Friday, August 3, 2012

Why do Americans have less income mobility than Europeans?

I linked to Tyler Cowen's post with 7 points about income mobility yesterday, and I mentioned that he speculates about that question. Here's what Cowen has to say (#4); I think this is a profound insight that doesn't get nearly enough attention:

Why do many European nations have higher mobility? Putting ethnic and demographic issues aside, here is one mechanism. Lots of smart Europeans decide to be not so ambitious, to enjoy their public goods, to work for the government, to avoid high marginal tax rates, to travel a lot, and so on. That approach makes more sense in a lot of Europe than here. Some of the children of those families have comparable smarts but higher ambition and so they rise quite a bit in income relative to their peers. (The opposite may occur as well, with the children choosing more leisure.) That is a less likely scenario for the United States, where smart people realize this is a country geared toward higher earners and so fewer smart parents play the “tend the garden” strategy. . . . “High intergenerational mobility” is sometimes a synonym for “lots of parental underachievers.”
Another thing (Cowen's point #7):
I would like all measurements [of income mobility] to take into account the pre-migration incomes of incoming entrants. Denmark, which doesn’t let many people in, is a much less upwardly mobile society once you take this into account. Sweden deserves more praise, and in general this factor will make the Anglo countries look much, much more supportive of mobility.