The income ladder

(Photo by Mykl Roventine)

What is your income likely to be if you are a 30-year-old person in the mid-Hudson region whose parents had very low incomes (midway in the lowest fifth, or quintile, of the population)? What are the odds you too will be in the lowest fifth on the ladder of income earners? The odds on being in the highest fifth? Neither at the top nor the bottom?

According to the results of a remarkable recent academic study of income mobility, there’s a nine per cent chance that the income of a 30-year-old child of poor parents in the mid-Hudson region will be in the top fifth of the income ladder and a 33 per cent chance that child will be in the bottom fifth. Is this good or bad? We’ll compare that performance with income mobility in other places. As we’ll see, the prevalence of upward income mobility in the Hudson Valley is neither the highest nor the lowest.

The United States prides itself on the equality of opportunity it offers its citizens. Fables as varied as those of Horatio Alger, Jay Gatsby and, yes, Little Orphan Annie celebrate the success that is possible for even the humblest in this wonderful land of opportunity. But is this a realistic picture?

In a society in which equality of opportunity is one of the few values on which people on both sides of the political ideological spectrum seem to agree, the measurement of actual social mobility seems a valuable goal. But how in the world can you figure stuff like this out?

Here’s what the folks who did the figuring, two economics professors from Harvard (Raj Chetty and Nathaniel Hendren), two from Berkeley (Emmanuel Saez and Patrick Kline), and one official from the U.S. Treasury (Nicholas Turner), did. The study, a January 2014 working paper from the National Bureau of Economic Research, is entitled, “Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility.”

The answer begins with access to an enormous national data base of earnings records from tax returns, with children initially identified through dependency on parents’ federal tax returns. “We use administrative records on the incomes of more than 40 million children and their parents to describe three features of intergenerational mobility in the United States,” the authors say.

Included within the study is data on 95 per cent of three or four million American kids per year. For children born between 1971 and 1986, intergenerational mobility is based on the correlation between parent and child income percentile ranks. For more recent cohorts [children born 1986-1993], mobility is measured as the correlation between a child’s probability of attending college and her parents’ income rank. “We also calculate transition probabilities, such as a child’s chances of reaching the top quintile of the income distribution starting from the bottom quintile,” the study says.

Metro areas better

By now it ought to be becoming clear to the non-statistically-minded reader that so ambitious a study of the income ladder involves Big Data, which Wikipedia tells us involves data sets “so large and complex that it becomes difficult to process [them] using on-hand database management tools or traditional data processing applications.” Big Data is an inevitable consequence of a digital world. We’d better learn to deal with it.