Income Mobility: Up & Down the Economic Ladder

by Tom Thompson
Dr.Walker
Senior Seminar
7/29/2009

Thomas L. Thompson
Dr. Christopher Walker
Senior Seminar
July 29, 2009

Income Mobility: Up & Down the Economic Ladder

People always say they do what they do to make life better not only for themselves, but for the future well-being of their children and hopefully those actions will get passed on to their children. This is my way of thinking of the paying it forward theory; giving all I have, to make the lives of my children better than the one I grew up with and the one I currently live. One of my most favorite quotes about getting ahead in life came from a philosopher and pastor Russell Conwell that is hand-written by my grandmother in a Bible that was given to me some years ago. It goes like this, “For a man to say, I do not want money, is to say, I do not wish to do any good to my fellow men" (Conwell). Everyone wants money, only if it is to do good for your family’s future. From the rich business professional perched high in their penthouse to the lowly street peddler on the corner, everyone has a story on how and why they ended up in that position. The United States is seen as the place where everyone has the opportunity of the “American Dream”. That includes the opportunity for one's children to grow up and attain to their fullest potential in which they are capable of, and seen for what they are and not what they are born with. It is the opportunity to make individual choices without the restrictions of class, religion, race, or ethnic group. In this research paper, I will explore the different aspects of income mobility, by looking at some intragenerational and intergenerational mobility issues. Then I will also breakdown and show some of the different economic mobility indicators and how they play an important role on how income mobility is measured. So, what does income or economic mobility mean? According to Isabel Sawhill of the Brookings Institute: Economic mobility is the ability of an individual or family to improve their economic status, in relation to income and social status, within his or her lifetime or between generations. Economic mobility is often measured by movement between income quintiles or comparisons are made to the income of an individual’s parents as a point of reference. The ability to increase one’s income is closely tied to the idea of the “American Dream” and being able to advance your economic standing through hard work and effort. (Sawhill)
Basically, it is the concept or theory in that as we get older or our children get older they will surpass the economic achievements of their parents. The concepts of intragenerational and intergenerational mobility are also mentioned quite often when talking about income mobility. Intragenerational mobility involves the movement of one individual’s economic movement up or down the economic ladder in their lifetime. Intergenerational mobility takes a look at the income mobility in reference from parents to their children’s movement along the economic ladder. From all the different perspectives, everyone can obviously agree that there are income inequalities abound…always have been, always will be…it’s the facts of life. There are the assumptions that everyone can get ahead based on their capabilities and efforts. I have always wondered why one can get so far ahead in life and not have to worry about a thing, while others struggle from minute to minute to survive. How can the “American Dream” be achieved when there is such disparity on income? It seems this question lies within the many mobility factors that are quite simply called economic mobility indicators. These indicators affect each and every one of us and can be broken down into different forms of social, human, and financial capital. Taking the outcomes of ourselves or our children’s, we could quite possibly see how these indicators affect the movement up and down the economic ladder. When you start breaking down the forms of capital there are many subsets for each and they have many indicators. It would be impossible for me to try to explain all of these indicators, so I will stick to the ones that I believe play a more significant role. For every indicator brings up “a factor that influences mobility in either a direct or indirect way, or both” (Butler). I will start by looking at social capital and the indicators that fall under it. Social capital normally consists of the nonfinancial resources obtainable through relationships to people and organizations. Some of the things that guide a person’s course in economic mobility could include your family, or perhaps the area that you live in can be. Social capital seems to relate with and support other factors that influence mobility, “such as educational opportunities” (Butler). It is basically the root or reason of human and financial capital. Social capital can be broke up into family influences and social institutions/community building blocks, with each having their own indicators. Family influences play a big role in the income mobility ladder. The characteristics of parents and how a family is formed play very significant in the development of certain behaviors and abilities. These behaviors and abilities can have a lifelong influence on the economic mobility of children. They can all be characterized into family structure, parenting skills/education, and parental similarity. The first step and easiest way to obtain social capital is always through your family. The quality of the bonds that parents have for their children, the shared morals and values of the family members, and the non-material kinds of investments that parents build in their kids are some examples of social capital within the family structure. This also allows, more often than not, the child access to other avenues of resources that are available within and outside the family. “Knowing who, when, and how” (Burt) are key lessons learned when it comes to social capital. Who else better to learn these things from, than your own family? Let’s start by looking at the indicator of family structures. When we think of family structures, the first thing that pops into most people’s head is your normal family of a mother, father, and 2.5 kids living in a nice home. Well, that is far from the reality nowadays and most people do not like to think of any other circumstance. According to research from the United States Census Bureau, single parent births are becoming the