Economic mobility decreasing, income inequality on the rise

Economists divide income distribution into quintiles. This sterile terminology doesn’t capture the romanticism of “rags to riches,” but the American dream is about people who want to move into a quintile above the one they were born into.

The ability of a country’s citizens to move from the bottom quintile into a quintile above them is known as economic mobility. Despite the perceptions of most Americans, 40 percent of whom believe hard work and ambition will help you reach the top if you’re poor (Pew Research Center), our country lacks economic mobility compared to our European counterparts. The United States is even less economically mobile than Pakistan.

Economic mobility has decreased, and income inequality has increased. While President Barack Obama has made the issues of income inequality and economic mobility a centerpiece of his second term, much of the action has taken place at the local level. In SeaTac, Wash. citizens voted to increase the minimum wage to $15 per hour. And in New York City, Mayor Bill de Blasio has called for the implementation of universal pre-K to be made available to every child in the city.

Mayor de Blasio’s reforms are the most relevant. “Moving on Up,” a study conducted by Pew Research Center on the States in 2013, listed education as one of the three factors which determined a person’s ability to move up the economic ladder. Race and whether or not a household had two earners were the other two.

The report estimated that 68 percent of whites left the bottom quintile, compared with 45 percent of blacks. An estimated 35 percent of whites reached the middle quintile (middle class), compared with 25 percent of blacks.

Households with two earners were more likely to leave the bottom quintile than those who lived and earned on their own. An estimated 84 percent of households with two earners were able to escape the bottom quintile, compared with 49 percent of families with one breadwinner.

Overall, 43 percent of Americans raised at the bottom of the income ladder remain stuck there as adults, and 70 percent do not even make it to the middle.

Curiously, for those who did make it out of the bottom quintile, race was not the most determinative of the three. Neither was whether or not a household had one or two earners. A college education mattered most of all.

Those with a college education were 5.3 times more likely to leave the bottom quintile compared to those without one.

Such data substantiates the focus on education by not only de Blasio, but by other local leaders who otherwise seem powerless to stop a nationwide trend. In the city of Ypsilanti, there is room to build off of this information. Approximately 40 percent of the city’s land is taken up by nonprofits like Eastern Michigan University. There could not be a more prominent beacon of hope.

Yet, according to university estimates, which are admittedly imperfect, only 8.5 percent of students are residents of the city. Now, this is not necessarily low, there is no standard metric.

Only 12 percent of the students who attend Wayne State University are, by the school’s estimate, residents of Detroit. Data was not available for Michigan State University, which only tracks students’ residency by county. And the University of Michigan did not respond to a request for information.

The point is, EMU’s leaders, and whoever occupies the mayoralty after this years’ election, should work hard to increase that number.

Development of human capital is important to not only the city’s sustainability, but for the ability of its residents to achieve the American Dream. Moreover, the city does not want those who do move up into another quintile to then take their riches somewhere else.

Residents should be able educate themselves and then start a business, receive a promotion, invent a new device, achieve the American dream – move up a quintile or two.


Comments powered by Disqus