Saturday, 27 July 2013

Graph of the week: Climbing the income ladder

New York Times has the story:

Source: NY Times (Click to enlarge)
The map depicts US counties based on the probability a child raised in the bottom income quintile (bottom fifth) rises to the top income quintile (top fifth). The redder the district, the lower the level of upward mobility. The Southeast seems to score the worst in those terms, in particular in states like Georgia, North and South Carolina, Alabama and Mississippi it appears to be really hard to climb the income ladder. 

The story NYT was focusing on is Atlanta, one of America's most affluent metropolitan areas (pop. 5.4m), yet a city with a great level of income inequality, and apparently a terrible level of upward mobility (only 4% chance to reach the top quintile). According to a study done by researchers from Harvard and Berkeley, "The Equality of Opportunity Project", economic geography of Atlanta is what could be one of the culprits for its low social mobility:   
"The low-income neighborhoods here [Atlanta] often stretch for miles, with rows of houses and low-slung apartments, interrupted by the occasional strip mall, and lacking much in the way of good-paying jobs. This geography appears to play a major role in making Atlanta one of the metropolitan areas where it is most difficult for lower-income households to rise into the middle class and beyond... Atlanta, the most common lament seems to be precisely that concentrated poverty, extensive traffic and a weak public-transit system make it difficult to get to the job opportunities."
The map shows us the great variation across the country to which extent people can pull out of poverty. What is also interesting is that upward mobility rates differ in areas where income is similar, like in Atlanta or Seattle for example. So economic geography in terms of access to local jobs and markets, as well as the available infrastructure seems to be an important part of explaining this variation. I wouldn't say these are the key issues, but are significant to a certain extent. However the authors also show how this geography matters much less for well-off children than for middle or low class ones. 

Their study is based on millions of earning records in addition to information on education, family structure and the layout of the metropolitan area. The authors, interestingly, hypothesized that tax breaks would be the most important factor in influencing inter-generational mobility, however they found strikingly different results: 
"The researchers concluded that larger tax credits for the poor and higher taxes on the affluent seemed to improve income mobility only slightly. The economists also found only modest or no correlation between mobility and the number of local colleges and their tuition rates or between mobility and the amount of extreme wealth in a region. 
But the researchers identified four broad factors that appeared to affect income mobility, including the size and dispersion of the local middle class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were more dispersed among mixed-income neighborhoods.
Income mobility was also higher in areas with more two-parent households, better elementary schools and high schools, and more civic engagement, including membership in religious and community groups."
Of course, as the authors warn us, this is all correlation, not causation, meaning one shouldn't make any strong inferences based on just these results. But they are interesting nonetheless, and this surely is the best research project so far measuring upward mobility in the US. And it seems to lack any ideological bias, for now. But most importantly, it brings in the issue of economic geography into the equation, an often overlooked topic in economics in explaining both income inequality and labour market inefficiencies (access to markets, and access to skills). 

On the other hand of the equation however...
"Yet the parts of this country with the highest mobility rates — like Pittsburgh, Seattle and Salt Lake City — have rates roughly as high as those in Denmark and Norway, two countries at the top of the international mobility rankings." 
A divided nation indeed. 

1 comment:

  1. Correlates quite well with per-capita menthol cigarette sales.