norm, and more specifically “most affected are blacks, of whom 71% of children born today will have unmarried mothers” (Butler) which is almost three times higher than white children. This is definitely a concern, no matter the skin color, because children raised in single-parent homes are more likely than not to live in poverty and not do as well in school. This type of upbringing has a tendency to hold back lower income children and prevents them from climbing the income mobility ladder in their future. There has been decades of studies that show children who grow up with two married parents do considerably better on average than peers in single-parent homes on important issues that are linked with upward income mobility later in their life. These outcomes include greater academic achievement, to include secondary and postsecondary educational accomplishment, employment and occupational status. Likewise, studies have also established that children who are brought up in traditional two-parent households are less likely to get involved in behaviors that may deter their future success in school, such as dropping out of school and delinquency, as compared to kids in other family structures. So obviously, in most cases there is an advantage to growing up in a married household, compared to the single-parent family, but why is that? In two parent homes these days, there is normally the support of the extra wage earner in the household, which in turn could increase the child’s chances of doing better themselves in their future. In this day and age, it is tremendously important for the household to have two wage earners to ensure upward income mobility from that generation to the next. Another impact would be just simply having a father in the household. Even though laws have been put into place to equalize the pay gap between male workers and female workers, we all know that wage discrimination still exists. According to the United States Census Bureau, female workers receive about 70 to 75 cents for every dollar a male earns. Children who are raised in two parent homes are also likely to have close relatives with contact to a larger number of resources, such as money, education and knowledge. As a result, they will be able to make better investments in their kids’ futures. The environment in which a child grows up determines many of its future outcomes, such as health and education, which drives income mobility. Eventually as the report by Isaacs, Sawhill, and Haskins shows:
Two out of three Americans have higher family incomes today than their own parents had some 30 years ago. (Isaacs) Another indicator that goes hand and hand with family structure is the education and skills that parents possess. A parent’s education influences a child’s academic outcome in numerous ways, as does their parenting skills. The level of education achieved by the parents often determines how their children are raised and increases the ability in which they seek higher educational aspects for their children. Higher educated parents often require and demand higher expectations from their children. Believe or not, but children do look up to their parents as role models. Many of the traits or habits a child develops very early on…good or bad…come from the parents. Parents and their grown adult children resemble one another very significantly in such things as school activities, aggression, recreational activities, self esteem and many other traits that affect income mobility. When mother and father are both involved the chances for that child is increase. For example, when a father takes an active role in language development such as reading and writing to their child, chances are that child will outperform their peers who have no father involvement. Also mothers play an important role as well according to one scholar: More-educated mothers and mothers who score higher on academic aptitude tests tend to create better home environments for their children, and better home environments may aid young children in their early behavioral and cognitive development. (Vortruba-Drzal) The last indicator to fall under the family influences is parental similarity. We have all heard the saying that “opposites attract”. In actuality, it is more resembling to “likes attract”. Marriage is apt to strengthen good or bad parental decisions in shaping children’s future aspirations. In the way people seek out their future mates and then later marry them, there is always something in common or similar when it comes to education. For example, a college graduate is more than likely to seek out and marry another college graduate, or the same could hold true for high school graduate marrying someone similar. The ones who have trouble finding mates are the individuals who drop out of school. Marrying the “likes” is also known as assortative mating. According to one scholar, there are two types of assortative mating, the phenotypic homogamy and the social homogamy. Where phenotypic is based on certain traits or types, such as blood, looks, eye color, or hair are some to name a few. In social homogamy, mating is based on things such as social class, residence, school, church, job or race. (Arrow) Assortative mating plays a serious part on income mobility. Education has such a big importance on parents’ lifetime wages, access to health insurance and savings for retirement. All of these factors influence the probability their children will do better in their lifetime accomplishments. Let us take a look at the last category under social capital in the forms of social institutions and community influences. The communities where you grew up and where you currently live can definitely have both a positive and negative influence on one’s income mobility. The social networks that are intertwined in a community are for more important than some may think. The first indicator we will look at under this category is school-based relationships. Everyone remembers that first day of school and being scared to death. But after that first day most kids are ready and willing to go back because they have already formed new bonds to their acquainted friends. Those friendships are important in determining future attitudes and accomplishments that affect educational prospects. According to the report Pathways to Economic Mobility - Key Indicators:
