Here’s to wishing you the best of luck in the birth lottery—you’re going to need it

Reposting my piece from The Equitablog:

Economists are always proving things my Grandmother already knew. Today, we’re learning more about the fact that where you’re born—the “birth lottery”—matters for where you’ll end up in life.

A new paper by economists Raj Chetty and Nathaniel Hendren of Harvard University, Patrick Kline and Emmanuel Saez of the University of California at Berkeley, and Nicholas Turner of the Treasury Department’s Office of Tax Analysis finds that even as inequality has risen sharply in the United States in recent decades, the chances of moving up (or down) the ladder have stayed about the same.

This research poses a challenge to the Great Gatsby Curve. This is a relationship between inequality and mobility showing that countries with greater inequality have less economic mobility. To be clear, the Great Gatsby Curve shows that countries with more inequality have less mobility; the new Chetty, et al. paper doesn’t challenge this. What the paper does is add new evidence—using tax records for cohorts going back to 1971—on changes in economic mobility. The United States still has higher inequality and less economic mobility than most other developed nations.

Chetty and Saez are on the Equitable Growth Steering Committee, so perhaps I’m a little biased, but my main take-away from this paper is that it’s an important contribution to the growing pile of knowledge we have about economic mobility. Knowing more about how adult children fare economically, relative to their parents, is an important economic and social issue. The American Dream hinges on the idea of upward mobility; it is part of the idea of what our nation is. We have evidence that economic mobility is lower in the United States than in most other developed countries. And recent research by Chetty and his co-authors finds that where you’re born within the United States matters: there is a high degree of variation in the chances of moving up depending on where you live.

But, while the paper sheds light on an important issue, it doesn’t put me in a good mood. The US economy grew by 217 percent between 1971 and 2012. We’ve lived through an era where we were told that if we left the market alone, we’d all benefit. Yet, what we’re learning today is that the gaps between the rungs of the ladder are further apart and that our chances of moving on up aren’t any better.

This paper leads to a number of new research questions. And, the authors are doing their part to encourage people to seek answers by making their data public, as they have with earlier datasets. In this batch, they are releasing data on mobility in multiple cohorts for every Commuting Zone in the United States. To understand the economy, we need data and these scholars are giving us thousands of new data points (hint: for anyone considering our request for proposals, we’d love to see ideas making use of these data!).

In terms of specific questions I’m left with after reading the paper, I’ll start with the tantalizing cliffhanger. The authors don’t yet have much income data for children born after 1986. As an interim measure, they look at college attendance rates. College attendance is correlated with later earnings, so this makes sense. But, of course, we don’t know yet what that relationship will look like for students who just graduated, especially for those starting their careers in the Great Recession.

Second, if Chetty and his co-authors are correct, the variation in intergenerational mobility is much greater within the United States than across time. In the United States, it matters more where you were born than when you were born. So, what are some places doing right (and what are others doing wrong)? What’s so special about Northern California or Salt Lake City?

And, how does the shape of the income distribution interact with economic mobility and what does really mean for all of us? Chetty and his co-authors point out that the relationship between inequality and economic mobility may be affected by what the income distribution looks like. When we look at how inequality has played out within the United States (and across the world), the story is very much about the top sliver pulling further and further apart. This leads us to the question: how does the top 1 percent pulling away affect mobility? And, how does this intersect with the growing stock of wealth those at the top command?

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