Income Ladder Hard to Climb If You’re Born at the Bottom, New Report Shows

Many news stories and opinion pieces on the latest report from the Pew Center’s Economic Mobility Project — as well there might be.

Because “pursuing the American dream,” as the report is entitled, could be as rewarding as chasing a will o’ the wisp — especially for those born to low-income parents and most especially of all if they’re black.

At the very least, the report gives the lie to our “rags to riches” story. It’s “more of a Hollywood fairytale than an actual reality,” says Ethan Gelling at the Corporation for Economic Development, echoing the Pew project manager.

I think we need to parse the data into two separate issues, as the Pew analysts also do.

One is economic mobility as measured by movement up or down the quintiles into which income is commonly divided.

As the Pew analysts say, economic growth — especially at the top — puts the major rungs on the income ladder further apart. Obviously harder then to climb from one to another.

That’s how we can have what, at first blush, seem two contradictory findings. On the one hand, 93% of adults in the bottom fifth have family incomes higher than their parents did. On the other hand, only 57% move up into a higher fifth — and only 13% into one of the top two fifths.

Some argue that the root cause, i.e., the grossly disproportionate distribution of the wealth our economy generates, is bad in and of itself.

Rakim Brooks at Demos, for example, warns that the public as a whole loses trust in institutions “when it begins to associate the rich with the fortunes of the country.”

Others have said that income inequality is partly responsible for the credit crunch so many households now find themselves in.

People, they say, often define their wants upward, based on what they see richer folks have. They buy — or rather, make down payments on — houses they can’t afford. They put all sorts of “status-defining” goods on credits cards — enormous flat-screened TVs, designer accessories, etc.

I’m rather more preoccupied with the second issue. Do people in the bottom fifth have enough to live on, plus a modicum of what the Pew analysts call wealth and some others refer to as assets?

Do they, in other words, have a reserve for costly emergencies? A cushion against plain old hard times? Some resources to give their children a good start in life?

The answer from the Pew project is a resounding No.

The median income of families in the bottom fifth was a paltry $19,202 in 2009 — nearly $2,850 below the federal poverty line for a family of four.

And their median wealth, i.e., assets like home equity, money in the bank, a car, was just $2,748 — about $4,690 less than the bottom fifth had a generation ago.

The two figures are, I assume, closely related. If you’re, at best, making barely enough for basic needs, you’re not squirreling away money for a rainy day — let alone investing in mutual funds and the like that will, in the long run, make your nest egg grow.

Why families in the bottom fifth are in such bad straits is a much more complex question. Panelists at a recent all-day conference co-hosted by Demos and partners went at it from many angles.

I’ll mention here only what seemed one broad consensus. A college education — at the very least, enough to earn an associate’s degree or certificate — is a big part of the solution.

Yet, as we know, college is getting very expensive. Pell grants, which the lowest fifth could qualify for, rarelyt cover the costs — and now have new restrictions that tend to rule out self-supporting work during enrollment.

I don’t suppose I need to say anything about loan burdens — except perhaps to note that they surely seem especially formidable for potential students in the bottom fifth, whose prospects for moving up the income scale are iffy, at best.

Yet the Pew figures indicate that their families can’t help them.

Nor, indeed, will the parents all have the resources to provide what their infants and toddlers need to do well when they start school, e.g., a healthful diet, high-quality child care, time to read to them, take them to the zoo, etc.

Fewer than half of poor children are “school ready” when they start kindergarten, according to a study from the Brookings Institution. Three-quarters of children in families with moderate and high incomes are.

And when you start behind, you tend to stay behind, as some Pew figures on reading skills show.

Not surprising then that the dropout rate for low-income students is five times the rate for students from high-income families.

This is one way that income inequality passes from generation to generation. Not just inequality, but poverty too.

Why Are So Many People So Poor in America?

The gross national income in our country was nearly $14.6 trillion in 2010 — more than $47,300 for every man, woman and child.

So, as Professor Peter Edelman observes, if the GNI were divided equally, everyone would be middle class.

But, of course, it isn’t. In fact, a greater share has been flowing to the notorious 1% for quite awhile now. For Edelman, this is a key reason it’s so hard to end poverty in America — the subtitle of his new book, So Rich, So Poor.

