Horatio Alger is Dead

Boushey, 27 October 2005, p. 1

Horatio Alger is Dead

CEPR Basic Economics SeminarHeather BousheyOctober 27, 2005

Boushey, 27 October 2005, p. 2

America … the land of opportunity?

Boushey, 27 October 2005, p. 3

Um, well, kinda.

• After John Schmitt’s talk on inequality in the U.S. labor market, maybe you asked “So, what. Don’t all Americans ‘move up’ over time, canceling out static inequality snapshots?”

• Reality is, U.S. has not only highly unequal economic outcomes in one point in time, but inequality multiplies over time and economic mobility has decreased.

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Structure of talk• U.S. economic mobility, over time.

– Relative– Absolute

• Escaping poverty

• How does U.S. compare internationally?• Why has mobility decreased?

– Link to prior talks: role of inequality more generally and role of wives.

– Job ladders, displacement, job instability.– Wealth inequality, access to education, health

care, pensions, race/ethnicity.

Boushey, 27 October 2005, p. 5

“Economic Mobility.” “Huh?”

• Mobility not the same as “inequality.”

• Inequality is the difference in incomes at one moment in time.

• Mobility is the changes in an individual’s ranking over time, that is, are they better off compared to their peers or worse off, over time?

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Figure 1. Annual growth in real family income in the

U.S.1947-1979

2.3 2.4 2.4 2.5 2.4 2.4

0.0

1.0

2.0

3.0

Bottom20%

Second20%

Middle 20%

Fourth 20%

Top 20% Top 5%

Income level

Per

cent

1979-2002

0.20.4

0.60.8

1.2

1.5

0.0

1.0

2.0

3.0

Bottom20%

Second20%

Middle 20%

Fourth 20%

Top 20% Top 5%

Income level

Per

cent

Source: John Schmitt, 2005. “Labor markets and economic inequality in the United States since the end of the 1970s.”

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The technicalities: data

• To study economic mobility, need different data than to study inequality trends.

• Inequality: different people over time.

• Mobility: same people over time.– More costly to do these kinds of

surveys because must follow individuals.

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Figure 2. Relative mobility

Quintile at beginning of period

Quintile at end of period

Bottom Second Middle Fourth Top

Bottom

Second

Middle

Fourth

Top

Quintile at beginning of period

Quintile at end of period

Bottom Second Middle Fourth Top

Bottom

Second

Middle

Fourth

Top

Quintile at beginning of period

Quintile at end of period

Bottom Second Middle Fourth Top

Bottom

Second

Middle

Fourth

Top

Boushey, 27 October 2005, p. 9

A “real world” example• Let’s say Mark and Peter are the same age

and are both college graduates.• In 1989, Mark and Peter’s family income

were both $44,000 and both were in the middle quintile.*

• In 2005, Mark’s family income was $70,000 and Peter’s was $54,000.

• In Figure 1, Mark is “upwardly mobile” and moves up one step to the Fourth Quintile, while Peter stays in the Middle Quintile.

*All numbers are in constant 2004 dollars.

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Figure 3. U.S. Intergenerational

mobility

Source: Blanden and Machin (2002), Table 5.

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In U.S., class matters now more than ever

– Sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s (Wysong et al. 2004).

– By 1998, only 10% of sons of fathers in the bottom quarter (defined by income, education, and occupation) had moved into the top quarter, whereas by comparison, by 1973, 23% of lower-class sons had moved up to the top.

– Thus, there is a smaller chance that a low-income family will move up the income ladder over time.

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Background for Tables 1,2 &3

• Bradbury and Katz (2002) use the PSID (Panel Study of Income Dynamics) to examine family income mobility.

• Survey began in 1968 with 5,000 families who have been interviewed each year (most years) since then.

• Random distribution would be all boxes in Tables 1 & 2 at 20%.

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Table 1. Relative mobility, 1969-79

Quintile at beginning of period

Quintile at end of period

Bottom Second Middle Fourth Top

Bottom 49.4% 24.5% 13.8% 9.1% 3.3%

Second 23.2 27.8 25.2 16.2 7.7

Middle 10.2 23.4 24.8 23.0 18.7

Fourth 9.9 15.0 24.1 27.4 23.7

Top 5.0 9.0 13.2 23.7 49.1

Source: Bradbury and Katz, 2002.

