On Income Mobility
4 May 2007
Editor, The Atlantic
Dear Editor:
Clive Crook notes that "America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all the Scandinavian countries, and possibly even Germany and Britain" ("Rags to Rags, Riches to Riches," June 2007). But he incorrectly concludes that this fact shows Americans to be less likely than citizens of these other countries to move significantly up and down the income ladder.
Calculations of income mobility typically rest upon income quintiles. Each quintile represents one-fifth of all households in a country, ranked according to income. An instance of mobility occurs when a household moves from one quintile to another. Now consider two hypothetical countries - Rooseveltia and Reagania. Per-capita incomes are identical in both countries, but Rooseveltia's incomes are more equally "distributed" than are Reagania's. Therefore, in Rooseveltia the income earned by the median household in, say, the bottom quintile is closer to the income earned by the lowest household in the fourth quintile than is the case in Reagania. It follows that movements between quintiles are likely less frequent in Reagania than in Rooseveltia EVEN IF households in Reagania regularly experience larger income gains and losses over time.
The same statistical artifact arises if, all else the same, Reaganians are wealthier than Rooseveltians: higher national income practically means larger differences between the incomes earned by households at the bottom of any quintile and incomes earned by households at the top of that same quintile. So a dollar-amount increase in income that catapults a Rooseveltian household from the second to the first quintile might, if also earned by a Reaganian household, leave that household in the same quintile as before.
Because incomes in the U.S. are both less equally "distributed" and generally higher than in much of the rest of the world, the fact that measured income mobility in America is lower than elsewhere does not mean that Americans are less likely to make significant moves up and down the income ladder.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, The Atlantic
Dear Editor:
Clive Crook notes that "America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all the Scandinavian countries, and possibly even Germany and Britain" ("Rags to Rags, Riches to Riches," June 2007). But he incorrectly concludes that this fact shows Americans to be less likely than citizens of these other countries to move significantly up and down the income ladder.
Calculations of income mobility typically rest upon income quintiles. Each quintile represents one-fifth of all households in a country, ranked according to income. An instance of mobility occurs when a household moves from one quintile to another. Now consider two hypothetical countries - Rooseveltia and Reagania. Per-capita incomes are identical in both countries, but Rooseveltia's incomes are more equally "distributed" than are Reagania's. Therefore, in Rooseveltia the income earned by the median household in, say, the bottom quintile is closer to the income earned by the lowest household in the fourth quintile than is the case in Reagania. It follows that movements between quintiles are likely less frequent in Reagania than in Rooseveltia EVEN IF households in Reagania regularly experience larger income gains and losses over time.
The same statistical artifact arises if, all else the same, Reaganians are wealthier than Rooseveltians: higher national income practically means larger differences between the incomes earned by households at the bottom of any quintile and incomes earned by households at the top of that same quintile. So a dollar-amount increase in income that catapults a Rooseveltian household from the second to the first quintile might, if also earned by a Reaganian household, leave that household in the same quintile as before.
Because incomes in the U.S. are both less equally "distributed" and generally higher than in much of the rest of the world, the fact that measured income mobility in America is lower than elsewhere does not mean that Americans are less likely to make significant moves up and down the income ladder.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Wednesday December 26, 2007 at 11:55am