Economic mobility

Economic mobility is an aspect of social mobility and is the ability of an individual or family to improve their economic status, in relation to income and social status, within his or her lifetime or between generations. Economic mobility is often measured by movement between income quintiles or comparisons are made to the income of an individual’s parents as a point of reference.

United States
There are two main types of mobility, absolute and relative. Absolute upward mobility involves widespread economic growth which benefits everyone. Relative mobility is specific to individuals or groups and occurs without relation to the economy as a whole. Different from absolute, relative mobility is a zero-sum game. Both absolute and relative income mobility have been large and upward in the past ten years for those starting with below-average incomes; 80 percent of taxpayers had incomes in quintiles as high or higher in 2005 than they did in 1996, and 45 percent of taxpayers not in the highest income quintile moved up at least one quintile.

There has been a great disparity of income growth between 1979 and 2004 in the United States. The real, after-tax income of the top 1% earners has grown by 176% percent during that time, compared to a 69% rise for the top 20%, and an increase of 9% for the lowest 20%. Increasing income inequality, however, does not necessarily imply decreasing mobility. Median family income has risen 29% and mean family income has risen 43%, compared to the income of the previous generation for people that were children in 1968. Most of this growth in total family income can be attributed to the increasing number of women who work since male earnings have stayed relatively stable throughout this time. Two thirds of those who were children in 1968 reported more income than their parents, but only half of them exceeded their parents economic standing by moving up one or more quintiles. Although one third of the nation is moving up quintiles, another third is downwardly mobile — experiencing a decrease in income and economic standing compared to their parents.

Moving between quintiles is more frequent in the middle quintiles (2-4) than in the lowest and highest quintiles. Of those in one of the quintiles 2-4 in 1996, approximately 35% stayed in the same quintile; and approximately 22% went up one quintile or down one quintile (moves of more than one quintile are rarer). However, 42% of children born in the bottom quintile are most likely to stay there, and another 42% move up to the second and middle quintile. On the opposite end of the spectrum, 39% of those who were born into the top quintile as children in 1968 are likely to stay there, and 23% end up in the fourth quintile. Children previously from lower-income families had only a 1% chance of having an income that ranks in the top 5%. On the other hand, the children of wealthy families have a 22% chance of reaching the top 5%.

Worldwide
Using the ratio of an individual’s current income to that of their parent’s, there is no academic consensus whether the United States has less or more relative mobility than other industrialized nations. According to one study, the income of a person's parents is a great deal more predictive of their own income in the United States than other countries. France, Germany, Sweden, Canada, Finland, Norway, and Denmark all have more relative mobility than the US, while only the United Kingdom is shown to have less mobility. According to this study done by Miles Corak, The United States ratio of relative mobility is 1, whereas the other countries mentioned with more mobility have a range of 1.25 (France) to over 3 (Denmark). However, at least one other recent study has concluded that relative mobility is about the same in the US. Economic mobility in developing nations (such as those in Africa) is thought to be limited by both historical and global economic factors.

Men and women
Women in their 30s have substantially higher incomes today than their counterparts did in their parents’ generation. Between 1974 and 2004, average income for women in their 30s has increased almost fourfold. This is a stark contrast to the growth in income of their male counterparts. The average income of men in their 30s has increased from $31,000 in 1964 to $35,000 in 2004, an increase of only $4,000.

However, much of this can be attributed to employment rates. The employment rate of women in their 30s has increased from 39% in 1964 to 70% in 2004; whereas, the rate of employment for men in this same age group has decreased from 91% in 1964 to 86% in 2004. This sharp increase in income for working women, in addition to stable male salaries, is the reason upward economic mobility is attributed to women.

See: De-industrialization crisis

Black and white families
Average income for both White and Black families has increased since the 1970s. However, average income for White families in their 30s has increased from $50,000 to $60,000 from 1975 to 2005, compared to an increase from $32,000 to $35,000 for Black families of the same age over the same period. So in addition to receiving a lower average income, its growth is also less for Black families (10% growth) than their White counterparts (19% growth). One way this can be explained is that even though marriage rates have declined for both races, Blacks are 25% less likely to be in a married couple. However, Blacks also have less economic mobility and are less likely to surpass their parents’ income or economic standing than Whites. Two of three White children born into families in the middle quintile have achieved a higher family income than their parents. Conversely, only one of three Black children born into families in the middle quintile has achieved a higher family income than their parents. On average, Black children whose parents were in the bottom or second quintile do exceed their parents’ income, but those whose parents were in the middle or fourth quintile actually have a lower income than their parents. This is a very large difference compared to Whites, who experience intergenerational income growth in every quintile except the highest. This shows that in addition to lower wages with less growth over time, it is harder for Black families to experience upward economic mobility than it is for Whites.