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Table 2. Relative mobility, 1988-98

Quintile at beginning of period

Quintile at end of period

Bottom Second Middle Fourth Top

Bottom 53.3% 23.6% 12.4% 6.4% 4.3%

Second 25.7 36.3 22.6 11.0 4.3

Middle 10.9 20.7 28.3 27.5 12.6

Fourth 6.5 12.9 23.7 31.1 25.8

Top 3.0 5.7 14.9 23.2 53.2Source: Bradbury and Katz, 2002.

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Table 3. Relative mobility, Comparing 1969-79 & 1988-98

Quintile at beginning of period

Quintile at end of period

Bottom 1969-79

Bottom 1988-98

Top 1969-79

Top 1988-98

Bottom 49.4% 53.3% 3.3% 4.3%

Second 23.2 25.7 7.7 4.3

Middle 10.2 10.9 18.7 12.6

Fourth 9.9 6.5 23.7 25.8

Top 5.0 3.0 49.1 53.2

Source: Bradbury and Katz, 2002.

Boushey, 27 October 2005, p. 16

Working wives critical for economic mobility

• Recent research has found that families where wives had high and rising employment rates, work hours, and pay were more likely to move up the income ladder or maintain their position, rather than fall down the ladder (Bradbury and Katz, 2004).

• However, even the large increase in labor supply of women (and mothers, in particular) has not been sufficient to counterbalance declining mobility overall.

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Table 4. Income growth, married-couple families with

childrenBottom Second Middle Fourth Top

1979-89 -1.8% 3.4% 8.4% 12.6% 20.4%

1989-2000 9.5 12.1 14.4 16.5 35.4

2000-02 -6.4 -3.2 -1.6 -1.3 -4.0

1979-2000 7.5 15.9 24.0 31.1 63.0

Percent change in income without wives earnings, 1979-2000

-13.9 -4.6 5.1 14.7 51.5

Contribution of wives, 1979-2000

21.4 20.5 19.0 16.4 11.5

Source: Mishel, Bernstein, and Allegretto, The State of Working America 2004-05, p. 104.

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Figure 4. Mobility, 1969-79

0%10%20%30%40%50%60%70%80%90%

100%

Wife working in 1969and 79

Wife not working

Stayed bottomMoved down to 1,2Moved down to 3,4Stayed 2,3,4Moved up to 2,3Moved up to 4,5Stayed top

Source: Bradbury and Katz, 2004.

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Figure 5. Mobility, 1988-98

0%10%20%30%40%50%60%70%80%90%

100%

Wife working in 1988and 98

Wife not working

Stayed bottomMoved down to 1,2Moved down to 3,4Stayed 2,3,4Moved up to 2,3Moved up to 4,5Stayed top

Source: Bradbury and Katz, 2004.

Boushey, 27 October 2005, p. 20

Absolute mobility

• Both notions of inequality and mobility discussed so far are relative, not absolute concepts.

• Can look at mobility absolutely, that is, share of individuals moving above a certain threshold.

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Table 5. Limited mobility out of poverty in U.S.

Poor at least once Poor all three years

U.S. 23.5 9.5

Germany 19.2 4.3

France 16.6 3.0

Italy 21.5 5.6

U.K. 19.5 2.4

Canada 18.1 5.1

Belgium 16.0 2.8

Denmark 9.1 0.8

Finland 25.1 6.5

Ireland 15.3 1.3

Netherlands 12.9 1.6

Portugal 24.2 7.8

Spain 21.3 3.7Source: Organization for Economic Cooperation and Development, 2001e. Employment Outlook. June 2001. Paris: OECD.

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Table 6. Poverty exitsYearly rate of exit (percentage)

United States 29.5

Germany 41.1

France 46.9

Italy 40.6

United Kingdom 58.8

Canada 36.4

Belgium 48.2

Denmark 60.4

Ireland 54.6

Netherlands 55.7

Portugal 37.0

Spain 49.6

Source: Organization for Economic Cooperation and Development, 2001e. Employment Outlook. June 2001. Paris: OECD.

