January 23, 2014

NYT: Income inequality not increasing

David Leonhardt writes in the NYT:
The odds of moving up — or down — the income ladder in the United States have not changed appreciably in the last 20 years, according to a large new academic study that contradicts politicians in both parties who have claimed that income mobility is falling. 
Both President Obama and leading Republicans, like Representative Paul Ryan, have argued recently that the odds of climbing the income ladder are lower today than in previous decades. The new study, based on tens of millions of anonymous tax records, finds that the mobility rate has held largely steady in recent decades, although it remains lower than in Canada and in much of Western Europe, where the odds of escaping poverty are higher. 
Raj Chetty, a professor of economics at Harvard and one of the authors, said in an interview that he and his colleagues still believed that a lack of mobility was a significant problem in the United States. Despite less discrimination of various kinds and a larger safety net than in previous decades, the odds of escaping the station of one’s birth are no higher today than they were decades ago.
The results suggested that other forces — including sharply rising incomes at the top of the ladder, which allows well-off families to invest far more in their children — were holding back talented people, the authors said. 
“The level of opportunity is alarming, even though it’s stable over time,” said Emmanuel Saez, another author and a professor at the University of California, Berkeley. Mr. Saez and Mr. Chetty are both recent winners of an award for the top academic economist under the age of 40. 
The study has the potential to alter the way Mr. Obama and other public figures talk about mobility trends. 
“The facts themselves are pretty unassailable,” said David Autor, an economist at the Massachusetts Institute of Technology who has read the paper, which the authors will soon submit to an academic journal. “How you want to interpret them is the question.” 
The study found, for instance, that about 8 percent of children born in the early 1980s who grew up in families in the bottom fifth of the income distribution managed to reach the top fifth for their age group today. The rate was nearly identical for children born a decade earlier. 
Among children born into the middle fifth of the income distribution, about 20 percent climbed into the top fifth as adults, also largely unchanged over the last decade.

Unfortunately, Chetty's methodology is fundamentally flawed as Leonhardt and I discussed in the New York Times last July regarding Chetty's previous study of income mobility by where children were raised. (See the update to the bottom of Leonhardt's post in the NYT.)

Thus you see bizarre examples like Scranton and Newark ranking near the top of Chetty's social mobility charts as the best places to be raised, while Charlotte and Atlanta rank near the bottom. (Chetty's analysis doesn't look just at municipalities, but at "commuting zones," so, for instance, Atlanta's sprawling suburbs are included.)

Yet, over the decades, lots of people have decided that it's in their overall self-interest to move out of Scranton (which is on the edge bankruptcy) and Newark and lots of people have decided it's in their self-interest to move to Charlotte and Atlanta. 

Why? A major problem is that Chetty looks at income but doesn't adjust for cost of living. The cost of housing is much higher in, say, New York City, a common destination for some fleeing Newark (e.g., Philip Roth) and Scranton, than in Atlanta or Charlotte, so wages and salaries are also lower in Atlanta and Charlotte.

Thus, people who fled the house where they grew up in collapsing Scranton or Newark for a small apartment in Queens may not feel like they a higher standard of living in their new life in NYC, but they have a higher income compared to the national average because incomes are high in NYC to account for the high cost of living in NYC, so they are counted by Chetty as upwardly mobile in income terms. 

In contrast, somebody born in Charlotte or Atlanta might feel less tempted to move to a place with higher nominal incomes because the local standard of living is pretty decent in Charlotte or Atlanta even if nominal incomes aren't shooting up because the cost of land is pretty low and stable.

Another major problem with Chetty's regional analysis that found that heavily black areas like the South and the Rust Belt have the least social (income) mobility while West Virginia has quite a bit of income mobility is simply racial regression to the mean. Here's Chetty's map, with places of lower income mobility in darker colors:
My blog response was entitled: "Breakthrough study: Poor blacks tend to stay poor, black."

Notice that according to Chetty West Virginia is an oasis of income mobility in the East, while nearby North Carolina is an abyss of stasis. Yet, lots of people raised in West Virginia who have something on the ball have moved to North Carolina to get ahead in life.

Since West Virginia is only about 5% black and has attracted very few Hispanics and Asians, the bottom 20% of West Virginians in income are majority white, so their children tend to regress toward the white mean, which is higher than the black mean. The bottom 20% in income in the Charlotte or Atlanta area is highly black, so their children tend to regress toward the black mean. Thus, West Virginia comes out looking better for social mobility than Atlanta and Charlotte in Chetty's methodology. 

