The proverbial One Percent seems to be at the center of every discussion about inequality, but the economic ladder of course has many other rungs. It's not just that the one percent is inching further away from everyone else; it's that the 90 percent and 80 percent are inching farther upward as well. The question is whether — and if so, how — inequality further down the ladder is in fact making it harder for people to climb the ladder.
In a new National Bureau of Economic Research working paper first reported by the New York Times, researchers from Wellesley College and the University of Maryland investigate inequality at the lower end of the income curve and how it affects high school graduation rates, one player in economic mobility.
Maryland's Melissa Kearney and Wellesley's Phillip Levine decided to study the effects of inequality and mobility by focusing solely on high school graduation outcomes. In addition, they study those outcomes with regard to the distance between the 50th and 10th percentiles. The rationale, they write, is because "the gap between being poor and being in the middle of the distribution is arguably more relevant to the lives of the economically disadvantaged than is the gap between being poor and the top 10 or 1 percent."
Researchers used data from longitudinal surveys from the Education Department to determine the differences between cohorts. They also used students' mothers' educational attainment as a proxy for socioeconomic status, as the two tend to be highly correlated.
What they found
Low-socioeconomic-status boys were worse off when they lived in cities and states where inequality was high and mobility was low. Researchers found that when for these boys, a move from a low-inequality to a high-inequality state would increase the likelihood of dropping out of school by 4.1 percentage points. Likewise, a move from a high-mobility state to a low-mobility state would increase the likelihood of dropping out by 6 percentage points.
There were similar findings when researchers considered results between different metropolitan areas, instead of states. However, researchers didn't find similar results when they considered boys from higher-status households.
In addition, even when the authors controlled for different factors like school funding, poverty rates, and housing segregation, these patterns persisted.
Though the researchers also looked at the effects on girls, the results were only statistically significant for boys.
What it means
This is not the first study to find a connection between greater inequality at the lower end of the income spectrum and poor outcomes — these same authors also found in an earlier study that low socioeconomic status in high-inequality, low-mobility areas is correlated with higher rates of unwed teen motherhood. They also point to a 2011 paper that found young men's incomes relative to their peers was correlated with their decisions to marry.
The authors propose a few reasons why these patterns might be taking place. One is what some social scientists have called "relative deprivation" — the idea that people who live around richer people are unhappier than others. The authors also suggest that people form their identities around their relative position on the income ladder, which might shape their decisions.
A related idea they propose is that of "economic despair." According to this theory, greater inequality may cause people at the bottom of the income ladder or in a low-mobility area to perceive less of a return from investing their time and energy into "human capital investment," like education. In other words, they may see less of a benefit to staying in school than dropping out, and decide not to bother.
These results illustrate one pathway through which inequality and mobility affect people's lives, but they also suggest an important, larger point: that economic immobility breeds economic immobility.