Links:

LA Times says:

The ability to go from poor to rich — or at least to climb out of poverty — has become much harder to do in the last three decades, according to an analysis by Wells Fargo Securities.

The drop in economic mobility, combined with recently declining government aid to the poor, has left many Americans with no way to dig themselves out of poverty.

"Those at the lower end of the income distribution are currently stuck between a rock and a hard place," the study said. "They do not have the economic mobility to improve their finances in the labor market, and government assistance helping them get by is now drying up."

The picture was brighter for the middle class, whose ability for upward mobility improved notably from 1980 to 2009. The highest-earning people in the study — those in the top quintile — had average annual income of $140,000. For the top 1%, it was $644,000. And the top 0.1% earned an average $1.1 million a year.

Despite several recessions and bear markets, the middle class benefited from superior education, which led to higher-paying jobs, and from profit built up over many years in the stock market, said John Silvia, Wells Fargo's chief economist, who co-wrote the report with two colleagues.

The study was limited. It tracked only about 500 households, in part because of the lack of reliable data on specific households over extended periods of time. But Wells Fargo economists believe the sampling is representative of the broad population.

The study was prompted by the intense national debate over income inequality that in part spawned the Occupy Wall Street movement, with critics saying wealth is increasingly concentrated in the hands of the richest Americans to the detriment of everyone else. A report by the Congressional Budget Office in October said after-tax income for the top 1% of U.S. households ballooned 275% from 1979 to 2007. The gain for the bottom one-fifth was 18%.

Indeed, a recent report from the Congressional Budget Office (CBO) makes it clear that from 1979 to 2007, the income gap between top income earners and everybody else grew ever more lopsided.1 This disparity in the American economic experience over the past generation is among the primary catalysts for the various “Occupy” movements across the country. While opinions about the protests themselves are mixed, there seems to be some consensus about Americans’ distaste for the growing share of the pie going to the richest percentile of our population. A recent poll suggests that six out of ten Americans support policy to address income equality.2

In summary, while income inequality has increased dramatically in the United States over the past three decades, the trends in economic mobility are mixed. The relentless forces of globalization that began in the 1980s have put downward pressure on economic mobility for those U.S. workers at the bottom of the income distribution.

U.S. workers at the middle of the income distribution, however, remain fairly mobile. The trends in economic mobility at the top of the income distribution suggest that the large gains witnessed at the upper end of the income distribution may not have necessarily gone to the same individuals year in and year out over the past decade.

Rather than redistribute income, the more economically optimal solution to address declining economic mobility for lower-income workers should comprise reforms to education, better essential nutrition for children born into poverty, more interactive preschool and child care experiences and improved financial literacy for all income groups.