Tag Archives: Lawrence Katz

Good places for kids’ social mobility

Scholars Raj Chetty, Nathaniel Hedren, Patrick Kline and Emmanuel Saez (from Harvard and Berkeley) have garnered richly deserved  attention for their interesting retrospective look at which places were the best in America for low-income kids to be born in 1980 and 1981 to assure the highest rates of youth mobility.  [Amazingly, to do this, they were able to examine tax returns of all Americans and connect the youth with where they had grown up.]

Map of historic youth mobility in US

[To explore the above map where blue areas are areas of highest mobility and red areas are areas of lowest mobility, visit the New York Times site.]

Their work rhymes with two pieces of research that we have done.

First, they find that the places that promoted the greatest level of mobility were  places high in social capital.  [For an image of social capital by state in the US c. 2000 see here.] This is less surprising, since other scholars have found that places with high social capital were among the places historically to invest in public high schools (e.g., Larry Katz and Claudia Goldin’s work on the birth of American public high school movement in the American heartland).  Moreover, recent research by our research team, highlighted in Robert Putnam’s “Crumbling American Dreams” shows the changes in levels of community solidarity and togetherness, exemplified by the changes in his home town of Port Clinton, OH.

Second, they find that places with greater percentages of minorities were also places that afforded less social mobility for young people.  This resonates with work of Ed Glaeser and Alberto Alesina on how it is harder to foster public investments in places of greater diversity (in the US and Europe) and work that we did in “E Pluribus Unum” that also discusses the short-term challenges of increased diversity.

While their work is retrospective, we are actively involved in gathering data on social mobility for youth from the bottom third of American households (in income and education) that strongly suggests that whether levels of mobility that existed for lower-third youth in the past, future rates of mobility are likely to much lower.  Stay tuned for our evidence of this coming crisis and what we might do about it.

Growing inequality in the news; point of no return?

The Congressional Budget Office (CBO) issued a report early this week that outlines factoids known to scholars of inequality for some time — that over the last 30 years the share of income captured by the top has grown at the expense of those in the middle or low-end of the income hierarchy.

After-tax incomes for the top 1% grew 265% over the roughly three decades from 1979-2007 while those with incomes in the bottom 20% of the distribution saw after-tax income rise a paltry 18% over roughly 30 years (or about half of 1% per year).

The top 1% now capture 17% of the nation’s income, more than double the 8% they captured back in 1979.  The bottom 80% of households (most of us) saw their share of income decline 2-3 percentage points over this period.  [CBO points out that part of this trend toward increasing inequality was the result of higher-income households capturing a higher share of wages in the market and part was government doing less than 3 decades ago to redistribute and even out this market-based inequality.]

While these factoids are known by some, what may be new is: 1) that general unrest and anger/frustration at this inequality is growing, as evidenced by the Occupy Wall Street protests; and 2) even mainstream believers of capitalism, like PIMCO bond-fund investment chief Mohamed El-Erian (also former manager of the Harvard endowment) or Harvard pre-eminent labor economist Larry Katz (former chief economist for the department of labor under Clinton) believe that we have drifted into economically deleterious levels.

Mohamed El-Erian, another pillar of the financial world … is sympathetic to aspects of the Occupy movement. He told me that the economic system needs to move toward “inclusive capitalism” and embrace broad-based job creation while curbing excessive inequality.

“You cannot be a good house in a rapidly deteriorating neighborhood,” he told me. “The credibility and the fair functioning of the neighborhood matter a great deal. Without that, the integrity of the capitalist system will weaken further.”

Lawrence Katz, a Harvard economist, adds that some inequality is necessary to create incentives in a capitalist economy but that “too much inequality can harm the efficient operation of the economy.” In particular, he says, excessive inequality can have two perverse consequences: first, the very wealthy lobby for favors, contracts and bailouts that distort markets; and, second, growing inequality undermines the ability of the poorest to invest in their own education.

“These factors mean that high inequality can generate further high inequality and eventually poor economic growth,” Professor Katz said. [quoted from “Crony Capitalism Comes Home” by Nick Kristof, NYT Op-Ed 10/27/11]