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Immobility?

Posted By Russ Roberts On July 22, 2005 @ 4:11 pm In Inequality | Comments Disabled

The WSJ has run the last article [1] (sr) in their series Moving Up: Challenges to the American Dream.  It’s the story of a Mexican who entered the US illegally:

In the late 1960s, Mexican
peasant Hector Lara successfully crossed the U.S. border on his third
try and arrived here as a penniless illegal immigrant. Mr. Lara worked
long hours at a variety of jobs — from manufacturing to yard work –
to support the wife and four children who later joined him from
Mexico’s Jalisco state. Like millions of immigrants before and since,
the Lara family took its place on the bottom rung of the U.S. economy.

More than 35 years later, each of the Lara children –
including a fifth child born in the U.S. — has earned a degree from a
higher-education institution in the U.S. Three earn six-figure salaries.

That sounds pretty good.  And it’s not just the kids who did well:

"We’re all very comfortable,"
says Alejandro Lara, a 33-year-old investment banker who drives a BMW.
He has a college degree from the University of California, Berkeley, a
master’s from Harvard and an M.B.A. from UCLA. Even his parents have
joined the middle class: They bought two houses, now worth $800,000,
with money earned during the 1970s when the senior Mr. Lara operated a
forklift at a record factory and his wife, Elvira, stitched hems at a
drapery maker.

Turns out, immigrants do a lot better than most people seem to think:

The Laras’ rise may be more
typical than many people imagine when they see the flood of Mexican
immigrants arriving here to take menial jobs. A growing body of
research suggests that the children of these immigrants have made big
strides in education, the ticket to upward mobility, and have often
moved beyond the poverty of their parents. "The success of immigrants’
children is key to measuring the long-term costs and benefits of
immigration," says David Card, an economist at UC Berkeley. He
published a paper in January that concludes children of even the
least-educated immigrant groups close most of the education gap with
natives.

Based on this evidence, you’d think America is still a place where hard work can pay off.  Not so fast.

That conclusion offers a contrast to some other
powerful forces shaping mobility in America today. Overall, amid a
widening rich-poor gap, the level of mobility in the U.S. has been
stuck over the past three decades, and some studies suggest mobility in
continental Europe is higher. The decline of on-the-job training and
industrial jobs where a high-school graduate could climb the ladder are
among the reasons that some Americans have trouble advancing, even as
the spread of college education has helped others.

The key sentence:

Overall, amid a
widening rich-poor gap, the level of mobility in the U.S. has been
stuck over the past three decades, and some studies suggest mobility in
continental Europe is higher.

What does that mean?  What does it mean to say that the level of mobility in the U.S. has been stuck over the past three decades?  The article goes on to say:

As immigrants and their offspring live in the
U.S. longer, they also tend to improve their lot financially. In
California, 28% of Latinos who arrived in the 1970s had incomes below
the poverty level in 1980. By 2000, the rate for the same group had
fallen to 17%, according to research by demographers Dowell Myers and
John Pitkin for the University of Southern California. Home ownership
for the group rose to 55% from 15% over that 20-year period. (By
comparison, the national home ownership rate today is 69%.)

Sure seems like a lot of mobility to me.  Is it possible that the measured rich-poor gap and the measured level of mobility are inaccurately measuring what is really going on in the U.S.?  Note the following about Mr. Lara, the centerpiece of the article:

For years, home in Los Angeles was a crammed
one-bedroom apartment. Mr. Lara worked at the record factory, where he
earned $2.13 an hour doing everything from hauling boxes in a warehouse
to quality-control work. He also took side jobs elsewhere.

The bottom line is that you have to follow people over time rather than simply looking at averages.  Averages are contaminated by changes in other characteristics in the sample.  Two of the most important over the last three decades are the increase in households headed by single men women (due to an explosion in the divorce rate starting in the early ’70s) and the increase in immigration in the ’80s and ’90s.  How important these two factors are in biasing average measures of income downward is an empirical question.  But when you do follow people over time, you see that their economic situation improves dramatically.  I will try and share some of that evidence in a future post.

Here [2] is the paper on immigration by David Card that the article mentions.

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[1] last article: http://online.wsj.com/article/0,,SB112181702354990178-email,00.html

[2] Here: http://www.phil.frb.org/econ/conf/immigration/card.pdf

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