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A certain study from the university of Michigan have been put forward as a proof of high US income mobility, but does it really prove that?
Over the last decades, the distribution of economic goods in the US has become less equal. Many has argued that this is a bad thing, while others think that is a healthy sign of a dynamic society. What has inevitably popped up, are explanations as of how this really isn`t that big a deal. One of these explanations is that income mobility in the US is extremly high, and the poor of today might be the middle class of tomorrow. One such study is the study made by the university of Michigan, and published in the 1995 annual report of the federal reserve bank of Texas. This study reportelty showed that the income mobility in the US was huge, and most of the poor people of 1975 has progressed into the middle class or beyond by the early ninties. This is the study that has been cited in numerous articles and books, to show that povery in American isn`t that big a deal, because very few stay in that position for any extended length of time.
Before I start to analyse the study further, we have to make clear what associations most people get from these claim. Who are the poor? Most people look at the poor as people who work \"minimum wage\" jobs to support them fulltime, live in poor neighbourhods and have very limited education and opportunities. When I heard the claim that most of the poor ended up middle class after a few years, I thought that this meant that this mass of \"working poor\" ended up getting better jobs and gradually improved their situation until they could no longer be classified as poor. Maybe the american system wasn`t so bad afterall, since almost all the poor made it out of that situation after a few years? This is the claim that this study has been used to defend, and it is whether the study actually lives up to this, that will be discussed here.
Firstly, it is appropriate to say something about the study itself. The study was a tracking study, it followed the same people during a period of time from 1975 to 1991. The data for the study was collected by the participants reporting their income every year. Included in the study were people who were \"active on the labour market\", people earning income and people wanting to earn income. To be included in the study, the participants had to be able to report their income during the whole period. The study was based on analyzing the different income quintiles in the population. The bottom 20 percent were one quintile, the top 20 percent were in the top quintile and so on, dividing the population into five quintiles. The result of the study was staggering, of those in the bottom quintile in 1975, 60 percent had made it to the three upper quintiles in 1991! This should really prove that the income mobility in the US is extremly high, wouldn`t it?
Actually, it does not prove that fact, if we are to use the definition of the poor used above. You see, the \"poor\" according to this study are not the \"working poor\" of the inner city. How can this be? A short view of the criteria used for selection of the participants in the study clearly show why. The study includes everyone over 15 years or over, only people under 16 years of age are excluded from the study because of age. This means that students and even high school students are included. Of course, high school students and college students that does not work or only have a part time job to spice up their college savings, are poorer than people working 70 hours a week at minimum wage. When you include every student down to the age of 16, they will be a substansial part of the poor in this study. Here, we also must remember that even if the age group for the study is people from 16 and up, that is only in theory. You see, to be included in the study, you had to report your income during all the 16 years of the study. What about those who were retired or old when the study started? They would largely be dead before the conclusion of the study, and therefore would not be included. This means that the people included in the study were about 16 to a little over 60 years of age when the study started, because those who were older would be exluded because most of them would be dead at the conclusion of the study. Actually, this could favour the rich portion of the population, because poor people often die younger than rich people. This would lead to more poor than rich people being excluded based on this criteria, and the study would be skewed. If every american goes to school for an average of four and a half years after they have become sixteen years old, students would account for about ten percent of the entire study population. That would mean that at least half of those considered poor by the study are not the ones considered poor by most other standards.
Also, there are other problems here. Some people are excluded from the study altogether. Those being sent to prison, who becomes homemakers and those who become disabled are also excluded. This actually excludes a lot of those people that are considered poor from the study. A rather large proportion of the poor young males in the US population goes to prison during some period of their lives. Poor people have a larger propability of going to prison that rich or middle class people. Also, about 5 percent of the american population lives of disability benefits. Poor peole have a larger propability of ending up on disability, than people that are more well off. Also, a huge majority of home makers are women, and as the study states, a larger proportion of rich households has both spouses active on the jobmarket. Also, women usually earn less than their male counterparts. This means that large segments of the poor are excluded from the study alltogether, so the ability of the study to say anything about the poor are therefore rather questionable. Another problem is that \"house wives\" sometimes work part time to supplement the income of their husbands. This also creates another group of \"paper poor\". Yes, their income are lower than the income of someone working full time in the same low paid job, making them look poorer than the \"acutal poor\" on paper. You can`t either forget that most people take some part time employment or \"beginners jobs\" in the start of their careers, even if they have a good education.
It is true that the incomes of many people rise as the get older, but that happens in most modern capitalist based economies, not only in the most libertarian ones. Also, people with higher wages are able to save up more that the those with low wages are able to. Much of the income increases of the middle classes later on stems not from higher wages, but from returns on investments. Of course, their incomes are increasing, but when you see the risining incomes, you can get the impression that they are getting pay hikes all the time, and by that increases their social position. Returns from savings hovewer, does not necessarily imply any further rise in wages, but the natural returns from pension funds, putting money in other forms of funds or having interests of money in the bank.
The fact that pensioners are included also creates problems. You wouldn`t normally claim that the fact that those holding the top positions retires is a proof of social mobility? Most people lose income when they retire, and the rich are no exception. When you include people in such a study after they are retired, the numbers will show that a rather healthy proportion of the richest drop downwards, and are replaced by people from below. This would show that there are competition for the top positions in US society, and anyone holding to positions can expect fierce competition from below. When a proportion of those leaving the top positions leave them because of retirenment, and not because the are \"competed out\" by hungry bootstrappers from below, it becomes less conclusive hovewer.
To sum things up, this study does not show that being poor in american is a short experience, it only shows that much fun can be had with definitions and statistics.
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