This doesn't mean that if you had a peek around the Rawlsian curtain of ignorance, you'd choose to be born in West Virginia because of its strong social mobility. If you knew you were going to be born white, West Virginia would probably be last on your list of states to be born into. Nor does it mean that Blue State policies increase social mobility relative to red state policies. It's just mostly Moynihan's Canadian Border effect in action.

Chetty's new paper goes through a lot of contortions to disprove the race arguments I pointed out in the NYT last summer, but I'm not yet convinced.

As for Chetty's new study showing that over about a decade there wasn't much decline in social mobility, I'd take it with a grain of salt. Since he doesn't deal with standard of living, just with income, and since there have been massive population flows away from higher income, higher cost of living places toward lower income, lower cost of living places, and since he doesn't have good tools for dealing with race at the individual household level, I wouldn't consider this finding of stability over time definitive in a meaningful sense. I haven't had time to read it carefully, so I wouldn't reject it either. I just think that high-powered economists need to move on beyond simplistic measures like income to work on standard of living questions.

The ACCRA organization compiles careful data on cost of living by metropolis (including mortgage costs) for corporations moving managers around and needing an objective way to adjust their pay. It's not free, but a high-powered team of economists like Chetty and Saez should incorporate ACCRA data into their analyses.

Update: Chetty's new paper does use ACCRA cost of living adjustments, like I recommended to them last summer. This may be why their new finding is puzzling to the conventional wisdom.


peterike said...

What I want to see is a study showing the amount of income and wealth lost by foreigners taking extremely valuable seats in premier US universities and then heading back to their own nations with their new sheep skins.

A sensible nation would not allow more than 10% of its key university seats to be taken by outsiders. But then, we are not a sensible nation. The amount of wealth and knowledge lost by the slavish sucking up to foreign students is a generational crime that goes entirely unspoken.

Henry Canaday said...

It seems to me that Income Inequality and Income Mobility are, even if related, technically two different things.

Anononymous said...

A major problem is that Chetty looks at income but doesn't adjust for cost of living. The cost of housing is much higher in New York City ... than in Atlanta

Why only compare within the country? What is cost of housing New York City vs. Mobutu?

Anononymous said...

that about 8 percent of children born in the early 1980s who grew up in families in the bottom fifth of the income distribution managed to reach the top fifth

If 100% of the bottom 1/5 were to get to the top 1/5, then wouldn't the top 1/5 have to be displaced down? Would we complain about them being worse off? And if the top 1/5 spaces are now being hogged by the bottom 1/5, then there is no room for the next to top 1/5 to advance. How long can do they get to stay at the top 1/5 before they need to be displaced by the bottom 4/5 needing to advance? Maybe we could have a rotation system. Bottom 1/5 to top 1/5, top 1/5 to 4/5, 4/5 to 3/5, 3/5 to 2/5.

Anonymous said...

OT from the issue of mobility and inequality, it is interesting that West Virginia is about 95% white, yet is one of the poorest places on the map.


Steve Sailer said...

West Virginia has been on a downward path in state rankings for decades. It's a little like Scotland: everybody with something on the ball leaves.

Anonymous said...

Steve, I haven't looked carefully at their measures, but it seems to me "social (income) mobility" is clearly measuring churn in a zero-sum gain. If income mobility is high, many in the bottom 20% move up... implying that many in the top 80% move into the bottom 20%. This type of research clearly rests on the assumption that Income Mobility Is A Good Thing. Implication: it's a good thing if lots of people in the bottom 20% move up while lots of people in the top 80% move down. Perverse. Obviously anti-white.

nice cake said...

"Obviously anti-white."

In 2003 a Bay Area junior high scholer quoted one of his black teachers to me: "white people are gonna have to come down a few notches."

Anonymous said...

It's interesting how the best recent-ish movie set in West Virginia is October Sky, which is about smart kids from humble backgrounds harnessing their talents by getting the hell out of West Virginia.

Anonymous said...

Steve, interesting that you should compare West Virginia to Scotland. Most West Virginians descend from the Scots and English border lands. And it looks like you get the same results, regardless where you put these folks. And my great-grandma came from Scotland. Oi.

Five Daarstens said...

There was a Forbes map from 2011 showing where people are migrating to/from. Check out the Long Island, NY area (where I am from).


Burke said...

The military attempts cost of living adjustments for its loclity-dependent Basis Allowance for Housing (BAH). The link is tothe PDF, but they also have text files and historical data

Anonymous said...