A number of relationships originating in the school setting generate social capital, some bolstering and others hindering children’s success, some reinforcing or diluting the earlier parental influence. These include parent-teacher and teacher-child relationships, as well as relationships between children, between children and their friends’ parents, and between the parents of children. (Butler) Research shows that exposure to school-wide parental involvement such as the PTA, fundraisers and classroom volunteer work, increases the achievement of all children at the school even after accounting for other family, school and other factors. (Parcel) While we like to think of school having nothing but positive things that come from it that is not always the case. Sometime those friendships made can have a negative connotation to them. Peer pressure among teens is hard to resist. Such activities such as truancy, disrespect, and gangs are some of the forces kids face today that could have an everlasting affect on their income mobility. Schools aren’t the only places that can have an effect on community influences. Neighborhoods you grow up in hold significant influence on which direction you move on the economic ladder. Communities can have good and bad effects on mobility. Contact with gangs as a social network can seriously hurt a child’s chances of going to college or even getting a job, and raises their risk of imprisonment, all of which negatively impacts wage mobility. On the other hand, there are positive influences in neighborhoods that are good for upward income mobility. There are places such as churches that bring people together of same religious backgrounds, which increase the probability of higher education and potential marriages. Once children reach their adult lives, other social institutions increase in significance, while those that helped with development in younger years may matter less. And lastly, the final indicator under social capital is work-related networks. Sometimes getting that job you have always wanted is not an easy task. Sometimes it all comes down to who you know. If you are part of some social group, there is bound to be someone that knows someone. In some cases social networks help grow and aspire entrepreneurs and give them contacts outside of his or her scope of reach. If anything, social networks are ways for people to find work. Even though networking sounds easy enough to do, “it takes hard work, discipline, and perseverance” (Ehrenreich 40). In wrapping up social capital and the mobility indicators associated with it, we have looked at how family influences, social institutions and community influences have an integral part in lifetime income mobility. Social capital acquired from the family plays an important role from the start. As our kids move into their teens and then into adults, the social capital attained through the community becomes relatively more important and relates with their parental influence. Human capital includes such things like education and health and just like social capital; it intermingles with the other factors as well. Richard Burt describes human capital as an, “individual’s ability, whereas social capital is the opportunity” (Burt 498). A broader explanation would be anything a person has that cannot be separated from them, such as: education, training, medical care, and so on. The first thing that links parent and child earnings is the effect of the parent’s income on their child’s education. Also, parents’ educational background is very decisive, on if the child will graduate college. A college degree is more important today than it was previously. “Figures show that parents who went college and received a bachelor’s degree, that 49% of their children went on to accomplish the same thing. Those figures are even higher for professional and doctorate degrees with 73% of children doing the same” (NCES). While education is becoming the best human capital investment a person can possess, more than half of high school graduates will not seek a degree. The reason being is that family income does not allow the child to continue. Low income families were making the change in the 70’s to send their kids to college when money was a little more obtainable. But the numbers began to fall again in the 80’s when income inequality started to rise again. This seems to show why “highly educated people have higher incomes” (Arrow 89). I have always heard; get a higher education so you can make more money. But the way I see it, it’s not the higher education that makes you the money, it’s the person’s ability to get that education that makes the money. Without that person’s desire and ambition to learn more, that higher educational degree cannot be achieved. The second factor under human capital is health. Health definitely influences and affects income mobility movement. Health is not nearly an important factor of income mobility as education or race, but it does play a role. At certain points in people’s lives, their health and their access to healthcare have a significant force on income mobility. Health can have direct and indirect impacts on mobility. For instance, poor health can affect earnings directly through job issues that may cause loss of employment and indirectly through other indicators in education achievement or efficiency on the job. Children who grow up in homes with good diets, regular exercise and healthy living practices will more than likely lead healthier lives and do better in the job environment. This especially holds true if better health facilitates them to get a better education. Health can be notably affected by broader social or cultural influences, such as attitudes towards smoking and alcohol use from previous generations. The first indicator under health is interactions between health and economy. Today’s generation of workers is much better off than previous generations when it comes to health. Health care is more abundant and readily accessible than in years past. With the focus for educational attainment and higher personal skills, the jobs once thought of as physical and manual, are becoming safer environments to work in, and therefore increasing overall health. The next indicator that falls in line with the health and economy is the individual’s on general health status. A person who has better health could lead to higher income for that person for they may spend less time missing work due to illness. It could also be that good health is an outcome, not a cause of higher personal income. The evidence does generally indicate that health status improves with increases in