Economic Mobility: Starting Points Matter

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How strongly do one’s initial circumstances, such as family education or wealth, affect one’s economic mobility later on?

A publication edited by the Federal Reserve Bank of St. Louis and the Fed’s Board of Governors examined this and other questions related to economic mobility.

In their introduction to Economic Mobility: Research & Ideas on Strengthening Families, Communities & the Economy, Ray Boshara and David Buchholz summarized contributing essayists’ findings on “starting points” that may enable or constrain future financial success. Boshara serves as director of the St. Louis Center for Household Financial Stability; Buchholz is a deputy associate director for the Federal Reserve Board.

Here are some of the key starting points they highlighted.

Generation Factors

Factors stemming from the time of one’s birth can bear on economic mobility, Boshara and Buchholz said. They pointed to an observation by contributing authors Neil Howe and Diana Elliott that, in the aggregate, there is significant generational upward mobility disparity.Howe, Neil; and Elliott, Diana. “A Generational Perspective on Living Standards: Where We’ve Been and Prospects for the Future.”Paper in Economic Mobility: Research & Ideas on Strengthening Families, Communities & The Economy, Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve System, 2016.

This disparity can be witnessed in:

• The relative affluence of today’s elderly
• The particular fragility of Generation X
• The observation that late Boomers are currently the last generation to have experienced a living standard greater than the generation before

Furthermore, Boshara and Buchholz wrote, “Coming of age at a time of relative prosperity and economic activity—or not—appears to have lasting influences that are presumably unrelated to indi­vidual potential and initiative.”

Race and Ethnicity

The authors identified race and ethnicity as “clearly a strong starting point factor” related to economic mobility. They concluded that the variance in economic mobility by race and ethnicity has persisted over time, and said there is little evidence that it is shrinking in significant ways.

“There is much debate about whether this lingering and substantial disparity is an artifact of underlying economic conditions or whether it reflects other, non-economic factors,” they wrote.

In fact, Boshara and Buchholz said, the importance of lingering effects of the disparity emerged as one of the predominant themes within the Economic Mobility publication.

Family Wealth

Family wealth is what a family owns, owes and has in savings. Taken among early economic factors, family wealth plays a key role, the authors wrote. For example, it could affect the ability to:

• Pay educational expenses
• Provide tutoring or other support when needed
• Pay child-care or child health-care expenses
• Contribute to postsecondary education

Any of these disparate factors could have an influence on later outcomes, Boshara and Buchholz said.

Family Structure

The authors said growing evidence suggests that family structure is related to economic mobility, as well.The authors noted that it is difficult to establish the pure effects of being a single-headed or married household, as many social and economic factors may make it more likely that a child resides in a one- or two-parent home. Thus, they cannot claim that family structure causes economic mobility outcomes. However, a growing body of evidence suggests that family structure is strongly correlated with economic mobility outcomes and thus merits serious consideration by researchers, policymakers and others.

For instance, they said that research from a number of scholars indicates that children who grow up in single-parent households have relatively less opportunity to get ahead as adults than children raised in two-parent households.See, for instance, Sawhill, Isabel V. Generation Unbound: Drifting into Sex and Parenthood Without Marriage. Washington, D.C.: Brookings Institution Press, 2014; Lerman, Robert I., and Wilcox, W. Bradford. “For Richer, For Poorer: How Family Structures Economic Success in America.” Washington, D.C.: American Enterprise Institute, 2014; and Putnam, Robert. Our Kids: The American Dream in Crisis. New York: Simon & Schuster, 2015.

Other points they spotlighted include:

• The argument that America is rapidly dividing along class lines, with about a third of children being raised by married, college-educated parents, whose economic prospects are bright due to large investments of time and moneyFinighan, Rueben; and Putnam, Robert. “A Country Divided: The Growing Opportunity Gap in America.” Paper in Economic Mobility: Research & Ideas on Strengthening Families, Communities & The Economy, Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve System, 2016.
• A finding that changes in family structure or earnings patterns—specifically, marriage or an additional family member joining the workforce—account for the largest mobility gains among households whose income rises from year to yearLarrimore, Jeff; Mortenson, Jacob; and Splinter, David. “Income and Earnings Mobility in U.S. Tax Data.” Paper in Economic Mobility: Research & Ideas on Strengthening Families, Communities & The Economy, Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve System, 2016.

Notes and References

¹ Howe, Neil; and Elliott, Diana. “A Generational Perspective on Living Standards: Where We’ve Been and Prospects for the Future.”Paper in Economic Mobility: Research & Ideas on Strengthening Families, Communities & The Economy, Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve System, 2016.

² The authors noted that it is difficult to establish the pure effects of being a single-headed or married household, as many social and economic factors may make it more likely that a child resides in a one- or two-parent home. Thus, they cannot claim that family structure causes economic mobility outcomes. However, a growing body of evidence suggests that family structure is strongly correlated with economic mobility outcomes and thus merits serious consideration by researchers, policymakers and others.

³ See, for instance, Sawhill, Isabel V. Generation Unbound: Drifting into Sex and Parenthood Without Marriage. Washington, D.C.: Brookings Institution Press, 2014; Lerman, Robert I., and Wilcox, W. Bradford. “For Richer, For Poorer: How Family Structures Economic Success in America.” Washington, D.C.: American Enterprise Institute, 2014; and Putnam, Robert. Our Kids: The American Dream in Crisis. New York: Simon & Schuster, 2015.

⁴ Finighan, Rueben; and Putnam, Robert. “A Country Divided: The Growing Opportunity Gap in America.” Paper in Economic Mobility: Research & Ideas on Strengthening Families, Communities & The Economy, Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve System, 2016.

⁵ Larrimore, Jeff; Mortenson, Jacob; and Splinter, David. “Income and Earnings Mobility in U.S. Tax Data.” Paper in Economic Mobility: Research & Ideas on Strengthening Families, Communities & The Economy, Federal Reserve Bank of St. Louis and the Board of Governors of the Federal Reserve System, 2016.

Additional Resources

• Publication: Economic Mobility: Research & Ideas on Strengthening Families, Communities & the Economy
• On the Economy: Wealth Building Efforts beyond College and Owning a Home