Education
It is a widespread belief that there is a strong correlation between obtaining an education and increasing one’s economic mobility. The education system in the United States has always been considered the most effective and equal process for all individuals to improve one’s economic standing. Despite the increasing availability to education for all, family background continues to play a huge role in determining economic success. To individuals who do not have or cannot obtain an education, the greater overall levels of education can act as a barrier, increasing their chance of being left behind at the bottom of the economic or income ladder.

Studies have shown that education and family background has a great effect on economic mobility across generations. Family background or one’s socioeconomic status affects the likelihood that students will graduate from high school or college, what type of college or institution they will attend, and how likely they are to graduate and complete a degree. According to studies, when split into income quintiles including the bottom, second, middle, fourth and top, adult children without a college degree and with parents in the bottom quintile remained in the bottom quintile. But if the adult children did have a college degree, there was only a 16% chance that they would remain at the bottom of the quintile. Therefore, it was proven that education provided an increase in economic status and mobility for poorer families. Not only does obtaining a college degree make it much more likely for individuals to make it to the top two quintiles, education helps those who were born in the top quintiles to remain in the top quintiles. Therefore, hard work and increasing education from those who are born into the lower quintiles can boost economic status and help them move ahead, but children born into wealthier families do seem to have the advantage. Even when the likelihood of attending college is ignored, studies have shown that out of all the students that enroll in college, socioeconomic status or family background still has an effect on graduation rates with 53% of those from the top quintile receiving bachelor’s degrees along with 39% from the middle and 22% from the bottom quintile. According to the 2002 US Census, students can expect to earn on average about $2.1 million with a bachelor’s degree over the course of their working career. That is almost $1 million more than what individual’s without a college degree can expect to earn.

Considering that inflation rates have not kept up with increasing tuition rates, disadvantaged families have a much harder time affording college. Especially considering the increased competition for college admittances at public schools, students from lower economic quintiles are at an even greater disadvantage. Tuition rates over the past ten years has risen 47% at public universities and 42% at private universities. While having to take out more loans and work jobs while taking classes, students from lower income quintiles are considering college to be “a test of their endurance rather than their intelligence”.

By obtaining an education, individuals with low economic status can increase the income potential and therefore earn more than their parents and possibly surpass those in the upper income quintiles. Overall, each additional level of education an individual achieves whether it be a high school, college, graduate, or professional degree can add greatly to income levels. On the other hand, there are reports that disagree with the idea that individuals can work hard, obtain an education and succeed because there is the notion that America is actually getting poorer and actually more likely to stay poor as compared to any other western country. The idea of the “American Dream” is starting to fade since the middle class family income has remained constant since 1973. Studies have found that economic mobility is 3 times stronger in Denmark, 2.5 times higher in Canada, and 1.5 times higher in Germany as compared to the United States.

Immigration
According to the U.S. Census Bureau, the number of legal immigrants has been rising steadily since the 1960s. The number has increased from about 320,000 to almost a million per year. About 500,000 illegal immigrants also remain in the United States each year. People immigrate to the United States in hopes of greater economic opportunities and most first generation immigrants experience a boost in their income from the American economy. But since most do not have an education, their wages quickly begin to fall relative to non-immigrants. According to studies, there is a great upward jump in economic mobility from the first to the second immigrant generation because of education. These second generation immigrants exceed the income levels of the first generation immigrants as well as some non-immigrants.

Through intergenerational mobility research, the mobility of immigrants and their children from different nations can be measured. Considering relative wages from male workers from certain nations in 1970 to second generation male workers in 2000, conclusions can be drawn about economic mobility. In 1970, if immigrants had come from an industrialized nation, then their average wages tended to be more than the average wages of non-immigrant workers during that time. In 2000, the second generation workers had experienced a downfall in relative mobility because their average wages were much closer to the average wages of a non-immigrant worker. In 1970, for the immigrant workers migrating from less industrialized countries, their average wages were less than the average wages of non-immigrant workers. In 2000, the second generation workers from less industrialized nations have experienced an increase in relative mobility because their average wages have moved closer to those of non-immigrants.

By computing the intergenerational correlation between relative wages of first and second generation workers from the same country a conclusion was made regarding whether or not first generation immigrants influence the wages of the second generation immigrants. This computation was also reported for native-born first and second generation American families. The study found that both immigrants and natives pass along almost exactly the same level of economic advantages or disadvantages to their offspring. These conclusions predict diminishing correlations in wages from the first and second generations if change in the level of education for each immigrant is considered. Since the majority of immigrants have low levels of education, it may be increasingly difficult for future second generation immigrants to ever surpass the average wages of non-immigrants.