Economic Mobility

Economic mobility is the ability of someone to change their income or wealth. It is measured over generations or during one's lifetime. Research has found that the best way to improve one's mobility is through education, but the increasing cost of education is creating a block to those starting out in low-income families. It's a form of structural inequality that keeps the poor from improving their lives.

The biggest block to mobility is widening income inequality. And unfortunately, race has also been a factor over the years. As a result, the United States has lower levels of economic mobility than other developed countries.

Mobility is calculated using earnings, income, or wealth. The measurement used will give different results. Earnings are wages and salaries from paid jobs and businesses, including farms. Income is revenue from all sources before taxes but after transfers. It includes earnings plus settlements, government programs, such as Social Security, and income from investments. Wealth is the net worth of the household. The Federal Reserve Bank of Minneapolis found that age was the greatest determinant of mobility in all measurements. As people age, they get better jobs and have a higher net worth. Older people who are retired have lower incomes, although they might have the highest wealth. 

Mobility is also measured through time. Some studies look at intergenerational, or whether children have higher incomes than their parents. Others may only consider intragenerational, or how far someone can go in their lifetime. Research shows that the greatest single correlation of high income is the education level of one's parents.

The Federal Reserve Bank of Minneapolis study found that income, earnings, and wealth increased with education levels. It also found that college graduates had the most wealth compared to earnings than those without college. They were able to save and invest more of their earnings.

The increasing cost of education makes that pathway more difficult for those in low-income families. Instead of a pathway, it is more of a roadblock. The best way to overcome this is to create more equity in education. It would provide more resources to those at the lowest levels to help them catch up. Between 1979 and 2007, income inequality destroyed Americans' economic mobility. The gaps between the rich and the poor have grown wider. Household income increased by 275 for the richest 1  per cent of households. It rose 65  per cent for the top fifth. The bottom fifth only increased by 18 per cent. That's true even after "wealth redistribution." In other words, subtracting all taxes, and adding all income from Social Security, welfare, and other payments.

Since the rich got richer faster, their piece of the pie grew larger. The richest 1  per cent increased their share of total income by 10 per cent. Everyone else saw their piece of the pie shrink by 1  per cent to 2  per cent. In other words, even though the income going to the poor improved, they fell further behind when compared to the richest.

The 2008 financial crisis worsened the gap. The rich got richer through the recovery. In 2012, the top 10 per cent of earners took home 50  per cent of all income.

balance.com