BTW, the Norberg quote is from pp. 75-76 of In Defence of Global
Capitalism. Timbro, 2001.
Chirag
- Original Message -
From: Chirag Kasbekar [EMAIL PROTECTED]
To: [EMAIL PROTECTED]
Sent: Tuesday, April 16, 2002 5:26 PM
Subject: Income mobility in the US
Johan Norberg in his In Defence of Global Capitalism claims:
Only 5.1 % of the Americans belonging to the poorest one-fifth in 1975
still did so in 1991. In the meantime nearly 30% of them had moved up into
the wealthiest one-fifth and altogether 60% had arrived in one of the
wealthiest one-fifths. By 1991 the people belonging in 1975 to the poorest
fifth had raised their annual income (which at that time was only 1,263
dollars in 1997 prices) by no less than 27,745 dollars, which in absolute
figures is more than six times the increase obtained by the wealthiest
one-fifth On average, those falling below the poverty line in the USA
only stay there for 4.2 months. Only 4% of America's population are
long-term poor, i.e. remain poor for over two years. Meanwhile the poorest
fifth is replenished with new people - students and immigrants - who then
climb up the ladder of wealth.
To the last claim he attaches a reference to Michael W. Cox and Richard
Alm,
Myths of Rich and Poor: Why We're Better Off Than We Think. NY: Basic
Books, 1999.
My questions:
1. Is it true? Or at least, is this commonly accepted?
2. Does he get all this information from that book? Are there other
(commonly accepted) studies that confirm this.
People like Krugman seem to dispute anything like this:
From: http://www.j-bradford-delong.net/Economists/favorite_krugman.html
Armey cites a study that shows that there is huge income mobility in
America. The message here is simple: Don't worry that some people find
gold
and some don't--next year you may be the winner. He gives numbers saying
that fewer than 15 percent of the folks who were in the bottom quintile
in
1979 were still there in 1988. He then asserts that it was more likely
that
someone would move from the bottom quintile to the top than he would stay
in
place. Again, he doesn't cite the source, but these are familiar numbers.
They come from a botched 1992 Bush Administration study, a study that was
immediately ridiculed and which its authors would just as soon forget.
This is why: The study tracked a number of people who had paid income
taxes
in each of the years from 1979 to 1988. Since only about half the working
population actually paid taxes over the entire period, this meant that the
study was already biased towards tracking the relatively successful. And
these earners were then compared to the population at large. So the study
showed that in 1979, 28 percent of this studied population was in the
bottom
20 percent of the whole population; by 1988 that figure was only 7
percent.
This means, Armey asserts, that someone in the lowest quintile would be
more likely to move to the highest than stay in place. Put kindly, it's a
silly argument. For subjects of the study who moved from the bottom to the
top, the typical age in 1979 was only 22. This isn't your classic income
mobility, Kevin Murphy of the University of Chicago remarked at the time.
This is the guy who works in the college bookstore and has a real job by
the time he is in his early thirties.
In reality, moves from the bottom to the top quintile are extremely rare;
a
typical estimate is that only about 3 percent of families who are in the
bottom 20 percent in one year will be in the top 20 percent a decade
later.
About half will still be in the bottom quintile. And even those 3 percent
that move aren't necessarily Horatio Alger stories. The top quintile
includes everyone from a $60,000 a year regional manager to Warren
Buffett.
Regards,
Chirag
New Bombay, India
