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Economic mobility

What Is Economic Mobility?

Economic mobility refers to the ability of an individual, family, or other group to improve or decline in economic status over time. This concept is a fundamental aspect of socioeconomics and plays a crucial role in the broader field of public policy and economic development. It examines how people's financial well-being changes, both within their own lifetime (intragenerational mobility) and across generations (intergenerational mobility). Economic mobility is often seen as a key indicator of a society's equality of opportunity and overall economic health.

History and Origin

The concept of economic mobility has deep roots in discussions about social progress and the "American Dream," which posits that hard work and talent can lead to upward financial movement regardless of one's background30, 31. Early sociological and economic studies in the 20th century began to systematically analyze shifts in occupational status and income across generations.

In recent decades, significant research efforts have focused on quantifying economic mobility. For instance, the Pew Charitable Trusts launched the Economic Mobility Project, which has conducted extensive research and published numerous reports on the topic, including "Economic Mobility Across Generations: Pursuing the American Dream" in 201228, 29. Similarly, the Organisation for Economic Co-operation and Development (OECD) established its Observatory on Social Mobility and Equal Opportunity to advance data collection and policy discussions around social mobility globally26, 27.

Key Takeaways

  • Economic mobility measures the movement of individuals or families up or down the economic ladder.
  • It encompasses both intragenerational mobility (within a single lifetime) and intergenerational mobility (across generations).
  • High economic mobility is often associated with greater equality of opportunity and a healthy economy.
  • Factors such as education, family background, and geographic location significantly influence economic mobility.
  • Research indicates that while absolute economic mobility has been high for many generations, relative mobility has shown signs of stagnation or decline in some regions.

Formula and Calculation

While there isn't a single universal formula for economic mobility, researchers often use specific metrics to quantify different aspects of it. A common measure for intergenerational economic mobility is the intergenerational elasticity (IGE) of income or earnings.

The intergenerational elasticity of income measures the persistence of economic status across generations. It is calculated as the elasticity of a child's income with respect to their parents' income.

IGE=%ΔChild’s Income%ΔParent’s IncomeIGE = \frac{\% \Delta \text{Child's Income}}{\% \Delta \text{Parent's Income}}

Where:

  • (% \Delta \text{Child's Income}) represents the percentage change in the child's income.
  • (% \Delta \text{Parent's Income}) represents the percentage change in the parent's income.

A higher IGE (closer to 1) suggests less economic mobility, indicating that a child's income is highly dependent on their parents' income. A lower IGE (closer to 0) suggests greater economic mobility, implying less correlation between parental and child income. For example, a Pew Charitable Trusts report found an average IGE of 0.52 for men and 0.47 for women, meaning approximately half of parental income differences persist into the next generation25. This metric is crucial for analyzing income inequality and patterns of wealth accumulation.

Interpreting Economic Mobility

Interpreting economic mobility involves understanding both absolute and relative movement. Absolute mobility refers to whether individuals or families have a higher standard of living than previous generations, often due to overall economic growth and increased gross domestic product (GDP). For example, if a child earns more than their parents did at the same age, they have experienced absolute upward mobility24. Historically, the United States has seen high rates of absolute mobility, with most children earning more than their parents22, 23.

Relative mobility, on the other hand, measures an individual's or family's change in rank within the income or wealth distribution compared to their parents or peers21. If someone from the bottom income quintile moves to a higher quintile, that indicates upward relative mobility. Conversely, moving down quintiles indicates downward relative mobility. Studies by organizations like the Pew Charitable Trusts and the Federal Reserve Bank of San Francisco highlight that while absolute mobility might be present, relative mobility can be limited, especially at the extremes of the income spectrum, a phenomenon sometimes referred to as "stickiness at the ends"18, 19, 20. This distinction is critical for policymakers aiming to foster genuine economic opportunity.

Hypothetical Example

Consider two families, the Smiths and the Johnsons, over two generations.

Generation 1 (Parents):

  • Smith Parents: Earn $40,000 annually.
  • Johnson Parents: Earn $120,000 annually.

Generation 2 (Children, at the same age as their parents in Generation 1):

  • Smith Child: Through hard work and obtaining a college education, now earns $70,000 annually.
  • Johnson Child: Also obtains a college education and enters a high-paying field, now earning $150,000 annually.

In this example:

  • Absolute Mobility: Both the Smith child and the Johnson child experienced absolute upward mobility, as their incomes are higher than their respective parents' incomes in inflation-adjusted terms ($70,000 > $40,000 and $150,000 > $120,000). This reflects general economic growth.
  • Relative Mobility: The Smith child also experienced upward relative mobility. Their parents were in a lower income bracket, and the child moved significantly up the economic ladder, narrowing the gap with the Johnson family. The Johnson child maintained a high relative position, indicating persistence of high economic status. This example highlights how factors such as human capital can influence an individual's trajectory.

Practical Applications

Economic mobility is a crucial concept for various stakeholders, influencing fiscal policy, social programs, and individual financial planning.

