Q&A: Professor’s landmark study links wealth inequality to upward mobility
Children who grow up in areas where wealth is more unevenly spread are less likely to move up the income ladder.
UNC-Chapel Hill assistant public policy professor Manuel Schechtl’s new study explores how local wealth inequality – not just income inequality – shapes a child’s future earnings.
Drawing on new, large-scale data, Schechtl’s research is the first of its kind to empirically link local wealth disparities to income mobility across the United States. His paper, “The Association Between Childhood Exposure to Local Wealth Inequality and Intergenerational Income Mobility in the United States,” published Oct. 15 in the prestigious international science journal Nature Communications.
Schechtl, a faculty fellow at the Carolina Population Center, talked with The Well about his findings and how they relate to the American Dream.
Let’s start with the basics. What’s the difference between income and wealth? Why does that difference matter?
Income is a flow of things – like a monthly paycheck – that’s subject to change over a lifetime. It’s not very rigid, not very stable. Wealth, on the other hand, is the stock of stuff that people own – a house, a savings account, pension, stocks and bonds. Wealth can be transferred from one person to the next. It’s therefore very stable over time. It’s not something that, when I die, gets dissolved in any way. Because wealth inequality is so much more stable, it has the potential to have a strong impact over generations.
You note that this is the first study to directly link local wealth inequality to income mobility. What makes this study unique?
There are studies that show income inequality is linked to income mobility, an observation coined the Great Gatsby Curve. But, unlike earlier studies that focused on income inequality, this is the first study to show that in the United States local wealth inequality has a stronger impact on a child’s future income than local income inequality.
We didn’t have this data up until last year. It comes from a publicly available database, GEOWEALTH-US. It’s an effort from researchers in Arizona, Toronto and London, who use machine-learning techniques to impute wealth into the census.
What are some of your key takeaways from this research?
The central issue here is about the idea of the American Dream – that of upward mobility, climbing up the income ladder. We know from a ton of research that it’s not happening like it used to. The US is less upwardly mobile than most other rich democracies at this point, which is an inverse from the situation just 50 years ago. There are lots of causes we can look at. My contribution here is that the distribution of wealth – the distribution of that stock that we cannot change quickly – maybe that’s a contributing factor.
Essentially, that’s the main finding: Low-income kids achieve lower incomes when they’re adults in regions that are more unequal in terms of wealth during their childhood. It’s very intuitive to say that where resources are distributed more unequally, there will be more unequal chances of pursuing what you want in life. And therefore, in this case, low-income kids are losing out.
Why does local wealth inequality have a negative effect on upward income mobility?
It’s important to note here that I cannot address any of those direct pathways empirically in the paper because we don’t have the data. There’s literature that shows where income inequality is higher, high-income parents invest more into their kids, and therefore low-income kids tend to fall behind. My suspicion for this paper and for this finding is that this shouldn’t be any different for wealth.
If wealth is so unequally distributed, then I’ll try to give my kid a head start. And this is normal, right? These mechanisms are not necessarily bad. Of course, if I have kids, I want them to succeed. But if we sum these things up, it leads to a situation where disparities are entrenched over generations.
