post by Paul Kelleher
Mark Thoma had a column yesterday on income inequality and economic mobility. He argues that greater income inequality may be less problematic if there were also greater mobility. If one's chances for moving up and down the economic ladder were no better or worse than anyone else's (including those who are currently at the top), then a longer ladder may not be such a bad thing.
Thoma identifies two kinds of mobility: intra-generational and inter-generational. Intra-generational mobility concerns the prospects for mobility that individuals and/or families face during their lifetime. Inter-generational mobility concerns "how easy it is to move between social classes across generations." In other words, relative to the prospects your parents faced, are yours better or worse?
I worry (but am not sure) that Thoma is focusing on both the wrong problem and the wrong solution. Near the end of the article Thoma claims, "Increasing mobility can help, but this alone won’t overcome the inequality problem." What, exactly, is "the inequality problem"? Reading his article, I don't see Thoma complaining about income inequality as such. Rather, I see him worrying about two more specific things. First, he is concerned about the power that those at the top often have to bend public policy toward their interests. Second, he is concerned about stagnant or even reversing living standards for those at the bottom and the middle. These two issues are connected to income inequality, but they are connected only contingently. For it is possible to imagine a society where the living standards of everyone improve significantly and steadily, but where those at the top improve faster than others, and so inequality grows. It is also possible (although perhaps harder) to imagine policy changes that hem in the political clout that greater wealth buys, so that political influence becomes somewhat disconnected from economic status.
Let's set aside the issue of political power and focus on the connection between income inequality and stagnating standards of living for the non-rich. Here there may be a kind of mobility that is more important than the two kinds Thoma introduces. His notions are both relative notions: they assume that mobility is a zero-sum game, so that if one person's mobility improves, another's automatically declines: if my chances of getting to the top increase, then the chances that a person at the top will drop down must also increase. But Lane Kenworthy--whom Thoma also cites--notes that there are also absolute notions of mobility:
Absolute intragenerational mobility refers to changes in income compared to the income one started with. Suppose a person begins her working career with an income of $25,000. If a decade later her income is $30,000 (adjusting for inflation), she has experienced upward absolute intragenerational income mobility. [...]
For intergenerational mobility, the distinction between absolute and relative is analogous. If a person’s inflation-adjusted income is $30,000 and her parents’ was $25,000 at a comparable point in life, she has experienced upward absolute intergenerational income mobility. Because of economic growth, we expect that such upward mobility will be the norm.
It is at least conceptually possible to achieve absolute mobility--of both intra- or inter-generational varieties--while income inequality remains steady or even increases. And if we again bracket the issue of unequal political power, one wonders how many people would care about stagnant or declining relative mobility if absolute mobility were improving appreciably. That is, if living standards at the bottom and the middle were improving nicely rather than deteriorating, how much would those in the middle care if their chances of rising to the very top were not improving? How much should they care?
Over the last 30 years, increasing income inequality has been accompanied by stagnating living standards for much of the population. And it is probably true that improving living standards for the non-rich would lead to less income inequality. But it is not clear that it would or even should lead to greater relative mobility. Significant improvements in relative mobility, especially for those at the middle, may--may--require arrangements that carry unpalatable efficiency costs as well. On the other hand, if improvements in absolute mobility is the more important issue, then we may be able to boost mobility while avoiding the costs associated with distributions that are flat enough to permit easy movement between quintiles of the income distribution.
Finally, since absolute mobility isn't a zero-sum game, it may be achievable without having to displace the privileged from their position of relative advantage. That may turn out to be a politically useful ancillary implication of choosing to care more about absolute mobility than relative mobility.