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Mobility has been weak--since the Nixon years

“Inequality has deepened and upward mobility has stalled,” Obama likes to say. But the connection between the two is more complicated than you think.
A man sleeps on the stairs of Grand Central Station as commuters pass by on Christmas Eve in New York, Dec. 24, 2013.
A man sleeps on the stairs of Grand Central Station as commuters pass by on Christmas Eve in New York, Dec. 24, 2013.

“Inequality has deepened,” President Obama said in his State of the Union speech. “Upward mobility has stalled.” Is there a connection between these two dismal trends?

That more income inequality translates into less upward mobility has been a frequent theme for Obama. It’s no mystery why. Conservatives often say that we should care not about equality of outcomes but about equality of opportunity. But if inequality bears an inverse relationship to mobility, then even the right has to care about income disparity.

That’s why Obama said “inequality” only three times in his speech but “opportunity” 12 times. And it’s why Republicans have lately at least pretended to care about income inequality, discarding Mitt Romney’s stance that to talk about it was to engage in “class warfare,” and that it was best discussed “in quiet rooms.”

Some experts, though, dispute that income inequality has any bearing on upward mobility. And just this month two important studies by Harvard and Berkeley’s Equality of Opportunity Project complicated the discussion in significant ways.

Is inequality bad for opportunity? Has Obama been correct when he’s said that the “ladders of opportunity into the middle class” that he referred to in Tuesday's speech get harder to climb as the rungs grow farther apart?

Before the Harvard-Berkeley studies, an honest answer would have been, “Yeah, probably, but there’s room for disagreement.” Now one is obliged to add: “And not in the way Obama previously thought.”

Before plunging into what’s changed, let’s be clear on what has not changed: current social mobility in the US is quite low. You still can’t argue (as Rep. Paul Ryan was doing as recently as 2011) that extreme inequality is OK because it’s the price Americans pay for high mobility. If that’s the price, then Americans are getting cheated.

The best measure of mobility is the extent to which one person’s relative position in the income distribution differs from that of his or her parents at a comparable age. If it differs a lot, then mobility is high. If it differs only a little bit, then mobility is low. Think of it as a kind of non-biological heritability.

As recently as 1988, economic experts believed that in the US., this heritability was low—only about 20%. But starting in the early 1990s better data became available showing income heritability to be at least twice that—40 to 50%. One expert calculated that for American males, income was more heritable than height or weight. This meant that far from being exceptionally mobile, the US was, relative to comparable nations, exceptionally immobile, trailing, for instance, France, Spain, Germany, and even Canada.

All of that’s still true.

What’s not true, the Harvard-Berkeley studies indicate, is that the US has become any less mobile during the 35 years that income inequality has been growing. Mobility was pitiful in 1979 and it remains pitiful today, mainly because it’s even more difficult here than in similar countries to start out poor and end up affluent. But mobility isn’t, apparently, any more pitiful than it’s been for at least the past 43 years. Thus when Obama said last month that “alongside increased inequality, we’ve seen diminished levels of upward mobility,” he was wrong. (He didn’t repeat it in Tuesday's speech.) We’ve seen a continuation of weak levels of mobility that predated the inequality boom.

“Upward mobility has stalled,” the president said, but it’s been stalled, the new studies say, since the Nixon administration, and possibly since the Truman administration. Mobility in the US, though quite high at the end of the 19th century and the start of the 20th—high enough to inspire Horatio Alger and James Truslow Adams, who coined the phrase “the American Dream”--has been unremarkable and unchanging for anyone born after 1971 and possibly after 1952. It just took Americans an embarrassingly long time to notice.

How, then, can one still say there’s a probable connection between income inequality and mobility? Because changes over time are only one metric. There are also changes across geography to consider.

The White House has repeatedly touted “the Great Gatsby Curve,” a chart devised two years ago by Alan Krueger, former chairman of the Council of Economic Advisers, drawing largely on research by Miles Corak, a Canadian economist who’s currently a visiting scholar at the Russell Sage Foundation. Plotting income heritability against income inequality for various countries, this scatter diagram finds that the two rise roughly in tandem—i.e., as income inequality grows, mobility declines.

The Great Gatsby chart was more suggestive than dispositive. Among its problems was that it compared complex data collected in different ways in different countries. But the Harvard-Berkeley papers made essentially the same calculations not for different countries, but for different job markets (“commuting zones”) within of the US. “The authors,” Corak told msnbc in an e-mail, “confirm that a Great Gatsby Curve exists across space within the US, in addition to across countries.”

Scott Winship, an economist at the Manhattan Institute and conservative inequality gadfly, disagrees. The Harvard-Berkeley studies, he told msnbc by e-mail, “find that there is no association across U.S. labor markets between income concentration at the top and mobility.” The top one percent today receive nearly one-quarter of all income in the US. In some job markets it’s higher; in some it’s lower. But according to the Harvard-Berkeley studies, the variation doesn’t affect mobility.

“The administration,” Winship continued, “has been desperately searching for a way to say what the evidence does not--that rising inequality has hurt upward mobility.” The new research “bolsters those of us who have argued not that inequality is definitely benign, but that there's little basis for saying it has been harmful.”

Who’s right, Corak or Winship? Actually, they both are.

Rising income concentration for the top one percent is not the country’s sole inequality problem. Equally troublesome is what the Harvard-Berkeley scholars call “middle-class inequality”—a divide between people who have college (or, increasingly, graduate) degrees and those who don’t. The main causes of growing middle-class inequality are the decline in private-sector union membership, stagnant high school graduation rates, and the ever-growing cost of higher education.

The Harvard-Berkeley studies find “a robust negative correlation” between the middle-class type of inequality and “mobility across generations.” As with the Great Gatsby curve, they observe that places in the US with higher income inequality are less mobile.

Moreover, although Corak concedes that the Harvard-Berkeley studies don’t show a relationship at the local level between mobility and income concentration for the top one percent, he thinks further study could reveal a national one. It may well be, he argues, that the one percent’s disproportionate influence over the federal government--“setting broad policy like the progressiveness of the tax system,” or “the size and capacity of the federal government to level the playing field across states”—has prevented mobility from increasing.

Still, Corak says, “Some of the rhetoric of politicians will have to change. You hear Obama, Rubio and others saying that mobility has declined.” Now, “this is not so clear.”