West Virginia isn't all bad. It's very beautiful, especially in the Eastern part of the state, but the winters are brutal in the valleys. It's only really started to free fall as a state in the last 40 year-- about when my family left. The liberal attack on the noble idea of the self sufficent, tacitur, and morally upright 'Proud Mountaineer' has been unrelenting since Johnson's administration. According to Tom Wolfe in I think it was 'Last Great American Hero' West Virginia leads the nation by Medal of Honor recipients per capita. I wonder if that will be true the next time we wonder into a bloodletting.

Eric Rasmusen said...

1. There is a good, though not completely compelling, argument for not adjusting for standard of living. It is that if people choose to pay higher rents in New York City or Santa Barbara, it must be because they'd rather live there. Otherwise, why wouldn't they move somewhere cheaper? In some cases, that is quite convincing. The cost of livign is high in California, taxes are high, and services are bad, so it seems like the "real income" of people is low. But high-tech companies still choose to locate there, because their employees prefer living there to Oklahoma, even tho their salaries would stretch to buy more stuff in Oklahoma.

2. IT would be interesting to check out the correlation between the Saez Chetty measure of immobility and (a) population growth and (b) population inflow minus outflow and (c) children per capita. This woudl no doubt confirm your idea that these places with supposed immobility are ones people like to stay living in and find desirable places to bear and raise children.

Anonymous said...

Silicon Valley style inequality

A.C. said...

Does WV's overwhelmingly white population compare favorably in terms of educational attainment or income with say, West Indian blacks from Brooklyn and Queens? I'd guess not.

Eric Rasmusen said...

Teh great things about states with population outflows is that the price of nice century-old houses drops, and ugly new houses aren't being built. So if you do still have a job, economic decline can be good, not bad.

Of course, the decline can't be because of social breakdown--- Detroit's amazingly cheap houses still aren't a bargain...

Anonymous said...

Newark's "commuting zone" would include a wide swath of Manhattan's. So isn't your example bogus?

pat said...

The New York Times and media outlets of that stripe are always on the prowl for some plausible sounding study that shows that some bad outcome like poverty, crime or poor school performance that is closely associated with people of the black race is actually the result of another independent variable not race at all. If you are able to produce such a study you will be published. Simple.

The most obvious example is the long history of 'experts' who are willing to testify that crime and poverty among blacks has nothing to do with race but is rather a consequence of class. This NYT article is a little more sophisticated, but it is also an agenda driven piece of research. The powers that be nowadays favor the view that the IQ and poverty gap between the races is closing. So we get 'happy talk' research which shows that we are on the right track and that if we just keep quiet and be patient everything will work out. Black people will - despite the evidence of our 'lying eyes'- become more and more like whites and Asians.

I wonder how many of your readers fully appreciate your 'regression to the mean' argument. It is a nice way of saying that blacks are inferior. It's a mathematical euphemism.

The reason we have regression to the mean is that on retest the error term tends to balance out and disappear. So when you say blacks regress to a lower mean you are saying the real variable - income or employability or whatever - is really truly lower and that higher results are just errors, temporary errors that will wash away when measured again. Regression to the mean means that the group average can be more meaningful than a single data point. That literally means that a group characteristic like race will show up on retest and swamp ephemeral individual characteristics.

It's hard to think of a more odious idea to an antiracist liberal.


David said...

Mr. Canaday is right that income inequality and upward income mobility are different things.

Upward income mobility has always been flat except for a few Horatio Algers, whose stories are the exceptions that prove the rule. For example, a recent study showed that US intergenerational income inelasticity is high among OECD countries. (NB: The studies apparently aren't broken out by race.)

But US wages have sharply declined relative to productivity for 34 years: chart.

The bottom line picture is one of a vast herd of people working harder but going nowhere, while a few individuals climb their backs to ever-higher heights; i.e., the rise of neofeudalism. Steve is correct about cost of living calculations insofar as millions' shuffling their deck chairs to the Sunbelt in pursuit of lower costs of living can somewhat obscure the picture.

jody said...

"West Virginia has been on a downward path in state rankings for decades. It's a little like Scotland: everybody with something on the ball leaves."

only west virginia and maine lost population in 2013. every other state had a net gain above 0, even michigan and rhode island. maine avoids national ridicule for being the redneck moron backwater that it is, by voting for the democrat most of the time. voting D seems to absolve anybody of ridicule.

maine has, i believe, the lowest average SAT score.