August 8 (Bloomberg) — Americans pride themselves on their intergenerational mobility. Our nation’s exceptionalism is organized around the American dream: No matter where you come from and no matter who your parents are, you can rise to the top of the economic ladder, so long as you are willing to commit yourself and work hard.
In recent years, however, a great deal of comparative research has been done on intergenerational mobility, and it raises legitimate questions about the claim that the U.S. stands out as a land of opportunity. In 2006, a widely reported study found that in terms of intergenerational mobility, the U.S. lagged behind Nordic nations (including Denmark, Finland, Sweden and Norway) as well as the U.K. For example, Danish men born to households in that nation’s bottom quintile are far more likely than their U.S. counterparts to make it to the higher quintiles.
A comprehensive study published in July found that the U.S. shows less intergenerational mobility than do a number of other countries, including Germany, New Zealand, Canada, Australia, France and Japan. The U.S. is marked by a degree of “stickiness” in the top and bottom 10 percent. If an American is born to poor parents, he has a decent chance of staying poor, and if his parents are wealthy, it is a pretty good bet that he will end up in the economic elite.
However illuminating, the data raise many questions. The U.S. is a big country, and the aggregate numbers don’t tell us about variations across states.
Southeast Lags
Does the reality of the American dream depend on whether you are born in Mississippi, Colorado, Kentucky or New Hampshire? The answer would help us to establish what, exactly, is the source of the problem. It could also help us to identify some responses.
Harvard University economist Raj Chetty and his co-authors have started to provide such an answer. The big news is that intergenerational mobility is indeed variable across regions, states and cities. If you are born in Pittsburgh, Boston, San Francisco, Minneapolis or New York, you have a fair chance of getting to the top fifth of the income distribution, even if you start out in the bottom fifth. But in other cities — such as Atlanta; Charlotte; Nashville, Tennessee; and Raleigh, North Carolina — children who are born into the bottom fifth are significantly more likely to get stuck.
The state-by-state data suggest an even more vivid picture. In almost all of the West, there is a high degree of intergenerational mobility. The Northeast and the Southwest also look pretty good. In the Midwest, the picture is more mixed, with generally high levels of mobility in Minnesota, Nebraska and North Dakota but disturbingly low levels in some cities, including Detroit, Indianapolis and Columbus, Ohio.
Intergenerational mobility is markedly low in one region above all: the Southeast. That region’s cities dominate the list of those showing the worst levels of mobility, with heavy representation from Georgia, Mississippi, South Carolina, North Carolina and Tennessee.
It is tempting to think that economic growth is the crucial factor, so that we will observe mobility where we also observe growth. Surprisingly, however, regional differences in mobility have little to do with differences in growth. It is also tempting to think that racial differences are involved, but essentially the same regional differences appear even after controlling for race.
The good news is that the U.S. as a whole isn’t suffering from especially low levels of intergenerational mobility. The problem is fairly localized, and we know where to find it. But two fundamental questions remain: Why, exactly, is intergenerational mobility high in some regions and low in others? And where it is low, what can be done to increase it?
Tax Effects
We don’t yet have answers, but Chetty and his co-authors offer some preliminary clues. In general, “tax expenditures aimed at low-income taxpayers have significant impacts on economic opportunity.” More specifically, intergenerational mobility is higher in states that have a generous earned income tax credit as well as progressive income taxes and tax expenditures.
To be sure, correlation is not causation. Progressive state taxes could be correlated with other policies (such as a strong educational system) that are responsible for intergenerational mobility. Researchers aren’t yet in a position to explain the high regional variations in intergenerational mobility. But we know enough to appreciate the immense importance of getting to the bottom of that particular puzzle. The American dream depends on it.
(Cass R. Sunstein, the Robert Walmsley University professor at Harvard Law School, is a Bloomberg View columnist. He is the former administrator of the White House Office of Information and Regulatory Affairs, the co-author of Nudge and author of Simpler: The Future of Government. You can contact him at csunstei@law.harvard.edu.)
Photo: Stuart Seeger via Flickr.com
