The income mobility myth

By David Callahan
October 27, 2011

By David Callahan
The opinions expressed are his own.

Top Republicans have a simple answer to surging public concern about America’s vast wealth divide: More income mobility. “We want success for everybody,” House Majority Leader Eric Cantor said last week, adding that Americans shouldn’t “excoriate some who have been successful.” This remedy for economic unfairness taps into the popular American belief that public policy should ensure equality of opportunity, not outcome.

Too bad it won’t work.

Changes in the economy mean that, no matter how hard people work or how much they invest in education, they may still find themselves barely treading water. Even before the financial crisis, there weren’t enough good jobs to go around – thanks to globalization, automation, declining unionization, and lax labor standards. The majority of new jobs created during the presidencies of Bill Clinton and George W. Bush were low-wage positions with no benefits. These trends – not, say, a lack of ambition – help explain why half of all American households bring in under $50,000 and have no assets.

“Success for everybody” is simply not possible against this backdrop of structural inequality. Ironically, conservatives like Cantor are placing ever more faith in the great American virtues of hard work and self-improvement even as these virtues deliver less and less mobility.

Once upon a time, for example, Americans with a strong work ethic but little education could move upward thanks to unionized manufacturing jobs. But as both manufacturing jobs and unions started to disappear in the 1970s, earnings of high school-only males fell off a cliff: declining by 15 between 1973 and 1989. Today, about a third of poor families with children include a parent who is working full-time.

Realizing that plain hard work doesn’t mean upward mobility anymore, Americans have been piling into college at record levels – only to find that a degree is no magic ticket to success, either. Pay for college educated males has largely stagnated over the past few decades while living costs have soared. For example, nearly all the modest income gains of middle income families between 1999 and 2009 were eaten up by rising healthcare costs. Increasingly, too, white collar jobs are disappearing in the same way that blue collar jobs did – being shipped overseas or eliminated by technology or reclassified as temporary with no benefits.

The conservative mobility narrative trumpets the wealthy as “job creators” and agents of opportunity. But that story is exactly backwards in some respects. Corporations and the wealthy have embraced a set of strategies for improving the bottom line that have spelled downward mobility for many workers. For example, when a company moves its back office accounting work overseas, executives and shareholders in that firm may get a nice return as profits go up. But a bunch of college grads lose their jobs.

Even many jobs that stay in America have been turned from good jobs into bad jobs thanks to domestic outsourcing aimed at boosting profits. Janitors or food workers or drivers for big companies used to be on the same payroll as other employees and have benefits. Now those jobs are often contracted out to firms that pay lower wages and no benefits.

Meanwhile, greed among business elites has undermined the wealth building strategies that have long been a key to upward mobility. Speculative frenzies followed by financial crashes have wiped out trillions of dollars in household wealth not once, but twice in the past 11 years. Insiders made fortunes in both episodes even as the middle class got walloped. Those with the smallest toehold in the American Dream were hit the hardest. African-Americans and Latino households lost over half their median net worth during the most recent boom and bust – even as the Wall Street insiders who invented the subprime securitization machine and capitalized predatory lending outfits got unbelievably rich.

Republicans like Cantor are in sync with American values when they invoke the dream of a better life made possible by hard work and determination. But they can’t seem to admit that traditional mobility strategies are hitting a wall and that one of the GOP’s main constituents, corporations, are at least partly to blame.

The rules have changed in a post-industrial economy where those with capital hold all the cards. Growing the pie doesn’t count for much anymore if the increases just mean bigger slices for the wealthy and crumbs for the rest.

The fact that Republicans are talking about inequality at all is more evidence that Occupy Wall Street is the changing the national economic debate. Clearly, though, their movement still has plenty of work to do.

10 comments

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Amen!

Posted by matthewslyman | Report as abusive

p.s. Thank you, “CarlOmunificent” and “KJMClark”: I just watched the TED talk you recommended. It’s excellent.

Posted by matthewslyman | Report as abusive

Stupid ideas like the 9-9-9 tax proposal would introduce even more inequality into the system. It would force the poor – who have to spend perhaps all their income on consumption of basic necessities – to spend 9% of their income on sales take alone, while the rich save millions and only pay the 9% sales tax on a small percentage of their earnings.

