Perceptions of Economic Mobility

The immediately preceding blog post raised the question of large pay inequities.  So the obvious question is why are such large pay inequities tolerated?  This post addresses that  question and it is due to  perceptions of economic mobility.  This post is based on the article, “Building a More Mobile America—One Income Quintile at a Time,” By Shai Davidai and  Thomas Gilovich has revealed a marked discrepancy  between people’s beliefs and economic reality.  One of their findings is that whereas the bottom two quintiles (40%) own 0.3% of the total wealth in the country, they are thought to possess about 10%.

A World Value Study found that 71% of Americans (compared with 40% of the Europeans) believe the poor have  a reasonable chance of escaping poverty.  The remainder of this post addresses the beliefs of people cast agains the economic reality.  A nationwide cross-sectional sample of 3,034 Americans was surveyed online between February 21st and February 25th, 2014 by the Harris Poll on behalf of the Northwestern Mutual financial services organization.  To elicit their beliefs about either upward or downward intergenerational  income mobility, respondents were asked the likelihood of a randomly selected American born to a family in the poorest or riches quintile ending up as an adult in each of the five quintiles.  For example, in the upward mobility condition participants were asked to imagine a randomly selected American born to a family in the lowest income quintile and to estimate his or her likelihood of either remaining in this quintile as an adult or rising to each of the four higher income quintiles.  In the downward mobility condition, respondents estimated  the likelihood an an American born to a family in the richest 20% would either remain in the top quintile or drop to each of the four lower quintiles.  Their assessments needed to total 100%.

Overall, respondents thought that a randomly selected American  is significantly more likely to experience upward mobility than downward ability.  Whereas respondents believed that an individual born into the bottom quintile has a 43% chance of moving up to the middle quintile or higher, they thought that someone born in the top quintile has only a 33% chance of dropping to the middle quintile.

So, how accurate were these estimates when compared to actual upward and downward mobility rates provided by the Pew Research Center in 2012?  Respondents overestimated the amount of upward mobility, estimating a 43 %  likelihood of a person born into the poorest quintile rising to the top three quintiles whereas the actual likelihood of 30%.  Estimates of downward mobility were somewhat more accurate as 37% of the individuals born into the richest quintile drop to the middle quintile or lower with participants estimating only 33% do so.

It is interesting to note that  low-income respondents (those with an annual income lower than $25.000) believed that moving more than one quintile from the top or bottom is significantly more likely 44% than high income respondents (annual income more than $100,000) who estimated 33%.  So poor income respondents perceive more mobility than there richer counterparts.

It would appear then that it is correct that this belief in upward mobility that leads to tolerance for income inequality.

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