Not Keeping Up with the Joneses

"Issues in Economics" by Katharine Bradbury and Jane Katz, in Regional Review (2002: Qtr. 4), Federal Reserve Bank of Boston, 600 Atlantic Ave., Boston, Mass. 02106.

Call it the deal behind the American dream: Americans have tacitly agreed to accept more income inequality than Europeans do in return for a freer economy and more opportunities for individual upward mobility. In other words, the gap between rich and poor might be wider than in Europe, but Americans believe they have a better chance of jumping it.

Now, however, it appears that the deal may be in jeopardy. It’s widely accepted that income inequality has grown during the past few decades, note Bradbury and Katz, both of the Federal Reserve Bank of Boston. But new evidence suggests that, at the same time, the indispensable tonic of economic mobility has lost some of its potency.

During the 1970s (actually, 1969–79) for example, only 49.4 percent of the working-age households that began the decade in the bottom 20 percent of earners were still in the bottom quintile at the end of the decade [see chart]. During the 1990s, however, 53.3 percent of the families that started off in the lowest quintile were still there 10 years later. (At the same time, downward mobility among the rich seemed to lessen: 49.1 percent of the most affluent Americans stayed in the top income quintile during the 1970s, but 53.2 percent survived during the 1990s.)

Because "most people judge their wellbeing relative to others," the authors warn, the lack of upward mobility makes the growing inequality of incomes something to worry about.

##### 1969–79

WHERE FAMILIES WHERE FAMILIES ENDED UP IN 1979, BY QUINTILE STARTED IN 1969,

| BY QUINTILE | POOREST | SECOND | THIRD | FOURTH | RICHEST | | --- | --- | --- | --- | --- | --- | | Poorest | 49.4 | 24.5 | 13.8 | 9.1 | 3.3 | | Second | 23.2 | 27.8 | 25.2 | 16.2 | 7.7 | | Third | 10.2 | 23.4 | 24.8 | 23.0 | 18.7 | | Fourth | 9.9 | 15.0 | 24.1 | 27.4 | 23.7 | | Richest | 5.0 | 9.0 | 13.2 | 23.7 | 49.1 |

##### 1988–98

WHERE FAMILIES WHERE FAMILIES ENDED UP IN 1998, BY QUINTILE STARTED IN 1988,

| BY QUINTILE | POOREST | SECOND | THIRD | FOURTH | RICHEST | | --- | --- | --- | --- | --- | --- | | Poorest | 53.3 | 23.6 | 12.4 | 6.4 | 4.3 | | Second | 25.7 | 36.3 | 22.6 | 11.0 | 4.3 | | Third | 10.9 | 20.7 | 28.3 | 27.5 | 12.6 | | Fourth | 6.5 | 12.9 | 23.7 | 31.1 | 25.8 | | Richest | 3.0 | 5.7 | 14.9 | 23.2 | 53.2 |