income (Case). Obviously, higher incomes make such things available like exercise, better food, less exposure to harmful situations and most importantly, better access to healthcare. On the flipside, low earnings could also increase the chances of having a child who experiences from poor health conditions that may last their entire lifetime. An example would be someone who grew up in a home with smokers that could lead to breathing problems in their life. For that reason and many others, the parents income directly has an effect on the health of their children and is a possible reason of immobility of children born to parents at the bottom of the income ladder. Another indicator to health is health insurance itself. Having health insurance does not help you move up the income ladder, but can be linked to better access to health services. Commonly referred to as “job lock” (Butler), having health insurance at one’s current job may stop workers from possibly seeking better-paid employment or pursuing their own line of business where health insurance is limited or not available, in doing so limiting upward mobility. Without some type of health insurance, health care costs can drain disposable income and lower savings, which consequently may cause downward mobility. Financial suffering caused by bad health can have severe repercussions for both intergenerational and intragenerational mobility, seeing that a chronic condition may limit the quantity of income that parents can give to their children’s future. Therefore, this condition could be debilitating the upward mobility of that child. The last indicator under health we will look at is the matter of race and class. Some evidence suggests that health and health care differences between geographic regions could be driving forces for the black and white health gap. Of course income always plays a role in the amount and quality of health care that is received. But the disparities in health care when it comes to race are just not between black and white. Class plays an important role as stated by Janny Scott:
Class too can be a potent force in health and longevity in the United States. The more education and income people have, the less likely they are to have and die of heart disease, strokes, diabetes, and many types of cancer. (503-504) In wrapping up human capital, there is definitely a connection between health, parental incomes and access to good health care over one’s lifetime. The health gap between children who grow up with money and those who do not widens as children get older. Because children from low income families are more probable to get some sort of a continual ailment and are more likely to be seriously affected by that ailment more than those who have the same ailments but come from families with more money. When a child experiences poor health early in their life they are more likely to begin adulthood with poor health and experience economic hold ups on the income ladder later in life. We have looked at social and human capital and the indicators that fall underneath them. Now it’s time to look at financial capital. The factors that influence financial capital are savings and wealth. The keys to upward income mobility is saving and generating wealth that can be used during one’s life to move forward and up the income ladder. These keys could also be given to children to advance their economic futures. A strong link exists between the wealth of parents and their kids. As evidence suggests in the report Getting Ahead or Losing Ground:
Parents whose wealth is 50 percent above the average in their generation have children whose wealth will be between 17 percent and 25 percent above average in their own generation. (Isaacs) Most children that grow up and do well in income earnings probably had a head start from wealth transfers from their parents. Parents try to set their kids up for life by providing life skills, money and other assets early on in their lives. While income matters a lot, so does race. Whites are more likely to receive a wealth transfer than any other race. Of course, the more money the parent has the more of a transfer they will make. Another indicator for savings and wealth is homeownership. It is the easiest way to build net worth. Homeownership can be measured through house value or home equity. Children are more likely to own a home if their parents own a home as well. Some kids even receive wealth transfer from parents for down payments for their new home. Along with building financial assets, homeownership also creates some very important impacts on intergenerational mobility. Homeownership not only leads to bigger riches for the parents, it can also increase educational achievement for children, especially children of low-income parents. The last indicator under the savings and wealth is retirement savings. Anytime an employee takes advantage of a retirement savings plan, they are increasing their income mobility. Unfortunately the low-income are the ones that would benefit from it most but do not participate in retirement savings plans. The most obvious reason is that they need the cash immediately, instead of in the future. But their lack of participation hinders their children’s chances of climbing the income ladder, for they receive less wealth transfers. Closing up financial capital, the ability and the desire to save for the future becomes stepping stones for upward income mobility. Wealth transfer help build and secure the future of your children. Homeownership plays a big role in future education attainment. On the other hand, homeownership may hinder low-income families that use funds for the home and have less for savings and wealth transfers. While income mobility is so much more than what I explained in the writings above, I have taken and tried to describe it in a nutshell by focusing on a narrow view of the indicators. I started by explaining what income mobility was and explained some of the factors of capital that influence it. Further, I broke down those factors in into key indicators that fall under each of the social, human, and financial capital factors. So, can our children do better than we did? Studies show that more than likely, a child will probably stay within the same economic quintile as their parents. But all of this is not for nothing; we are hopefully teaching our children the knowledge and skills, and providing them with future assets or skills that will make them more productive human-beings.