Or more precisely, income inequality is a key reason. For the last 40 years, he says, “our economy has been very unkind to the bottom half of our people.”

At the very bottom, we’ve got nearly 20.5 million people so poor that their household incomes fall below 50% of the Census Bureau’s very low poverty thresholds.

In 2010, about six million — roughly one in 50 — had no income at all except the cash value of their food stamp benefits. For a family of three, this meant, at most, $526 a month — and, of course, available only to buy groceries.

We’ve got terrific public policy, Edelman says. It’s simply not true, as some say, that anti-poverty programs don’t work. Without them, over 40 million more people would be poor.

But the enactment of the Temporary Assistance for Needy Families program ripped “a terrible hole … in the safety net.”

In fact, “welfare is gone,” Edelman says. It’s “basically disappeared in large parts of the country” because states have no obligation to provide cash assistance (or any equivalent) to families who would qualify according to a common standard of need.

This, however, is only one part of Edelman’s far-ranging analysis.

We’ve had “a flood of low-wage jobs,” he says. And “people in the bottom half have been absolutely stuck.”

Well, not quite, but pretty damn near. Between 1968 and 2010, inflation-adjusted incomes of households in the bottom half grew, on average, about half a percent a year.

And at the end, incomes of households in the bottom tenth averaged just $11,904 — well under the federal poverty line for a family of two.

It’s a stretch to attribute this to a flood of low-wage jobs, however. And I doubt Edelman means to.

If there are relatively more of those jobs now, it’s partly because our economy has fewer living wage jobs for workers with no more than a high school education.

Many of been exported to low-wage countries. Many have simply vanished. When was the last time you called, say, the gas company and didn’t get a recorded message?

I suppose it’s also the case that more jobs have become low-wage — relative at least to rising living costs.

What we know for sure is that wages have been stagnating for a long time. In other words, workers haven’t been getting a fair share of productivity growth, as they did during the post-World War II period.

This is especially true for workers without a college education.

The Economic Policy Institute reports that real wages for high school graduates in the private sector increased by 4.8% between 1989 and 2010 and by just 2.6% for those in state government. During the same period, productivity, i.e., the total output of goods and services per hours worked, grew by 62.5%.

Lots of reasons for this. I’ve mentioned a couple. A fine paper from the Economic Policy Research Network takes up these and many others.

Edelman deals not only with low-wage work, but with poverty children inherit from their parents, disparities rooted in race and gender discrimination and the problems single parents (usually mothers) face trying to support themselves and their children.

Also housing policies, public education and, as Nation blogger Greg Kaufmann says, “much, much more.”

Notwithstanding the complexities, however, Edelman believes that poverty in our country is not an unsolvable problem — or rather, collection of problems.

We need “much more political will” to attack them. That, he thinks, will require, above all, a widely-shared view that it’s in our common interest to have “an economy that includes everybody.”

The sticking point here, he says, is that the vast majority of us middle-class voters think we have more in common with the people at the top than the people at the bottom.

This, I suppose, has something to do with the extraordinary hold the myth of boundless upward mobility has on our imagination. The Great Recession has certainly shaken it, though by how much and for how long is hard to say.

But, says Edelman, if we in the middle don’t see “which side of the line” we’re really on — that our fate rests with what happens to the bottom half — “we are cooked.”

New Report Shows Huge Income Gap Between Richest and Poorest in DC

Everyone who lives in the District of Columbia knows that there’s a yawning gulf between the haves and the have-nots. But the new income inequality report from the DC Fiscal Policy Institute could still be a shocker. I know it was for me.

Turns out that the income gap between the richest and poorest 20% of households is the third largest among U.S. cities — this based on data from the 2010 American Community Survey.

The average income for the richest fifth was 29 times greater than for the poorest fifth. Look only at the top 5% and the mutiple rises to 52.2% — $473,343, as compared to $9,062.

I know that conservatives generally don’t view income inequality as a problem. What matters, they say, is income mobility, i.e., the opportunity to move up the income scale.

But, to my mind, such enormous gaps should concern us — and for various reasons.

Some research indicates that severe income inequality is, in and of itself, bad for society.

Researchers at the University of York, for example, have found that people in countries with high income inequality — the U.S. among them — fare worse on a host of indicators, e.g., physical and mental health, violence and drug abuse, mutual trust and community cohesion.

