Monday, June 05, 2006

Conditions of income mobility

Two studies reported in The Economist (pay content) show that income mobility--the ability for children to be more economically successful than their parents--is much greater in Scandanavian countries and the UK than it is in the United States:
The authors rank countries on a scale from one to zero, with one meaning no mobility at all (ie, a child's income is identical to its parents') and zero meaning perfect mobility (ie, a child's income bears no relation to its parents'). The Nordic countries score around 0.2 for sons, Britain scores 0.36, and America 0.54 (meaning that a son's earnings are more closely related to his father's in America). These figures are roughly in line with the conclusions of other studies, though they have the advantage of using standardised data, thereby minimising problems of definition that usually bedevil cross-country comparisons.

The biggest finding of the studies is not, however, about overall social mobility, but about mobility at the bottom. This is the most distinctive feature of Nordic societies, and it is also perhaps the most significant difference with America. Around three-quarters of sons born into the poorest fifth of the population in Nordic countries in the late 1950s had moved out of that category by the time they were in their early 40s. In contrast, only just over half of American men born at the bottom later moved up. This is another respect in which Britain is more like the Nordics than like America: some 70% of its poorest sons escaped from poverty within a generation.

The Nordic countries are distinctive in one further way: the sons born at the bottom (into the poorest fifth) earn roughly the same as those born a rung above them (the second-poorest fifth). In other words, Nordic countries have almost completely snapped the link between the earnings of parents and children at and near the bottom. That is not at all true of America.

The effect is attributed to two things--welfare programs and education. If the consequences of U.S. policies include not only growing income inequality but declining income mobility, the latter undermines a standard argument for the former, and provides a motivation for changing policies.

(The studies are “Non-linearities in Inter-generational Earnings Mobility” (Royal Economics Society, London) and “American Exceptionalism in a New Light” (Institute for the Study of Labour, Bonn). Both are by Bernt Bratsberg, Knut Roed, Oddbjorn Raaum, Robin Naylor, Markus Jantti, Tor Eriksson, Eva Osterbacka and Anders Bjorklund. The Economist also criticized the U.S. for declining income mobility in 2005, in an article that is available in full without a subscription.)

1 comment:

Einzige said...

I wonder if The Economist will print the following letter to the Editor, from Professor Don Boudreaux:

29 May 2006

The Editor, The Economist
25 St James's Street
London SW1A 1HG
United Kingdom


Scandinavians do move more readily than Americans from one income quintile to another (Charlemagne, May 27). This fact, however, provides less support than you suppose for the conclusion that Scandinavians enjoy more income mobility than do Americans.

One important reason for Scandinavians' greater mobility among income quintiles is the fact that these quintiles are smaller and more compressed than in America. For example, while in Sweden top quintile earners earn approximately 3.3 times what bottom quintile earners earn, in America top-quintile earners' income is 7.3 times larger than the income of bottom-quintile earners. America's greater span of incomes means that the same change in income that moves a Swede to a different income quintile is less likely to move an American to a different quintile.

Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030