Works Cited

Arrow, Kenneth J. Meritocracy and Economic Inequality . Princeton: Princeton University Press, 2000.

Burt, Ronald S. "Structural Holes." Grusky, David B. and Szonja Szelenyi. The Inequality Reader: Contemporary and Foundational Readings in Race, Class, and Gender. Boulder: Westview Press, 2007. 498-502.

Butler, Stuart M., William W. Beach and Paul L. Winfree. "Reports and Research: Indicators of Mobility." 01 February 2008. Economic Mobility Project. 01 June 2009 <http://www.economicmobility.org/reports_and_research/indicators>.

Case, Anne, Darren Lubotsky, and Christina Paxson. 2002. “Economic Status and Health in Childhood: The Origins of the Gradient.” American Economic Review 92(5): 1308- 1334.

Conwell, Russell H. "Acres of Diamonds". New York: Harper & Brother Publishers, 1915.

Ehrenreich, Barbara. Bait and Switch: The (Futile) Pursuit of the American Dream. New York: Metropolitan Books, 2005.

Isaacs, Julia, Isabel Sawhill and Ron Haskins. "Reports and Research: Getting Ahead or Losing Ground." 01 February 2008. Economic Mobility Project. 01 June 2009 <http://www.economicmobility.org/reports_and_research/mobility_in_america>.

NCES. "National Center of Education Statistics." 2000. Percentage distribution of 1990 high school sophomores, by highest level of education completed through 2000 and selected student characteristics: 2000. 03 June 2009. <http://nces.ed.gov/programs/digest/d07/tables/dt07_313.asp>.

Parcel, Toby L. and Mikaela Durfur. "“Capital at Home and at School: Effects"." Social Forces 79(3) 2001: 881-911.

Reynolds, Alan. Income and Wealth . Westport: Greenwood Press, 2006.

Sawhill, Isabel and John E. Morton. "Reports and Research: Is the American Dream Alive and Well?" Economic Mobility Project. 01 June 2009 <http://www.economicmobility.org/reports_and_research/>.

Scott, Janny. "Life at the Top In America Isn't Just Better, It's Longer." Grusky, David B. and Szonja Szelenyi. The Inequality Reader: Contemporary and Foundational Readings in Race, Class, and Gender. Boulder: Westview Press, 2007. 503-510.

Vortruba-Drzal, Elizabeth. 2003. “Income Changes and Cognitive Stimulation in Young Children’s Home Learning Environment.” Journal of Marriage and Family 65(2): 341- 355.