Income Inequality, Social Inequality, and Social Mobility


Consider the graph above. It’s pretty obvious that different people are worried about different things. Some people are worried about how long the tail is. I’m more worried about how fat the tail is and how much of that is due to rent-seeking. There are several articles that touch peripherally on this subject I wanted to bring to your attention.

First is this very dense post on trends in income inequality from physicist L. David Roper. A considerable amount of math is required. His most troubling finding is that the mode, the income that the largest number of households have, has been quite steady over time. I also find the relationship between modal income and the minimum wage concerning and note that it tends to support the view of those with strong support for increasing the minimum wage.

Related is this op-ed by Mickey Kaus in the Wall Street Journal:

When I started writing about income inequality in the 1980s, I expected to make a reassuring argument that incomes weren’t growing unequal. That article couldn’t be written. An unceasing barrage of data described an income scale that was pulling apart like taffy. The rich were getting richer faster than anyone else. But even within skill levels or professions—including journalism—the stars were making big money and everyone else was stuck or in decline.

Mickey goes on to express his concern about the loss of social equality that income inequality has carried along with it. He suggests some reasons that social equality has deteriorated:

We can, for example, honor the universal virtue of work by making it the prerequisite for government benefits wherever possible. There’s a reason Social Security checks are respectable and politically untouchable—unlike food stamps, they only go to Americans who’ve worked.

We can also pursue social equality directly, through institutions that mix people from all income levels together, under conditions of equal status—institutions like the draft, for example, or national service. Do we remember the 1950s as a halcyon egalitarian era because the rich weren’t rich—or because rich and poor had served together in World War II?

The draft isn’t coming back anytime soon. But the great social egalitarian hope—mine, anyway—was that Mr. Obama’s health plan might perform a similar function, offering the poor and middle class the same care, in the same hospitals, with the same doctors—and the same respect—that the affluent get (much as Medicare already does).

That doesn’t seem to be the course that the PPACA is taking. Rather it’s separating the American people into those who are covered under the PPACA and those who have more choices in physicians, treatments, medications, etc.

Social mobility is the topic of an article in Slate. A recent study has found that income inequality is not predictive of a decrease in social mobility but other factors are. Here are the factors listed in declining order of their ability to predict:

  1. Family structure
  2. Racial and economic segregation
  3. School quality
  4. Social capital
  5. Income inequality

I don’t think it’s a coincidence that states like Illinois and Mississippi which have very low state contributions to public education also have lower social mobility. Low state contribution ties both spending on public education and expectations of public education to location and the rich and poor are increasingly living in different places (look at the map of relative mobility in this Atlantic article).

27 comments… add one

  • Jimbino

    This post repeats itself and needs to be edited.

  • Thanks. Clearly, there’s a bug in the external editor I used to draft posts.

  • PD Shaw

    Re social mobility. I looked at the underlying report for references to Chicago or Illinois for curiosity sake, and thought the references to Chicago were interesting:

    ” . . . San Francisco has substantially higher relative mobility than Chicago . . . But part of the greater relative mobility in San Francisco comes from worse outcomes for children from high-income families. Below the 60th percentile, children in San Francisco have better outcomes than those in Chicago; above the 60th percentile, the reverse is true.”

    They appear to be using commuter zones, so I assume this suggests better outcomes in Illinois are likely tied to parents in the top 40th percentile removing themselves from the shared institution of education, either by surbanization or private schools. But does this also suggest suboptimal outcomes in San Francisco?

    “The third generic pattern is that urban areas tend to exhibit lower levels of intergenerational mobility than rural areas on average. For instance, children from low-income families who grow up in the Chicago area have signi cantly lower incomes at age 30 than those who grow up in rural areas in Illinois. … In interpreting this comparison, it is important to recall that our definition of geography is based on where children grew up [at age 16], not where they live as adults. 44.6% of children who grow up in rural areas live in urban areas at age 30. Among those who rose from the bottom quintile of the national income distribution to the top quintile, the corresponding statistic is 55.2%.”

