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Income Mobility Can’t Explain Away Evidence of Increased Inequality

November 29, 2011 at 8:29 AM

Some policymakers, like House Budget Committee Chairman Paul Ryan, have tried to dismiss studies like this one from the Congressional Budget Office showing a large rise in income inequality in recent decades by arguing that these studies do not account for income mobility in America.

Here's their argument: the data we have showing rising inequality is based on successive "snapshots" of the income ladder over time, but people are not stuck on the same rung over many years; they move up and down the ladder. Increased income inequality means the rungs of the ladder are further apart, but if there is enough movement up and down that income ladder, where people are in a particular year would tell us very little about where they were a few years earlier or where they will be a few years later. If mobility has increased enough, the dramatic rise in income inequality over the past thirty years is not an obvious problem.

11-29-11pov.jpgThe problem is, there's just no evidence that mobility is increasing, and quite solid evidence to the contrary.

A new paper by Federal Reserve economist Katharine Bradbury clearly documents a statistically significant decline in the rate of mobility. The slowdown isn't dramatic; Bradbury accurately labels it "slight." But it's there.

This graph, based on Bradbury's analysis, shows two measures of family income mobility over ten-year spans: the share of families in the richest fifth who move down the income scale to the middle or lower fifths and the share of families in the poorest fifth who move up to the middle or higher.

The lines basically drift down starting in the late 1970s, meaning there's less movement between the rungs on the income ladder. Bradbury found that the downshift over time was statistically significant (see Table 5 of her paper).

The argument that mobility offsets higher inequality may sound plausible, but the facts don't support it.


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