Three Myths About US Economic Inequality and Social Mobility

19 Pages Posted: 16 Dec 2021

See all articles by Xi Song

Xi Song

University of Pennsylvania

Michael Lachanski

Princeton University

Thomas Coleman

University of Chicago - Harris School of Public Policy; Close Mountain Advisors LLC

Date Written: December 14, 2021

Abstract

Income inequality has increased dramatically in the United States since the 1970s. However, we argue in this paper that many common perceptions about causes and consequences of rising inequality are misleading or even false. Using first-hand empirical analyses and meta-analyses of previously published work, we present and demystify three key facts about the rise in US inequality that have been given too little attention in recent debates. First, inequality has risen throughout the distribution. Post-tax and transfer income levels have grown in the middle and bottom of the distribution, not the top alone – the top 1% does not take all. Second, the trend in intergenerational social mobility has remained largely stable over the last four decades. The relative gap in mobility opportunities between children from poor and rich families has barely changed – the “Great Gatsby curve,” which predicts a general negative relationship between income inequality and intergenerational mobility, does not apply to the US. Third, changes in the return to human capital caused by shifts in the supply and demand for educated and skilled labor have played a crucial role in the rise in income inequality since the 1970s – rising corporate concentration and employer market power (monopsony) do not appear to be a key culprit.

Keywords: Income inequality,top 1%,tax transfers,intergenerational mobility,human capital,market power

JEL Classification: O15,H2,J24,J62

Suggested Citation

Song, Xi and Lachanski, Michael and Coleman, Thomas, Three Myths About US Economic Inequality and Social Mobility (December 14, 2021). Capitalism & Society, Volume 15, Issue 1 (2021), Available at SSRN: https://ssrn.com/abstract=3985601

Xi Song (Contact Author)

University of Pennsylvania ( email )

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United States
3128050059 (Phone)

Michael Lachanski

Princeton University

Thomas Coleman

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Close Mountain Advisors LLC ( email )

19 Davenport Ave.
Unit B
Greenwich, CT 06830
United States

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