Lecture 3
The Limits of Opportunity
Today’s Topics
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Final conclusions about mobility in the U.S.
Is rising inequality in America a problem?
Is there a right amount of inequality?
If so, what is it?
Why does inequality persist?
How does Americans’ belief in meritocracy
influence our approach to inequality and
poverty?
Table 2.
Income Mobility Transition Matrix, 1968-91
Conclusions about U.S. Income Mobility
• There is broad agreement that income mobility in the U.S. is
substantial and that life-time earnings are more evenly
distributed than annual earnings.
• About 25 to 40 percent of the American population moves into a
new income quintile each year.
• The rate increases with time approaching 60 percent over a ten
years
• Most people do not move very far.
• Individuals with at least a college education are more likely to
move up than any other group.
Conclusions about U.S. Income Mobility
• The mobility of those with little education has declined.
• Mobility has not changed significantly over the past 25
years.
• Mobility is no higher in the U.S. than in other
developed countries
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Source: Daniel McMurrer and Isabel Sawhill, Economic Mobility in the
United States, Urban Institute,
http://www.urban.org/publications/406722.html
Is rising inequality problematic?
• See slide show at
– http://www.inequality.org/facts.cfm
• Do you find the slide show convincing?
Why or why not?
Trends in Voter Turnout
Health Insurance Coverage Race, 1987-2001
25
20
15
Whites, NH
Blacks
Asians & PI
10
5
0
1987
1989
1991
1993
1995
1997
1999
2001
College Enrollment by Income Quartile, Class of
1980/82 vs. Class of 1992
M. Kelly, INEQUALITY AND CRIME : The Review of
Economics and Statistics, Volume 82,ﾊNumber 4, 1
November 2000, pp. 530-539(10)
• This paper considers the relationship between inequality
and crime using data from urban counties. The behavior
of property and violent crime are quite different.
Inequality has no effect on property crime but a strong
and robust impact on violent crime, with an elasticity
above 0.5. By contrast, poverty and police activity have
significant effects on property crime, but little on violent
crime. Property crime is well explained by the economic
theory of crime, while violent crime is better explained
by strain and social disorganization theories.
• Note that this article does not describe trends though
time.
Is rising inequality problematic?
• Clearly some trends are correlated, but that doesn’t necessarily
imply causation.
• Causation is difficult to prove.
• Logic suggests that increasing inequality without an offsetting
increase in mobility means that inequality in the short term is
more likely to be come inequality in the long term. More people
are likely to find themselves long term members of a specific
income quintile.
• Sawhill identifies such a group at the bottom of the income
distribution know as the underclass--the persistently poor.
Is there a right amount of inequality?
• Less than we have now
– Incentives to work, save, and invest exceed levels required
for growth
– We could redistribute more of the current economic pie
without eroding growth
• We should tolerate more
– As Sawhill explained, inequality need not imply poverty
– A rising tide lifts all boats
• Sawhill argues that the debate should be focused on
opportunity, not inequality.
Why does inequality persist? For that matter,
why is poverty tolerated in the U.S.? Why
should the debate be focused on Opportunity?
• How would Sawhill answer these questions?
– Because Americans believe in that equality of
opportunity rather than results.
• The Gallup Social Audit showed that 81% of a
representative sample of Americans believe there is
plenty of opportunity.
– Income inequality reflects the results of a fair
system because it reflects differences individual
talents, efforts and accomplishments.
Can 81% of the population be wrong? Is there
“plenty of opportunity” for all Americans?
• It might be useful to rephrase this to ask what factors
constrain opportunity?
• Sawhill might answer this by saying:
– Unequal education systems
– Changing demographic patterns
• Can you add other factors?
– Unequal access to health care
How does Americans’ belief in meritocracy influence our
approach to inequality and poverty?
How does Americans belief in meritocracy influence our
approach to inequality and poverty?
• We are more willing to accept both because they are viewed as
the result of a fair system.
• Our believe that those at the bottom of the income distribution
must share the responsibility for their situation limits the amount
of aid we provide.
• Policies that increase opportunity are preferred to policies that
focus on the results and redistribute income from the haves to
the have-nots.
• Our focus is directed toward the perceived obstacles to
opportunity.