    Here, rural appears to be defined as not in an MSA, so Danville (pop. 81,625) is urban, and Quincy (pop. 40,633) is rural. But the main point is that a lot of economic benefit here is being credited to rural Illinois might be the result of moving to places like Chicago, but Chicago doesn’t get the credit. (I’ll also speculate that we are not really talking about truly rural areas, but smaller cities that have three of the five criteria)

  • It would be interesting to see what rural black social mobility was like. My guess is not much.

  • PD Shaw

    That would seem like what the map suggests. If rural social mobility is assisted largely by migration to larger cities, then one has to wonder about what impedes that. Do rural blacks lack the social capital to be comfortable in larger cities; are strong family bonds a barrier to movement when they exist; are the government programs intended to encourage rural economic development in the Black Belt simply misguided? What is the role of the potentially receiving larger city, particularly cities seen as affluent, white?

  • michael reynolds

    There are children in San Francisco? When did this happen?

    Dave, I thought you might enjoy this. Not exactly scientific, but amusing. Unless you’re from Illinois. It seems the Google autofill for “Why is Illinois so _____” is “Corrupt.”

    http://www.huffingtonpost.com/2014/01/27/google-autocomplete-state_n_4673438.html

  • PD Shaw

    People are asking their computer “Why is North Dakota so cold?” I don’t know if that discredits the entire thing or discredits my expectations of my fellow countrymen.

  • What’s even more interesting is the remark that follows to the effect that clearly Rod Blagojevich has had consequences. If they think that Blagojevich is the most egregious example, they clearly haven’t been paying attention. Back in the 80s one investigation, the “Operation Greylord” investigation, yielded several hundred convictions for corruption. The last two governors before Quinn did time for corruption and three previous to that just since 1950.

  • PD Shaw

    Blago got national attention because of the Obama connection; my personal favorite corrupt politician was former Sec. of State Paul Powell, who died with (today’s equivalent) of several million dollars of cash in shoeboxes in the hotel where my wife and I had our wedding reception.

    Also, notice four of the states bordering Illinois:

    Why is Wisconsin so liberal?
    Why is Missouri so conservative?
    Why is Iowa so Democratic?
    Why is Indiana so Republican?

    Some normative expectations aren’t being met somewhere.

  • ...

    Blago got national attention because of the Obama connection

    To be fair, also because Blago was a total clown. He’s the dark-haired Donald Trump.

  • I take exception with that. Describing the former governor as a clown is an insult to clowns everywhere.

  • ...

    Didn’t check on Kentucky, PD? Here are the top completions for Kentucky:

    Why is Kentucky so poor
    Why is Kentucky so racist
    Why is Kentucky so bad at football
    Why is Kentucky so good at basketball
    Why is Kentucky so humid
    Why is Kentucky so boring
    Why is Kentucky so
    Why is Kentucky so Republican

    The blank in the seventh spot was what Google gave me. I also find it funny that even for a state like Kentucky, SEC football questions still top basketball. Woo hoo!

  • Andy

    I wish we had some better metric than households.

  • ...

    I wish we had some better metric than households.

    Those of us that are older can always just look around and see what has changed over our lifetimes. Not scientific, but just having a methodology doesn’t insure much, either. Sailer has been pointing out problems with the study quoted in Slate, I believe it is.

    Frankly I don’t care enough to read the stories. It has been apparent enough that things are going south and have been most of my adult lifetime, even when things were going well for us. I can see it in the empty stores, the people moving backwards, the houses being bought in large lots for cash by investors (which was ofter a symptom of bad things about to happen in Chinese history, FWIW), in the ever increasing numbers of homeless people with children out begging, etc.

