October 20, 2013
Equality of Opportunity
Equality of Opportunity-Posner
Income inequality in the United States has grown substantially since the 1970s, to the point where today the bottom 20 percent of the nation's households have 5 percent of total income, the top 10 percent about 50 percent, and the top 1 percent more than 20 percent. The question is whether such a high level of inequality is likely to reduce what is called "relative mobility," or the likelihood that members of one generation of a family and members of the next generation will end up at different points in the income distribution. You are very likely to earn more than your father; the question is how likely are you to be higher (or lower) in the income distribution. If he is in the bottom quartile, for example, how likely are you to be in the next higher quartile?
Income inequality in the parents' generation might be expected only to create income inequality in the next generation. Whether income inequality will affect relative mobility will depend on why income inequality in the current population is so high. One possibility is that, because of increased assortative mating as a result of declining discrimination and of the efficiency of online search for potential mates, there are greater differences in IQ across families than there used to be. Another possibility—closer to a certainty—is that as a result of automation in the broadest sense, the economic returns to IQ have risen relative to the returns to strength and stamina, which are the qualities important to such vocations as factory work, construction, mining, and farming.
The combination of assortative mating with higher returns to IQ could have dramatic effects on relative mobility if the effect was to insulate to a significant degree a prosperous family's children from economic risk. And it may be. The adults in high-IQ families are disproportionately represented in the jobs (professional, managerial, financial, and so forth) that pay well, and their income can and often is used to give their children a boost—for example in the form of payment of tuition to high-quality (and very expensive) private schools, payment to tutors, a variety of other educational enrichments, and entry into high-quality colleges without need for their children to borrow to finance college (or graduate or professional school) and thus assume debt. Colleges like to admit kids from high-income families, seeing such kids as future donors. And high-IQ parents are likely to produce high-IQ children, further enhancing the children's attractiveness to first-rate colleges. These factors, which loom larger the greater the inequality in the income distribution, because that inequality creates a highly affluent tier of families (a proximed by the income shares of the top 10 percent and within that group the top 1 percent) are likely to reduce relative mobility, by securing a disproportionate number of the top college and university admissions and top jobs for children of the intellectual-economic elite.
These factors can be offset to a significant extent by immigration, because immigrants tend to be more ambitious, bold, and determined than the average member of their nation of origin; refugee immigrants are often drawn from the elite of their nation of origin. First-generation immigrants tend not to have a high income, but to endow their children with the attitudes and abilities that enable the children to achieve economic success. Certainly the United States has benefited greatly in recent years from immigration from countries like China, India, and South Korea. But relative mobility that is the consequence of the artificially depressed income of first-generation immigrant families does nothing to promote relative mobility for the children of low-income native-born Americans.
A 2011 study by Scott Winship for the Brookings Institution reports that the likelihood that an American will rank higher in the income distribution than his parents is lower than in most other wealthy countries. The report states: "If being raised in the bottom fifth [of the income distribution] were not a disadvantage and socioeconomic outcomes were random, we would expect to see 20 percent of Americans who started in the bottom fifth remain there as adults, while 20 percent would end up in each of the other fifths. Instead, about 40 percent are unable to escape the bottom fifth. This trend holds true for other measures of mobility: About 40 percent of men will end up in low-skill work if their fathers had similar jobs, and about 40 percent will end up in the bottom fifth of family wealth (as opposed to income) if that's where their parents were." Income inequality is greater in the United States than in our peer countries, and may be responsible for our lower relative mobility. In the limit, an income distribution that produces a very wealthy top tier of earners and a very large bottom tier of poor or low-income families may reduce movement between the tiers in subsequent generations.
Becker points to Headstart and other government programs as possible counters to the effect of income inequality on economic opportunities for children of families that are rank low in the income distribution. This raises the question whether there may be a more efficient way of dealing with the problem of relative mobility than spending government money. A natural starting point would be to increase the very low federal income tax rate (15 percent) on dividends and capital gains, which is a significant factor in the increase in income inequality.
Is Opportunity Declining? Becker
The United States has traditionally prided itself on being a country that provides "equality of opportunity". By that is usually meant that individuals with ability and ambition who are born into families with modest means and education have a good chance of succeeding when they become adults. The experiences of different generations of immigrants coming from many countries have supported this view, for their children and grandchildren often succeeded very well as they blended into the mainstream of American life.
That rosy view of opportunities in the US is being challenged by a growing belief that opportunities are declining for children from modest backgrounds. This belief is partly based on the strong evidence that human capital, including education, IQ and other measures of "ability", have become much more important in determining economic success than was the case in the past. This new economic environment favors educated parents because they have both greater schooling and also higher average cognitive and non-cognitive skills.
Better-educated and higher income parents have always spent more on their children's education and training, including quality of schools and after school activities. However, this gap in spending between families has grown in recent decades as the relation between so-called "enrichment" expenditures on children and family income has become much steeper. In addition, better off families complement their spending of money on their children by also spending more time with children through teaching them, helping with homework, and in other ways.
Countering this growing advantage of children from better off families is that different levels of government are doing more than in the past to improve education opportunities from children from poorer backgrounds. The many policies that work in this direction include subsidized pre kindergarten activities, head start programs, and greater attention to the public schools attended by poorer children.
Despite various claims about declining opportunities in the US, and the indirect evidence that supports this conclusion, there is little direct supporting evidence. Many commentators have confused the strong evidence that inequality in the distribution of earnings and other incomes has increased greatly since 1980 with declining opportunity for children from poorer families. This is a jump in logic since greater inequality of income is consistent with stable or even growing opportunities for these children.
To be sure, in comparisons among countries, greater inequality of incomes in fact does tend to go along with fewer opportunities for poorer children to rise up in the income scale. However, this finding does not imply that countries that have growing inequality in the distribution of incomes also have falling opportunities.
The direct evidence on what is happening over time to opportunities provides a mixed picture. On the one hand is the evidence on the IGE, which measures the average effect on children's earnings of higher parental earnings. For example, an IGE of 0.5 means that when parents earnings are say 10% above average, their children's earnings tend to be 5% above average. Most of the evidence suggests that the IGE in the United States changed little as inequality grew during the past 30 years. This direct evidence is limited in part because different studies provide a range for the IGE in the US from about 0.3 to about 0.7.
The other hand comes from work on what has happened over time between the performances on achievement tests of children from families at the lower and upper ends of the income distribution. In particular, a study in progress by a graduate student at the University of Chicago, Eric Nielsen, compares the performances of children in the late 1970s and 1990s that have parents in the top and bottom 20 percentiles of the income distribution. To make the comparisons he uses scores on the Armed Forces Qualifying Test (AFQT), a widely used measure of achievement. Using ("ordinal") methods of comparison that he developed, Nielsen finds a considerable narrowing over this time period between the performances on this test of children from the high and low ends of the income distribution.
It is somewhat puzzling that the performance gap on achievement tests has apparently narrowed while the gap between high and low income families in their spending of time and money on their children's human capital has apparently widened. One important piece of missing evidence is on possible changes over time in the link between the AFQT performance and adult earnings.
In summary, it is far from clear whether opportunities of children from poorer families have been declining in the US. Still, since abundant opportunity for these children is an important goal of an efficient and attractive society, more effort might be needed to improve their opportunities through better schools, better teachers, and perhaps in other ways as well.