Moving On Up? Economic Mobility in America

MS. ISABEL SAWHILL: Thank you. I also want to thank the Center for the opportunity to be here. This topic is a very long and deep interest of mine. I wrote a book on it in 1998, which got zero attention, which just shows you that journalists have more power than you think because in my view it wasn’t until the New York Times and the Wall Street Journal and the Washington Post took up this issue that it began to be given the attention to which it deserves.

I think this is a terrific paper, Tom; just chock full of interesting data – covers an enormous amount of ground. I’m not going to have time to go into everything I’d like to say. I like the intergenerational stuff better than the short-term mobility stuff. I have some real questions about the data and how to interpret it over the short-term that I don’t think you would necessarily disagree with, and if we have time we could get into that.

Let me stand back a little bit and tell you how I would put this in a little bigger policy frame. We know there’s been a big increase in income inequality over the last three or four decades. I’m talking about income inequality measured at a point in time, so if you looked at all the families in the United States in, say, 1980, and you looked at the distribution of income, it would have been much more equal than it is in 2004.

That, I think, is very well established in the data and I will just assume that everybody agrees with that. But that data is based on a series of cross-sectional snapshots. The people who were in, let’s say, the bottom or the top of the income distribution in 1980 are not the same people who were in the top or the bottom of the income distribution in 2000, so the argument has been made that maybe the greater inequality that we see at any point in time has been offset by the fact that we have more opportunity than we used to, either of the intergenerational variety or of the shorter-term, over-the-life-cycle variety.

An argument I hear particularly from the more conservative side of the fence is that it’s still your own talent, skill, and hard work that matter. But another view is that maybe the process really isn’t fair after all. Maybe all you need to do is to pick your parents well, and of course you can’t pick your parents, so this is something that nobody can control. The circumstances of your birth are not a matter of your own effort, and if that’s what’s driving where people end up, then, as the paper says and as others have argued, perhaps family background matters more than it should and the process is not all that fair and we’re not the land of opportunity that we thought we were.

One of the reasons, by the way, that I think we have been considered the land of opportunity historically is because we had so much economic growth. When we were a newer nation with a frontier and lots of entrepreneurship, we did have a rapid rate of growth, so every generation could be absolutely better off than the previous one, and that to some extend hid, if you will, what was going on within the distribution.

The other thing I want to emphasize here is that the degree of intergenerational mobility matters more than ever now because the stakes are higher. They’re higher because income and earnings are more unequally distributed. Think of it as being like a ladder and we’re talking about where your parents were on the ladder and then where you are on the ladder, but if the rungs on the ladder are farther and farther apart, which they are, then this process that puts you on one rung rather than another and ties that to where your parents began becomes a much more salient question. If everybody’s income was almost the same in any generation, then we wouldn’t really care about what the process of intergenerational mobility looked like because the stakes would not be so high.

Now, it seems to me with that as background that there are three possible responses to the fact that we see a lot of inequality out there in America right now. One is to redistribute income after the fact; in other words, to make the prizes a little more equal. This could be done through the tax system or through income benefit programs of various kinds, and that seems to be a view that is quite justified in some people’s minds. I think this is what Sandy Jencks would argue, for example. I know that he certainly used to argue this and I don’t believe he’s changed his view entirely. The people who make this argument, would say there is a large unexplained variance in who gets ahead and it doesn’t look like even education explains very much. That suggests maybe we really can’t change this process very much and therefore we better get used to it and we better redistribute income after the fact. That’s a perfectly legitimate point of view.

The second thing we can do is try to understand this process of opportunity better and that’s what this paper really focuses on. I’m going to come back to that – making the process fairer. And the third thing we can do, which I want to mention because it’s so prevalent in our public debate, is increase the rate of economic growth.

And that, to some extent, is where I think we are right now and it’s interesting that it doesn’t make too much difference whether you’re on the right or the left side of the political spectrum: everybody’s in favor of more economic growth and I want to come back to how that relates to this issue as well. Now, since the paper speaks to strategy two, making the process fairer, and begins the process of trying to address these transmission channels, I want to come back to that for a minute. I think that there are mechanisms or transmission channels that we wouldn’t want to do anything about, and Tom mentioned this in his paper and in his remarks. You don’t want to take, for example, children away from their families at birth. You know, you can think about –

MR. : Can we agree on that? (Laughter.)

MS. SAWHILL: Well, I mean, I don’t think most people in our society want to. (Laughter.) I mean, the Israelis experimented with this and there are programs that go halfway there by putting children from disadvantaged families in out-of-home care at an early age, but we’re only willing probably to go so far in this direction and we accept the fact that families have the right to transmit their values and other advantages that they have to their children up to a point.

Then there are some things we can’t do anything about even if we wanted to. Parents and children share the same genes, for example. Unless biology has been eliminated, that has to be faced.

But then finally there are some things that are amenable to being affected by public policy, such as access to a good education. These can be changed and furthermore can be changed enough to help to compensate for poor home environments or for the fact that some people have less favorable genetic endowments than others, whether it’s health or IQ or motivation or what have you.

Now, this paper points to education as an important place to intervene. Tom says one-third of the reason for the effects of class or parents’ background on children’s eventual status is due to education. I think that’s exactly the right place to put the emphasis, but what does this mean more specifically?

I agree with the previous comments that says we need to push further on that and I can’t do much in my remaining three minutes or whatever it is – one minute. (Laughter.) In a volume that I am co-editing right now that will be released in September, we try to address this question of what can we do specifically and in particular we break out education into pre-K or early childhood education, K through 12, and higher education. And if you asked me after having read three of the best people I know on each of those topics and everything else that I’ve seen what would be the best investment you could make, I would say it would be in the preschool programs.

This is an argument that Jim Heckman, a Nobel Prize-winning economist, makes: the rate of return on these early investments is much higher; the leverage you get is much higher than investing in either K through 12 or higher education. I’m not saying that they should necessarily be excluded, I’m just saying if you told me I had a limited number of dollars, where would I put it, that’s where I would put it. Developmental psychologists and neuroscientists, as well as economists, tell us that’s where the greatest plasticity is and where we have the greatest opportunity to shape both cognitive and noncognitive skills in a way that is going to increase upward mobility.

Now, I may be out of time here. I wanted just to say a word about economic growth. I think that quite apart from the fact that right now I think we’re on the wrong track in terms of our efforts to increase economic growth, because we’re not investing enough in education and other forms of human capital, and because we’re not saving anything and in fact the government is dissaving because it’s running large deficits, but even if we were on the right track – and we should have a pro-growth policy, of course – I wouldn’t put as much emphasis on economic growth as the way to help people move up the ladder between generations as I would on this opportunity process.

Why not? And my answer about why not is because my reading of the research on happiness or well-being, if you will, is that it depends a lot more on your sense of efficacy in achieving your goals, including your economic goals, and it depends much more on your relative status compared to other people in your society than it does on your absolute level of income. So except for where people are extremely deprived, which is in general not the U.S. case, I think relative income is much more important than absolute income and I think the ability of people to make it on their own as opposed to being given a break through government transfers or taxes, is also the right way to go. So I think for both of those reasons this topic is critical and I love the paper and I agree with almost everything that the last two people said.