The findings are controversial. Other explanations have been offered for what are, after all, only statistical correlations. Yet we surely see something like them at the local level.

The two cities Mayor Gray is rightly concerned about depress many measures of community well-being. And they’re fraught with cross-class hostilities — some more overt than others.

We also know — or surely should — that wealthy people have disproportionate political clout and, of course, use it to protect their own interests. The bigger the income gap, the more these interests are likely to diverge from those of people at the bottom of the income scale.

We need only look at the fate of some very reasonable tax reform proposals to see how this plays out — and to the detriment of residents who depend on our safety net programs.

But the biggest deal here is the very low average income for the bottom fifth of D.C. households — under 50% of the federal poverty line for a family of three. About $4,800 less than the yearly rent on a modest efficiency unit.

The rising tide that’s supposed to lift all boats hasn’t done much for these households. Since 1979, their inflation-adjusted wages have grown just 14%, while those for the high earners have grown 44%.

This reflects a nationwide trend. The Economic Policy Institute reports that the inflation-adjusted income for the top fifth of families grew 49% during about the same period as DCFPI carved out. For the bottom fifth, income actually shrank by 7.9%.

The problem, many analysts say, is that the top fifth — and even more the notorious top 1% — have been gaining ground at the expense of everyone else.

Explanations abound. Solutions also. President Obama is again campaigning on some. We’ll soon see a related, bigger bundle in Senator Tom Harkin’s Rebuild America Act.

DCFPI instead focuses on a handful of local policies and programs that could lift the incomes of our bottom fifth. With two limited exceptions, they’re already on the books. What’s not is sufficient funding.

Given the resources, the initiatives would:

• Help residents prepare for living-wage jobs.
• Address housing concerns, i.e., remedy the budget cuts to the District’s main affordable housing programs.
• Make work pay better for a subset of current and future D.C. workers.

I’ll return to these in a separate post. Will say here only that DCFPI’s recommendations are — I assume deliberately — very modest.

But they could make a big difference for many of those very poor residents in the bottom fifth. A big difference for our divided community too.

Traditional Values Get New Packaging

The launch issue of National Affairs includes a lengthy and thought-provoking article by Ron Haskins, co-director of the Brooking Institution’s Center on Children and Families.

Basically, Haskins seeks to shift the debate on anti-poverty policies from income inequality to upward mobility. After all, he says, the American dream isn’t economic equality. It’s the chance to get ahead.

The first part of the article marshals economic studies to show that income inequality in the U.S. isn’t really as great as it’s commonly said to be–or increasing as much as alleged.

But this effort to correct the inequality story is just a preamble to the heart of the argument. Haskins dives into that with an account of what he and Brookings colleagues found when they analyzed long-term data on economic mobility together with data on employment, family composition, education and other personal characteristics.

These, he says, are what really matter because the reasons people are poor “have to do not only with economics but also with culture, history, and especially individual behavior and personal choices.”

Looking at the impacts of getting a four-year college degree, he concludes that mobility is “alive and well in America”–though not what it could be, given what we see in other industrialized countries, or what it should be, given the “enormous” investments in anti-poverty programs.

What we need, he says, is more public policies, like student financial aid, that support personal effort. But that’s only part of the agenda. Haskins and his colleagues recommend:

• Expanding the “serious” work requirements and the work supports in TANF to include beneficiaries of the food stamp program and subsidized housing–this because they view welfare reform as a great success.
• Expanding programs that focus on the early growth and development of poor children.
• Promoting marriage and two-parent families because “the growth of female-headed families is like a giant poverty-generating machine.”

Much of this makes me very uncomfortable. No doubt that our traditional cultural values–education, hard work, marriage and responsible child-rearing–are correlated to prosperity. No doubt that personal responsibility–or lack of same–helps determine what income bracket we’re in. And no doubt whatever that expanding supports for low-wage workers and helping poor children get a good start in life are important and worthwhile.

But my sense is that Haskins’s agenda is about half a step away from blaming poor people for their situation–and maybe not even half a step away from a very rigid and conservative view of what a family should be.

And is economic mobility–the chance to move up (and down) the income scale–really the be all and the end all anyway? My dream for America is different.