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Table 7. Poverty exits associations

Yearly rate of exit

(percentage) Total

Less Family

members Marriage Earnings Transfers

Capital and Miscellaneous

income

Capital and other combined

United States 29.5 27.0 12.2 8.1 19.1 36.8 3.8 13.2 0.1%Germany 41.1 11.3 4.0 (2.2) 21.9 26.7 32.0 8.1 -France 46.9 14.4 4.6 4.4 26.9 22.4 29.6 3.1 3.7%Italy 40.6 20.2 2.7 5.3 23.6 29.2 24.2 2.8 -United Kingdom 58.8 12.1 (2.8) 3.8 20.5 23.7 40.3 3.4 -Canada 36.4 31.5 5.2 8.9 15.6 25.5 19.6 7.5 0.4%Belgium 48.2 9.9 - (3.1) 18.2 17.0 41.5 13.4 -Denmark 60.4 20.7 (5.4) (7.3) 16.3 29.2 27.6 - -Ireland 54.6 20.8 5.6 (4.2) 27.7 20.6 29.9 - -Netherlands 55.7 23.6 11.7 5.4 .. 33.2 41.2 - -Portugal 37.0 17.6 2.9 (1.6) 41.2 16.0 22.0 2.4 1.0%Spain 49.6 16.7 3.9 4.2 34.5 30.6 15.2 2.9 -

Percentage of total entries into poverty associated with:Change in family structure: More

workersLargest increase in income from:

Other

Source: Organization for Economic Cooperation and Development, 2001e. Employment Outlook. June 2001. Paris: OECD.

Boushey, 27 October 2005, p. 24

What happened to Horatio?

• Greater inequality and limited bargaining power of workers taking more of a long-term toll on particular workers and their families.

• Dismantling of social welfare state limits access to institutions that foster mobility—education, housing, health care, adequate child care, protective labor law.

Boushey, 27 October 2005, p. 25

For further reading …• Jo Blanden and Stephen Machin. 2002. “Cross-Country Comparisons of

Changes Over Time in the Extent of Intergenerational Mobility,” Department of Economics, University College London and Centre for Economic Performance, London School of Economics.

• Katharine Bradbury and Jane Katz. 2002. “Women’s Labor Market Involvement and Family Income Mobility When Marriages End,” New England Economic Review, Fourth Quarter.

• Katharine Bradbury and Jane Katz. 2004. “Wives’ Work and Family Income Mobility,” Federal Reserve Bank of Boston Public Policy Discussion Papers, No. 04-3.

• Organization for Economic Cooperation and Development, 2001. Employment Outlook. June 2001. Paris: OECD.

• John Schmitt, 2005. “Labor markets and economic inequality in the United States since the end of the 1970s.”

• Earl Wysong, Robert Perrucci, and David Wright. 2004. “Organizations, Resources, and Class Analysis: The Distributional Model and the U.S. Class Structure," Indiana University Working Paper.

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Reading List

•Boushey, Heather. 2005. Are Women Opting Out? Debunking the Myth. Washington, DC: Center for Economic and Policy Research.

•Boushey, Heather. 2005. Family Friendly Policies: Helping Mothers to Make Ends Meet. Washington, DC: Center for Economic and Policy Research.

•Boushey, Heather, David Rosnick, and Dean Baker. 2005. Gender Bias in the Current Economic Recovery? Declining Employment Rates for Women in the 21st Century. Washington, DC: Center for Economic and Policy Research. Briefing Paper.

Boushey, 27 October 2005, p. 27

Reading List (continued)

•Bradbury, Katherine, and Jane Katz. 2004. “Wive's Work and Family Income Mobility.” Federal Reserve Bank of Boston, No. 04-03. Boston, MA. July 29.

•Budig, Michelle J., and Paula England. 2001. The Wage Penalty for Motherhood. American Sociological Review Vol. 66, pp. 204-25.

•Gornick, Janet C., and Marcia K. Meyers. 2003. Families that Work: Policies for Reconciling Parenthood and Employment. New York, NY: Russell Sage Foundation.

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Reading List (continued)

•Hartmann, Heidi, and Stephen Rose. 2004. Still A Man's Labor Market: The Long-Term Earnings Gap. Washington, DC: Institute for Women's Policy Research.

•Heymann, Jody, Alison Earle, Stephanie Simmons, Stephanie M. Breslow, and April Kuehnhoff. 2004. The Work, Family, and Equity Index: Where Does the United States Stand Globally? Boston, MA: The Project on Global Working Families, Harvard School of Public Health.

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Reading List (continued)

•Goldin, Claudia, and Lawrence Katz, “The Power of the Pill: Oral Contraceptives and Women’s Career and Marriage Decisions,” Journal of Political Economy, August 2002.

•Goldin, Claudia. 2006. “The Quiet Revolution That Transformed Women’s Employment, Education and Family.” Ely Lecture, Annual Meeting of the Allied Social Science Associations. Boston, MA. January 6.

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Horatio Alger is Dead

Heather Bousheyhboushey@cepr.net

Center for Economic and Policy Researchwww.cepr.net