Raj Chetty on Income Mobility
By David Henderson
Mr. Chetty and the economists he works with tackle problems that seem intractable, and offer hopeful prescriptions. Consider economic inequality–the income spread between rich, middle-class and poor. Mr. Chetty addresses the issue indirectly. He examines income mobility, which he defines as the ability to rise from the lowest 20th percentile of income distribution to the top 80th percentile in one generation. Climbing that ladder is more important than ever, he says, because the distance between the economic classes is greater than in the past.
This is from Bob Davis, “Economist Raj Chetty’s Proposals on Inequality Draw Interest on Both Sides of the Political Aisle,” Wall Street Journal, October 20, 2015 (electronic.)
Reread that last line:
Climbing that ladder is more important than ever, he says, because the distance between the economic classes is greater than in the past.
That’s exactly wrong. A greater distance between top and bottom makes it less important to get from the bottom to the top. Now it’s possible that Davis, since he doesn’t give a direct quote, badly mischaracterized Chetty’s thought. The important thing here, though, is to get the thought right. And that thought is wrong.
To see why, take an extreme example where the range of income in the bottom fifth is a family income of 0 to $50,000, the range of income in the second fifth is $50,001 to $100,000, the range for the middle fifth is $100,001 to $150,000, the range for the fourth fifth is $150,001 to $200,000, and the range for the top fifth is $200,001 to infinity. This is a case where the distance between economic classes is even greater than in the past. Now, the thought above, whether Chetty’s or the writer’s, is that it matters even more than it used to that the family between $0 and $50,000 make it to the $200,001 level. See the problem?
With the second quintile being $50,000 to $100,000, if you make it to that one, you would be doing pretty well. If you make it to the middle quintile, you would be doing great.
HT2 Arnold Kling.