Income Mobility: Location Matters

Jul 23, 2013 • Behavioral Economics, Economic Debates, Government, Households, Labor, Macroeconomic Measurement, Thinking Economically • 231 Views    No Comments

Reading about US income mobility, I recalled what fractal mathematician Benoit Mandelbrot said about the British coastline. While from a distance it will appear straight, the closer you look, the more you see its indents and zigzags. Consequently, Dr. Mandelbrot believed the British coastline was much longer than people realized.

The significance? Seemingly simple conclusions ignore reality.

For US income mobility, the simple image is the summary statements in the news that say moving up the ladder is tougher. But a new study reveals that reality is much more complex.

In a new study, looking closely at millions of tax returns and 741 “commuting zones,” researchers from Harvard and UC Berkeley wanted to see if tax policy correlated with income mobility. They asked if income tax credits nudged people upward and if higher taxes for the affluent made a difference.

What they concluded instead was that dispersion counted when low and middle income families lived in mixed income neighborhoods. Also, two parent families helped mobility as did more social cohesion through civic and religious groups. Predictably, better elementary and high schools were important but less obviously, geography counted because it impacted commuting time.

As a result, if you are at the bottom of the US income ladder, “Where you grow up matters.” Born poor in Seattle, you have more of a chance for upward mobility than in Atlanta although both regions have almost the same average income. Similarly, NY, Boston and Salt Lake City provide more potential for upward mobility than Charlotte, Memphis and Indianapolis.

From: NY Times, "In Climbing Income Ladder, Location Matters."

From: NY Times, “In Climbing Income Ladder, Location Matters.”

Returning to Dr. Mandelbrot, we are left with some wisdom from Duke professor Dan Ariely. “…So we either simplify the problem and offer a solution, or embrace the complexity and do nothing.”

Sources and resources: The NY Times has superb interactive graphics that let readers look at the income mobility study more closely and complement the detail in the study itself. Also interesting, this Benoit Mandelbrot obituary conveys his life and work. Finally, for the typical simplified approach in the media, this Economist article has an income mobility overview and this NY Times article has the traditional conclusion about upward mobility stalling.

Please note that this post has been slightly edited after appearing.

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