Pew economic mobility study paints glass 'half full, half empty' picture

If there's anything startling in the Pew Charitable Trusts' new report about U.S. families' economic mobility, I haven't found it. Which is not to say the study has no merit. The details of well-purposed longitudinal surveys like these always deserve our attention.

On the surface, the study, Pursuing the American Dream: Economic Mobility Across Generations, indicates that the "American Dream" is very much alive for percentages of the U.S. population. Dig a bit, as Catherine Rampell has done, and the picture loses some of its sheen. The study examined mobility determined by both income and wealth.

[...] Pew researchers also examined mobility trends within individual families: That is, regardless of what the generations as a whole look like, are today's Americans better off than their own parents?

The answer depends on how you define 'better off.'

Pew uses two different metrics for intergenerational economic mobility: absolute mobility, and relative mobility.

For incomes, 'absolute' mobility refers to whether an individual earns more money than his parents did, in inflation-adjusted terms. For example, your parents earned $30,000, and you now earn $50,000. 'Relative' mobility refers to whether an individual has been able to move into a different socioeconomic class from the one he was born into; for example, a child born into the bottom income quintile manages to make it to the very top of the income distribution as an adult.

What Pew found was that in the bottom and top quintiles, mobility is "sticky." That is, if you were born into a family in the bottom 20 percent of the population, your chances of moving a rung or two higher was much less than if you were born into the next three quintiles. And if you were born into the top 20 percent, your chances of dropping by a rung or more was much less than if you were born into next lower quintiles.

The report states:

At all levels, Americans are likely to exceed their parents' family incomes, but the extent of their income growth varies by quintile. Americans raised in the bottom  who surpass their parents' incomes do so by the smallest absolute amounts, while Americans raised in the top who surpass their parents' incomes do so by the largest absolute amounts.

For African Americans, mobility remains problematic, which should come as no surprise to anyone. Among other things, blacks find it more difficult exceed the family income and wealth of their parents than do whites. Pew found that "63 percent of blacks raised
in the second quintile surpass their parents' family income compared with 89 percent of whites." And just 23 percent raised in the middle quintile surpass their parents' family wealth compared with over half 56 percent of whites. Additionally, blacks are more likely to stay in the bottom quintile if that is where they are raised and also to fall from the middle quintile than are whites.

While the wealth numbers seem to indicate considerable mobility for most Americans, with three-fourths born in the bottom quintile ending up richer than their parents, that probably makes the situation look better than it actually is, Rampell points out:

"If you grew up with parents who were broke, for example, having even a dollar to your name technically makes you richer than your folks. But you still don't have any semblance of financial security. Likewise, given the growth at the very top of the wealth distribution, the rich children who are worth more than their rich parents are probably orders of magnitude richer than their parents."

Among the other findings:

' The bottom three rungs of the wealth ladder have compressed during the past
generation.

Wealth has decreased at the bottom and middle and has increased at the top two rungs of the ladder. The wealth compression is especially notable at the bottom: Median wealth for those in the lowest wealth quintile decreased from just under $7,500 in the parents' generation to less than $2,800 in the children's generation. Conversely, at the top of the wealth distribution, median wealth increased from just under $500,000 in the parents' generation to almost $630,000 in the children's generation.

Pew only explains the what, not the why. As we know all too well, stagnating wages combined with tax policies that make life even poshier for the already rich have contributed a great deal to both the compression and the divergence. Somebody who cannot be named called it the "two Americas."

' Earning a four-year college degree promotes upward mobility from the bottom
and prevents downward mobility from the middle and top of the family income
and wealth ladders.

A college degree makes individuals much less likely to become stuck at the bottom of the family income and wealth ladders. For those raised at the bottom of the family income ladder, almost one half (47 percent for family income) without a college degree are stuck there as adults, compared with 10 percent with a college degree. Similarly, 45 percent without a degree are stuck at the bottom of the family wealth ladder, compared with 20 percent with a degree.

'''

Pew's work derives from Panel Study of Income Dynamics (PSID), a longitudinal data set that has followed families since 1968 to the present. It is "unique among data sets because it continues to follow family members even after they split off from their original households to form separate households."