America, Income Mobility and Inequality in Comparison to Other Developed Nations

KJ

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To understand the importance of high and rising U.S. inequality, it is therefore useful to ask how U.S. economic mobility compares to that of other developed countries, and whether U.S. mobility has fallen as inequality has risen. The answers to both questions will surprise many. Contrary to conventional civic mythology, U.S. intergenerational mobility is relatively low. The left panel of Fig. 5, reproduced from (44), which plots the relationship between crosssectional inequality (x axis) and earnings mobility (y axis) among a set of 13 OECD member countries for which consistent data are available, documents that the United States has both the lowest mobility and highest inequality among all wealthy democratic countries. The right panel of Fig. 5, also sourced from (44), suggests one proximate explanation for this pattern: Countries with high returns to education tend to have relatively low mobility. Why, if education is “the great equalizer” in the words of Horace Mann, do high educational returns predict low mobility? A key reason is that educational attainment is highly persistent within families. Indeed, two of the strongest predictors of children’s ultimate educational attainment are parental education and parental earnings (45, 46). Hence, when the return to education is high, children of better-educated parents are doubly advantaged—by their parents’ higher education and higher earnings—in attaining greater education while young and greater earnings in adulthood. Figure 5 therefore lends credence to the concern that rising inequality may erode economic mobility.
 
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