Narrow bottom-to-middle gap to curb wage inequality

When we talk inequality in this country, we tend to focus on “the 1 percent” – the very-high-income earners who are pulling away from the merely extremely well-off. But a growing body of evidence suggests that the distance between the middle and the bottom may be equally important. Possibly, it’s even more important.

Last year, Harvard economist Raj Chetty published some very important work on income mobility across the United States. One thing he found is that higher inequality translates into lower chances of mobility. But as Scott Winship pointed out, the distance that mattered wasn’t the distance between the bottom and the 1 percent; it was the distance between the bottom and the upper middleclass.

Recent research by Melissa S. Kearney of the University of Maryland and Phillip B. Levine of Wellesley College provide what might be the missing link: Inequality may perpetuate itself down the generations by messing up the decisions of underprivileged youth.

In a research paper to be published next week by the National Bureau of Economic Research, Kearney and Levine detail robust evidence that young men of low socioeconomic status are more likely to drop out of high school, where the gap between families at the bottom tenth of the income distribution and families in the middle is wider.

They challenge their results in many ways, but find nothing that could explain away inequality’s effect. The dropout gap is not because of differences in school spending or differences in incarceration rates. Measures of segregation by income or race don’t account for the difference. Nor, interestingly, does the spectacular acceleration of inequality between the richest and the rest.

Their finding echoes an earlier study, in which they found that teenage girls of low socioeconomic status are more likely to become single mothers when they live in places where the income gap between the bottom and the middle is bigger.

This makes a certain amount of intuitive sense. People at the bottom of the income distribution are more likely to be struggling with some major difficulty: they are immigrants, they are uneducated, they have psychological, substance abuse or impulse control problems. Their kids are more likely to have a shot at getting into the middle class if they have readily available role models who can show them what is possible, explain what it takes, and maybe provide a little helping hand in navigating the educational system and the business world.

If the distance between the bottom and the top is too great, this may not happen. As we now see in the gentrifying precincts of a dozen major cities, you end up with two communities living cheek by jowl while barely speaking to each other, instead of one community that forms a ladder of opportunity for young strivers. The people who feel trapped at the bottom feel there’s no incentive to do the things that might boost their odds of getting out: delaying parenthood until marriage and reaching financial stability; getting more education; maintaining steady employment histories. The results are kids raised in unstable families who have even less shot of getting out.

A growing body of convincing research bolsters this story. Unfortunately, that research fails to provide one thing: a solution.

If you think that the wealth of the 1 percent is the major problem facing America, a plausible solution presents itself: Tax away their money and give it to other people. But if you think that the gap between the bottom and the upper middle class is the main problem, a feasible fix is harder to propose. Especially since most of the people who would be proposing and implementing such fixes are themselves members of the affluent-but-not-spectacularly-wealthy group whose self-segregation is at the heart of the problem.

It’s not that I can’t name things that would help. Most obviously, it would be good if people in gentrified neighborhoods tried harder to build a single unified community, shopping at the same stores and attending the same churches, instead of fighting over who gets to have the amenities they want.

But that’s a personal choice, not a policy prescription. The personal may be political – but that doesn’t mean that the government can make us better members of our community. And better communities seems to be what we need.