The Mirage of Income Mobility

A recent study by Raj Chetty and several co-authors suggests that income mobility has not greatly changed over the last generation. It is still as easy to move up the income ladder as it once was, contrary to the premise of many politicians who want to justify new government programs to increase income mobility. But why should we care about the degree of income mobility in society? Would greater churning improve society, such that, in every generation, the children of the poor would become rich and the children of the rich would become poor? This merry-go-round would open up prospects for the current poor but could also mean more conflict, as the rich would redouble efforts to use the law to keep their children on top.

Perhaps the focus on income mobility serves as a proxy for concern about social structures that prevent people from rising to the heights their talents warrant. And certainly if such structures are backed by the force of law, they are very bad and should be eliminated.  Titles of nobility, for instance, are to be condemned but fortunately the United States Constitution already forbids them.   Other state-forged manacles impede the rise of the talented.  For instance, lousy K-12 education supported by the taxpayer dollars hurts the poor in particular and is in urgent need of reform.

But changes in income mobility, even if they were demonstrated, are poor proxies for gauging the existence of such barriers, let alone their root causes. A society that dismantles legal barriers to mobility and becomes more meritocratic may well have less income mobility once the barriers are eliminated than during the transition, when people without merit but with connections sink toward the bottom. Moreover in a meritocratic society, people tend to marry people of comparable ability. Such assortative mating almost certainly decreases income mobility, because it makes it more likely that children of smart and high-earning parents will also be smart and high-earning. Yet it seems unlikely that any liberal society wants to interfere with marriage decisions.

Sometimes the concern is that families in the upper echelon will use their wealth to pass on advantages to their children. Greg Mankiw recently did some back of the envelope calculations that cast doubt on the centrality of such expenditures to maintaining income ranks. But even if such intergenerational transfers did provide lasting aid, should they be discouraged? Helping one’s children is a great good, at the core of human flourishing. And in a free market amassing wealth to achieve that goal generally helps unrelated people as well, as the necessary labor creates innovations or ways of financing and distributing them.

By all means improve education to help children shoot for the stars and repeal laws that prevent people from reaching their full potential.   But stop focusing on the mirage of income mobility.