    The homeless are particularly troubling. In the middle of all the dog tumult Saturday some guys from one of the banks came by to check out the property on the other side of me, which has mostly been empty for over a year and a half. Save for an instance of squatters, a few months back, who lived there and improved the property while they were doing so. (!!)

    Anyhow, Saturday the guys from the bank discovered that new squatters had moved in. They had hooked the power back up (the guys from the bank showed me how it is done, so new skill!) and moved a bed into the back bedroom. And a crib, a space heater and some diapers. I was told that if I see them again I should call the police. (I probably saw them moving in a couple of weeks ago, but I thought THEY were from the bank.)

    The more I think about the more depressing that sounds, and it sounded bad from the start. I don’t want squatters living there, but if that’s their best option…. I’m not sure I could call them in as long as they behave themselves otherwise.

    And I’ve seen women begging with small children in better areas recently, including Sunday when we went grocery shopping. Right at the entrance to the Ocoee Publix, a decent enough neighborhood and a good store. Depressing as Hell.

  • TastyBits

    @Icepick

    I like how the bank guy wants you to be their security guard. You should have suggested they try pitbulls.

  • Lee

    The fact that women’s roles have changed significantly has affected social mobility, and NOT in significantly. Once upon a time, girls would marry up, generally. The daughter of a blue collar couple might land a job as a secretary, and later land her boss as a husband. Nurses (a different prprofession 50 years ago, and one that tended to draw more working to middle class women, tended to marry doctors. And so on. When women married, they dropped out of the work force, making room for more women. Now adays, men tend to marry women of equal rank. The executive of today rarely considers a lowly secretary marriageable material.

  • Lee

    Also, women now stay in the work force. Most households are two income households, and tend to be roughly equal in wage. Once upon a time, the man was the bread winner. So now you have the rich marrying rich (or high wage earners marrying high wage earners) and the household income doubles. While the lower income marrying lower income. Sometimes they lose wages, as

  • Lee

    Oops! …as the woman will take fewer. Hours or move to a lower paying job that gives her flexibilty for the kids. BTW, raising the minimum wage, it seems to me, screws the lower end above them. Suddenly, you have reasonbly skilled people, whoe WERE making a decent amt above minimum wage, now making barely more than minimum wage. Unless EVERYONE gets a raise? Hello, inflation! Welcome back, 1973!

  • Red Barchetta

    The two most interesting points for me in the physics guys material are the fact that the Gini coefficient, despite all the angst currently, has been relatively stable since 1970 – that’s 40+ years. The smoking gun for the very rich outpacing all others is of course the mean/median. (By the way, does the physics guy include benefits and transfer payments? It would make his implicit argument weaker.)

    To put numbers to a comment I made previously..

    This gender and race demo data on median income, although with incomes attached it serves as a crude proxy for that as well. (US Census Bureau) First 1980

    White Males 42% of workers median income $30,700
    Non-White Males 7% of workers median income $19,300
    White Women 43% of workers median income $11,200
    Non-White Women 8% of workers median income $10,200

    2005:
    White Males 37% and $35,200
    Non-White Me 12% and $22,300
    White Women 39% and $19,600
    Non-White Women 12% and $16,500

    Overall weighted growth in median income is only 3% (without bennies) – essentially stagnant, but

    The increase for the two lowest income sectors, White women and non-white women is 75% and 62% respectively, far outpacing the others.

    For White men and non-white men 15% and 16% respectively.

    The “dilution” of the 1980 highest level earners – white men – masks an important phenomenon: the two lowest income earning groups in 1980 have by far the greatest growth rates in median income over the 25 year period. We may wish a lot of things about incomes, but I wouldn’t wish less for those groups – that’s quite a robust growth rate.

    And I can guarantee you that taking income from “the rich” is a fools errand and counterproductive. Remember when the “rich’s” worthless and conspicuous consumption on yachts was to be taxed for the benefit of those of lesser income? The left managed to unemploy, uh, boatloads of boat makers………….and the rich were no less well off.