Posted by loveone | Report as abusive

If jobs are going overseas, it’s because Americans prefer to buy the cheapest product. And before the whining begins that EVERYTHING is made overseas, what happened when Chinese goods were only 10% of the merchandise? What happened is that Americans bought them instead of more expensive products made by their fellow citizens. We care about our wallets first, full stop. Let’s just acknowledge the hypocrisy.

Most CHRONIC poverty – most of it – is related to people making poor choices, like dropping out of high school and missing out on needed skills, having kids out of wedlock(the preferred lifestyle for certain minorities), getting addicted, and getting criminal records that make them unemployable. Any discussion of wealth inequality has to also address underclass behavior.

Posted by Boojum22 | Report as abusive

“Clearly, though, their [OWS] movement still has plenty of work to do.”

Like using their computer savvy to create an alternate barter and trade economy. Like organizing the unemployed into online non-profit skill groups (plumbers, carpenters, electricians, auto mechanics, computer programmers, financial advisers, home loan specialists) to provide customers of these services with free, honest solutions and alternative opinions (thus challenging dishonest businesses). Like providing communities with web services such as dedicated, free, open source and locally controlled versions of Google, eBay, Craig’s List, PayPal, Amazon and Groupon. Like replacing the impersonal simplistic rating agencies (Equifax, Experian, TransUnion) with local versions capable of treating local people as real human beings. Like providing fast free legal response for OWS demonstrators, homeless people, and poor people. Like recording (as did the WPA Writers’ Project) the abuse of the ill, handicapped, and elderly by budget-cutting governments. Like using modern technology to demonstrate energy and food independent communities (think of Barterville of the movie Mad Max Beyond Thunderdome done right). And there is much more to do, all of it possible for the world’s first web-based revolution!

Posted by StanWilliamson | Report as abusive

There are often articles about lack of opportunity … yet fewer about what might have to be sacrificed in order to make opportunities in one’s own life.

Most students lived in dorms in the past; today they have apartments. Few students had cars; few today use public transportation.

I was fortunate to go to school just when the hippie movement was happening and clothing style was readily dismissed… it was unimportant.

Today, many spent much on a life style that most in the world could not even imagine.

Posted by eanmdphd | Report as abusive

There are often articles about lack of opportunity … yet fewer about what might have to be sacrificed in order to make opportunities in one’s own life.

Most students lived in dorms in the past; today they have apartments. Few students had cars; few today use public transportation.

I was fortunate to go to school just when the hippie movement was happening and clothing style was readily dismissed… it was unimportant.

Today, many spent much on a life style that most in the world could not even imagine.

Posted by eanmdphd | Report as abusive

Dear sick, perverted Boojum – Most CHRONIC poverty – most of it – is related to people making poor choices, like dropping out of high school and missing out on needed skills, having kids out of wedlock(the preferred lifestyle for certain minorities), getting addicted, and getting criminal records that make them unemployable. Any discussion of wealth inequality has to also address underclass behavior. minorities are not the ones who prefer to have kids out of wedlock. nobody does. I repeated what you said hoping that the sheer stupidity of the words together would dawn upon you.
People do make poor choices, but there are reasons. I believe Americans buy cheap stuff to stretch the shrinking budgets from years of price inflation for goods but non for their paychecks. That’s not hypocrisy, it’s dealing with reality. But I would have to assume you pay full price for everything you buy, right?

Posted by MediaEmpyre | Report as abusive

You show profound disregard for evidence in this post. From a US Treasury report on income mobility:

“The key findings are that there was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period and that the degree of income mobility among income groups is unchanged from the prior comparable period (1987 through 1996).”

http://www.treasury.gov/resource-center/ tax-policy/Documents/incomemobilitystudy 03-08revise.pdf

Also in the report a summary of prior work that shows the same rates of income mobility in the two decades prior to 1987.

If you have actual evidence to the contrary I’d be interested to see it.

Posted by DerekHaas | Report as abusive

The important data needed to verify how the US is being damaged by wealth concentration is not ‘income mobility’ but ‘wealth mobility.’

Income mobility suggests nothing that can be solidly verified but wealth mobility can.

DerekHaas, forget that treasury.gov thing and google ‘wealth mobility.’

Posted by ubervisionary | Report as abusive