?
George Selgin: “Scott Sumner Has Got Me all Confused”
http://www.freebanking.org/2013/07/23/scott-sumner-has-got-me-all-confused
23. July 2013 at 13:48
Wow.
Ezra Klein: “Right now, Larry Summers is the front-runner for Fed chair”
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/23/right-now-larry-summers-is-the-front-runner-for-fed-chair
23. July 2013 at 13:52
Re: George Selgin, Bill Woolsey wrote a good response:
http://www.freebanking.org/2013/07/23/scott-sumner-has-got-me-all-confused/#comment-3848
25. July 2013 at 14:04
Scott said
“I have doubts about the claims that Americans work harder than before”
Krugman discussed this some months back –
http://krugman.blogs.nytimes.com/2013/01/26/what-we-have-less-of/