Friday, January 31, 2014

Harvard Study Suggests That Single-Parent Households, and Not Income Inequality, Cause Income Immobility

Income inequality has become a cause célèbre for many on the Left these days. Oxfam has even jumped on the income inequality bandwagon and declared war on income inequality. In the United States, we're coming up on the midterm election season, which seems like an opportune time to pursue the issue of income inequality. The income inequality narrative goes like this: There is a huge relationship between income inequality and income mobility. Because of that, we should do something about income inequality to prevent further income immobility.

Forgetting that "correlation doesn't equal causation" for a moment, a friend of mine was kind enough to send me a couple of recently published Harvard studies on the matter. These studies are an improvement in discerning the issue of income inequality because instead of using small surveys, these studies use larger sets of data consisting of millions of tax records. The first one was a longitudinal study entitled Is the United States still a land of opportunity? Recent trends in intergenerational mobility (Chetty et al, 2014a). I find its conclusion to be remarkable, which was that "rank-based measures of social mobility have remained remarkably stable over the second half of the twentieth century in the United States (p. 10)." Over the past forty years, income inequality increased while income mobility stayed the same. As a matter of fact, it may even be improving (p. 7). In spite of what the Great Gatsby Curve has to say, income inequality does not cause income immobility, which makes sense because much like income immobility, income inequality is an outcome of given policies and [market and societal] forces, not the cause of societal woes. Not only that, the results of this study show that it is not any more difficult to climb the income ladder than it has been in the past four decades. The days in which we use "income inequality" and "income immobility" interchangeably with a serious face are over.

But wait, it gets better. If income inequality doesn't cause income immobility, then we have to ask ourselves what does. This where the Harvard University longitudinal study of Where is the Land of Opportunity? The geography of intergenerational mobility in the United States (Chetty et al, 2014b) comes into play. This study looked at five main factors associated with income mobility: residential segregation, income inequality, primary schools, social capital, and family stability (p. 4). Given the heavy rhetoric about income inequality, I was expecting income inequality to be the culprit of income immobility. However, in spite of some geographical variants (Figure VI), income inequality is a comparatively weak factor. Although the authors were careful to state (p. 5) that these factors should not be interpreted as causal detriments (no surprise there….that can be said about any study. Can we say "endogeneity problem?") and there is possibly a correlation between the various factors (p. 45), they nevertheless concluded (Table IX) that "the strongest and most robust predictor is the fraction of children with single parents (p. 46)" and that "children of married parents also have higher rates of upward mobility if they live in communities with fewer single parents (p. 4)."

At the very least, these studies quash the Left's assertion of "income inequality leads to income immobility." At the most, it affirms that conservatives were correct in saying that we should legitimately be worried about family structure and making sure that couples get married before having children. There is validity to advocating for married couples, particularly if children are involved. If one is to raise children, two parents are more able to bring in income than one parent. Plus, a two-parent household is better equipped to devote time and effort to childrearing. This is not to say that there aren't single parents who can raise children better than a married couple. There are obviously children who were successfully raised by single-parent households. It is to say, however, that a child will statistically fare better with a home that has two parents than a home with a single parent. Even non-conservative policy analysts believe in the importance of a two-parent home.

Whether family structure is the primary or sole factor in income immobility, it is safe to say that a fixation on income inequality is not going to solve our problems. We should find policies that make life better for as many people as possible, so how about a "war on economic immobility" instead? At least that way, we can better focus on causes of income immobility and root problems related to poverty.


  1. Income inequality is also a cause of given policies and [market and societal] forces. In addition, poverty may reduce marriage rates (I'm having little luck looking at this direction because everyone is looking the other way). In that way, the extreme lows of wealth and income would be reducing marriage, thereby reducing mobility.

    I did manage to find one study that found an anti-poverty program boosted marriage rates. One study of one program, but it's a start.

    A war on immobility will never happen. Absolute mobility is already upward, since even with stagnant wages a rising technological tide lifts all boats. Relative mobility means some of the top have to be able to fall, and they will never allow that to become common.

    If you'll pardon a slight demand-side (and non-academic) tangent, here's a piece on how inequality can harm innovation. Furthermore, if, as I suggested, innovation/technology are a guaranteed source of absolute mobility, then harming innovation isn't going to do anyone any favors.

    1. Andrew, I'm still going to have to disagree with your notion that income inequality is a cause. Much like in any mathematical equation, the sum of 5 is not the cause of 2+3, but rather the resultant. Income inequality is too much of an abstraction to be causing it. What allows for income inequality to perpetuate and increase? Is it certain tax breaks for the rich? Is it the president bailing out his buddies at GM or Solyndra? Is it regulatory exemptions that protect large companies from market competition? It'd be nice to point to something more concrete than "income inequality."

      Although the NYU was interesting to look at, I don't think I can agree with your assertion that "poverty decreases marriage rates," either. Poverty was worse a century ago, yet the marriage rate was higher. Without sounding too conservative here, I'm sure that overall wealth plays a role in the declining marriage rate, but the institution of marriage has been on a decline for quite some time that goes beyond a lack of cash.

      Finally, if you don't expect a war on immobility because "relative mobility means some of the top have to be able to fall, and they will never allow that to become common," why wouldn't going after income inequality be equally problematic?

    2. If you're going to use math, then note that equal signs do not have a direction. 2+3 = 5 = 7-2

      "Is it certain tax breaks for the rich? Is it the president bailing out his buddies at GM or Solyndra? Is it regulatory exemptions that protect large companies from market competition?"
      I think your history is starting to succumb to FOX...
      It is certain tax breaks and how income is treated differently for different people. It is regulatory exemptions. These are all possible because of the inequality because it is what drives the political and economic power to dictate policy. So yes, a better regulatory environment is the direct fix, but that is not possible without fixing its own root: entrenched economic and political power (inequality and lack of mobility).

      "I'm sure that overall wealth plays a role in the declining marriage rate"
      So why not look at that angle as well? Targeting social or economic policy alone might not do it, since clearly both are part of the problem. Surely a change in social attitudes towards marriage doesn't mean that it is useless to look at economics.

      "why wouldn't going after income inequality be equally problematic?"
      The bottom can be raised without harming the top.

    3. My history succumbs to Fox like yours succumbs to MSNBC. No need to bring in the "lamestream media" in as straw man depictions of what each of us is trying to say. We both agree that the collusion of Big Business and Big Government is a bad idea (Big Government + Big Business = higher Gini coefficient). We just happen to have different policy solutions. Even so, your assertion fails to address the bigger issue here, which is that Harvard study's data suggests, i.e., income inequality is not the primary culprit. If we have a limited number of resources, I would rather focus on the number one factor than a lower factor. If we could help the poor without harming the rich, that'd be great. But would you use Pareto or use some more reasonable threshold?

  2. Who said it's not equally problematic? How many wealthy people do you know that would be happy to "fall" so that others could rise? There are a few, sure, but they're definitely exceptions.

  3. I always say Income Inequality is awesome! It's what provides the incentive for the great entrepreneurs to create businesses and jobs. The promise that you can become richer than others by working harder or smarter, is a feature of a free society, not a drawback.

    1. Pedro, I don't disagree with the notion that rewarding people for their productivity and contributions to society is what makes for a free society. My issue is with your usage of the word "always." Certainly in pre-capitalist days, wealth was so concentrated that the rich literally controlled everything and the remaining 99.9999% lived in squalor. Although that level of wealth concentration is counter to a free society, based on the evidence, I don't think society has reached the point where the wealth concentration is prohibiting life, liberty, and the pursuit of happiness for the populace.