The happenings "inside" the Wisconsin State Treasury and across the street at the State Capitol

The Economy & You #37: Economic Mobility

I believe the dream of every parent is for their children to better off than they were. It is part of the American dream.  Anyone, no matter how humble their beginnings, can become financially secure.  The question is how one measures such a goal.  One of the ways to do this is through the concept of economic mobility.

Economic mobility is the ability of an individual, family or group to improve (or lower) their economic status — usually measured in income. Economic mobility or what some would consider a person’s “station in life” is often measured by movement between income quintiles.

Economic mobility measured between generations is considered inter-generational mobility. Inter-generational mobility compares a person’s income to that of his or her parents. Economic mobility measured over the course of a working career or within a lifetime is considered intra-generational mobility.

Economic mobility can be measured in absolute and relative terms as well.  Absolute mobility takes in widespread economic growth. Absolute mobility addresses the issue of how family income changes over a generation.  Relative mobility focuses on specific groups or individuals without taking into account the entire economy. Relative mobility would answer the question of how the economic standing of parents will affect the economic standing of their children.

The Economic Mobility Project at the Pew Center on States has does some interesting work on economic mobility in the United States.  While economic mobility varies from country to country in the world, economic mobility varies by geography within the United States as well.  According to the report Economic Mobility of the States, New England and the Mid-Atlantic states experience higher mobility than the national average.  Southern states have lower than average economic mobility.

The report examined Americans’ mobility during their prime working years—the 10-year span between ages 35-39 and 45-49. It measured economic mobility in three ways: the earnings growth a state’s residents experience; the percent of residents earning less than the U.S. median who move up the earnings ladder by 10 or more percentiles; and the percent of residents in the top half of earners who fall down by 10 or more percentiles.

These data were used by Dr. Richard Florida to look at possible effects on economic mobility due to factors like poverty, education, and family structure.  It is important to note that correlation between the factors and effects does not equate to causation.  There can be a variety of other factors that could have equal or greater role in the effects.  Still, the results that Dr. Florida finds are worth note.

Education is an important part of economic mobility.  States with more highly educated people have higher wages and income.  Analysis shows that high school graduation rates are positively associated with upward mobility.  In addition, public education spending per student and grade reading levels also are positive factors toward upward economic mobility.

Family structure also has a role in mobility.  Teens that live with continuously married parents have a positive association with upward mobility while teen mothers have a negative association. 

Ultimately, the data shows that a child’s economic position is heavily influenced by that of his or her parents. Over 40% of children born to parents in the bottom 20% (or quintile) of the income distribution remain in the bottom while 39% born to parents in the top 20% remain at the top. Income is measured in quintiles or segments of 20%. Moving between quintiles is more frequent in the middle segments than in the lowest and highest quintiles. Approximately 55% of those in the middle segments either went up one quintile, went down one quintile, or stayed the same. Overall, the data suggests that the income quintile a person archives will be the same quintile as the parents or one quintile higher or lower.

The important thing to remember is that a number of factors come into play with regards to a person’s income and their relative economic mobility.  From a state perspective, we need to identify those potential factors and develop policies to help encourage those behaviors that support upward economic mobility.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s