  • Public Policy and Social Programs: Governments use economic mobility data to design policies aimed at reducing inequality and increasing opportunity. This includes investments in education, job training programs, and social safety nets. For instance, the International Monetary Fund (IMF) emphasizes that targeting programs during childhood is often the most cost-effective way to boost upward economic mobility17.
  • Investment and Regional Development: Understanding regional differences in economic mobility can guide targeted investments. Areas with low mobility might benefit from infrastructure projects, business incentives, or educational reforms to foster local economic improvement. The Federal Reserve Bank of Atlanta actively studies economic mobility to identify factors that contribute to or hinder it in various communities, aiming to build a stronger economy for all Americans16.
  • Personal Finance and Career Planning: Individuals can consider the factors that influence economic mobility when making decisions about education, career paths, and geographic location. Recognizing the importance of education, for example, can lead to strategic investments in skills and qualifications.
  • Academic Research and Data Analysis: Researchers continuously analyze trends in economic mobility to understand the underlying drivers and barriers. Institutions like the Brookings Institution have conducted extensive research into the "American Dream" and the realities of economic mobility, providing insights into how current generations fare compared to their parents14, 15. Such research often involves complex data analysis to identify patterns and inform policy recommendations.

Limitations and Criticisms

Despite its importance, the study of economic mobility faces several limitations and criticisms. One challenge lies in the measurement of income and wealth. Different studies may use varying definitions of income (pre-tax vs. post-tax, inclusion of transfers) and different timeframes for measurement, which can lead to divergent findings. For example, some studies on absolute mobility find a decline when using pre-tax income but a smaller decline or even an increase when accounting for taxes and transfers13.

Another criticism revolves around the data sources and methodologies. Relying on survey data can introduce biases due to self-reporting errors or incomplete information. Longitudinal studies, while valuable for tracking individuals over time, are complex and expensive to maintain. Furthermore, studies often focus on income, potentially overlooking other important aspects of well-being, such as health, social networks, and financial literacy, which also contribute to overall economic status.

Finally, the interpretation of findings can be subject to debate. For example, while some research points to "stickiness at the ends" of the income distribution, meaning individuals born into the very top or bottom are more likely to stay there11, 12, others might emphasize the significant number of individuals who do experience upward or downward movement. The policy implications drawn from economic mobility studies can also be contentious, with different perspectives on the most effective interventions to promote upward mobility or address stagnation.

Economic Mobility vs. Social Mobility

While often used interchangeably, economic mobility and social mobility are distinct but related concepts.

FeatureEconomic MobilitySocial Mobility
Primary FocusMovement in financial well-being (income, wealth).Movement in social status, class, or position.
Key IndicatorsIncome quintiles, wealth percentiles, earnings.Education, occupation, prestige, lifestyle, social networks.
MeasurementQuantitative (e.g., income elasticity, poverty rates).Often qualitative or based on proxies for social standing.
OverlapStrong correlation, as economic status often influences social standing.Economic changes can drive social mobility, and vice-versa.

Economic mobility specifically quantifies changes in a person's financial situation. It answers questions like: "Is this generation earning more than the last?" or "How likely is someone born into a low-income family to reach a middle-class income?"10. Social mobility, on the other hand, is a broader term encompassing shifts in an individual's or group's overall position within a social hierarchy. This includes changes in socioeconomic status that may not be directly tied to income, such as changes in occupational prestige or access to certain social circles. While a rise in income (economic mobility) can certainly lead to a rise in social standing (social mobility), factors like education and cultural capital also play significant roles in social mobility, even without an immediate increase in earnings9.

FAQs

What are the types of economic mobility?

There are two main types: absolute mobility and relative mobility. Absolute mobility refers to whether a person's income or wealth has increased compared to a previous generation or earlier in their own life, regardless of their position in the overall distribution. Relative mobility concerns a person's change in rank within the income or wealth distribution compared to others or their parents7, 8.

Why is economic mobility important?

Economic mobility is important because it is a key indicator of fairness and opportunity within a society. High mobility suggests that individuals have a greater chance to improve their financial situation through hard work and talent, fostering a sense of fairness and potentially reducing social unrest. It also contributes to a more dynamic and productive economy.

What factors influence economic mobility?

Many factors influence economic mobility, including education, family background (e.g., parental income, wealth, and education), geographic location, access to quality healthcare, and social networks4, 5, 6. Government policies related to education, taxation, and social welfare also play a significant role.

Has economic mobility in the U.S. changed over time?

Research suggests mixed trends. While absolute economic mobility has been high for much of U.S. history, meaning most children earn more than their parents, the rate of increase has slowed for recent generations. Relative mobility, which measures changes in income rank, shows that those born at the top and bottom of the income distribution are often "stuck" there, indicating less relative movement than some might expect2, 3.

How does education affect economic mobility?

Education is a significant driver of economic mobility. Higher levels of education are generally associated with higher earnings and a greater likelihood of upward mobility1. Access to quality education, from early childhood through college, can provide individuals with the skills and knowledge needed to secure better-paying jobs and improve their economic standing. This often contributes to an increase in earning potential.