Justin Wolfers: Yes, Higher Income Inequality Is Associated with Lower Intergenerational Mobility
Freakonomics » Is Higher Income Inequality Associated with Lower Intergenerational Mobility?: A lot of our political debate boils down to questions about equality of outcomes versus equality of opportunity…. The United States… [has] high inequality, which I bet that doesn’t surprise you…. A score of zero means that we have equality of opportunity — the kids of rich people earn as much as the kids of the poor. A high number means that the rich parents have rich kids and poor parents have poor kids. The U.S. has a score of 0.4 which means that, on average, you pass on 40% of your economic advantage to your kids: if I earn $100,000 more than you, then on average, my kids will earn $40,000 more than your kids. So I think of this as a measure of inequality of opportunity. You’ll notice that the U.S. also scores high on this measure. Americans are often surprised to learn that in the land of opportunity, your life outcomes are largely determined by your parents.
It’s striking just how closely related inequality and mobility are. And it’s political dynamite. Why? If income inequality in one generation can be linked to unequal opportunity in the next, then income inequality can’t just be dismissed as the politics of envy. My bet is that this chart that will launch a thousand papers, as economists try to sort out just what these linkages are. Whatever the answer, it will transform our thinking about inequality.
But in the political arena, the first instinct is to deny. And so not surprisingly, this chart has led to a wonk-fight. If you want the dirty details, here’s Scott Winship’s critique, Miles Corak’s reply, Winship’s counter, and Corak’s response. I score this fight for Corak. It’s not even close: he’s the leading figure in international comparisons of mobility, and he’s put together the best data around. Other authors and other datasets yield the same conclusions.
There’s a broader lesson…. Winship has a bunch of complaints about how the data are constructed — and many are valid…. It’s a standard play from the wonk-fight playbook: throw lots of mud at the data, and hope that this leads people to mistrust the conclusions that follow.
Here’s the thing: his criticisms actually strengthen the original finding.
Think about it. Imagine how strong the “true” relationship must be if it shows up even when using only rough proxies for the “true” levels of inequality and immobility. In light of Winship’s criticisms, the high correlation in this chart is all the more remarkable. If his gripes are correct, then graph understates the correlation between inequality and mobility….
Predictably enough, I spent yesterday reading lefty blogs trumpeting Corak’s analysis, and right-leaning blogs who didn’t want to believe the inequality-mobility link, endorsing Winship.
But both missed the bigger picture implications.
Either you’re convinced by Corak that the data can be trusted, and that they show there’s a strong link between actual inequality and actual mobility. Or you believe Winship that the data are a pretty poor proxy for what’s really happening, and so there’s actually a very strong link that’s being disguised by imperfect data.
