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Saturday, August 22, 2009

CONFUSION IN MEASURING UPWARD MOBILITY: THE US, GERMANY, AND BELGIUM COMPARED

Today's Buggy Topic

Dozens of studies have come out in the last two decades or so --- both in economics and sociology --- that find a similar result across countries: West European countries show more upward mobility in income over time than the US. 

Alas for them.  These studies, as it happens, confuse two things: an improvement in income of a worker over time --- say, 10 or 15 years --- with a re-ranking of the pecking order in an income hierarchy . . . say again, a movement over time for an individual worker upward from the bottom 5th quintile of income-distribution into the 4th quintile. 

The latter is what we mean by upward mobility in a strict sense.  And the movement of a worker upward into the 4th quintile requires that a worker at the beginning of the 10 to 15 years moves downward into the 5th quintile. 

By contrast, an improvement in an  individual worker's income over those 10 to 15 years that does not re-arrange positions in the income hierarchy reflects overall "institutional" and "tax and distributive transfer policies" as well as overall economic growth and more experience on the job.  We can call this kind of income change "structural mobility."

What Happens When Strictly Viewed Income Mobility --- Upward and Downward --- Is Measured?

That's the gist of a lengthy post that prof bug left in a thread today at Economist View.   The post draws on an impressive study by a Belgian economist who separated lots of income data on these two measures: mobility that entails re-arranging the income hierarchy as opposed to straightforward income improvements due to institutional and policy matters, plus economic growth. In particular, the Belgian economist compared the US income data between 1985 and 1997 with data for Belgium and West Germany in the same period. 

His finding? 

Income mobility of the strict re-ordering of positions in the income hierarchy was 60% higher in the US than in Germany and 65% higher than in Belgium.  Quite a difference with the findings that rest on a confusion of the two kinds of income changes, no?f