    And contrary to a comment I saw earlier that made me cringe – something about the rich “sitting on it” (their income/wealth) that’s just a dumb statement. It doesn’t go into the mattress, it goes into the capital markets where workers and consumers reap the lion’s share of the benefit of risk capital underwriting risk ventures.

    I don’t have an answer for reducing income equality or whether it even should be reduced. Its basic roots lie in productivity. And that which does not lies in subsidy/rent seeking. And voting for bigger government, the very mechanism by which subsidy/rent seeking is achieved will help how??

    But I do know one thing. Those increases in white women and non-white women incomes ain’t no artifact of the minimum wage, or taxing the rich. Its skills, productivity and job opportunity. Minimum wage and kill the rich are just ineffective and boneheaded feel good nostrums.

  • ...

    Describing the former governor as a clown is an insult to clowns everywhere.

    I note that you didn’t object to describing him as a dark-haired Trump.

    I like how the bank guy wants you to be their security guard. You should have suggested they try pitbulls.

    The bank guys weren’t bankers so much as handy-men and building inspectors. As for the pitbull suggestion – Dude, really?

  • Ben Wolf

    @Lee

    The only way someone making an increased minimum wage could screw a person over is if that person derives their self-worth by looking down on those with lower incomes. You’re not really suggesting anyone should give a damn about losing their ability to sneer, are you?

    Also, inflation in the 70’s might have had something to do with the price of oil increasing by a factor of ten. There was no inflation problem when real wages grew in the previous thirty years so let’s not promote myths.

  • Lee

    Wolfie–Okay, so you really think that if a secretary earns 2x more than a burger flipper, and then minimum wage goes up, that that secretary will get a concommitant raise?

    Ri-i-i-i-i-i-ght… And I know of a bridge in Brooklyn for sale, cheap.

    No, that secretary will get a LOT less real wages. She’s in a job that requires far more skills than flipping burgers, but she’ll then be makely BARELY more than one. Meanwhile, the colst of burgers will go up, to pay for the raise in minimum wage. And the cost of fas will

  • Lee

    …cost of gas will go up, to pay for the raise for the attendant, the cost of everything will go up, to offset the increase in minimum wage… and EVENTUALLY, there will be a slight increase in wages for the low end professional, like a secretary. Only instead of 2x minimum wage, she may get 1.5x or 1.75x it. She’s just been screwed, dude.

  • Ben Wolf

    @Lee

    You’re misusing the terminology. “Real” wages does not mean “how much more income you earn than some loser who flips burgers”. Furthermore you have no evidence whatsoever an increase in the minimum wage will make hamburgers more expensive. Dollars do not instantly devalue themselves when people earn $9.00 per hour.

  • Lee

    Bennie, Bennie,Bennie–you’ve clearly never run a business. Your costs go up, you increase prices, to cover the expense. “Costs” amazingly enough include the wages paid to employees. And when prices go UP, and salary does not, “real wages” go down–because they buy less.

    And believe me, when the minimum wage is raised, the first wages that go up are the minimum wage earners. The second wages that go up tend to be the salaries of the people running the place. And EVENTUALLY, they will get around to raising the salaries and wages of those further down in the organization. Until, amazingly enough, the minimum wage “real wage” hasn’t barely changed at all.

    If you have run a business, and not raised prices as costs increase, I would say you are less running a business and more a charitable oganization. And good for you!

  • Red Barchetta

    Without getting into a debate about the incidence of taxes or min wage increases, if some are born by capital/ownership their are fewer available for investment with attendant negative consequences for workers and consumers.

    Not 1 in 100 understand this. Its just so easy to stop at the notion that the wages of a few are increased even though they pay for them in other ways.

  • jan

    Ideologically motivated social and/or financial engineering rarely works out the way the theorists see it as working out. Instead, pesky unintended consequences disrupt their euphoric end game, often creating more problems and misery for the people that government force and finessing intended to help.

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