University Place

Inequality of Opportunity in an Unequal Country

[Tom Zinnen, Outreach Specialist, Biotechnology Center, University of Wisconsin-Madison]

Welcome, everyone, to Wednesday Nite @ the Lab. I’m Tom Zinnen. I work here at the UW-Madison Biotechnology Center.

I also work for UW-Extension Cooperative Extension, and on behalf of those folks and our other co-organizers, Wisconsin Public Television, the Wisconsin Alumni Association, and the UW-Madison Science Alliance, thanks again for coming to Wednesday Nite @ the Lab. We do this every Wednesday night, 50 times a year.

Tonight, it’s my pleasure to introduce to you Professor Timothy Smeeding. He was born in South Buffalo, New York, went to Canisius High School, which is a Jesuit school. It’s the same school that Tim Russert went to, he tells me. He can tell you more about that.

And then he graduated from Canisius College and then got his PhD here at UW-Madison in 1975 in economics. He then spent time on the faculty at Bowdin, Stan-

[Tim Smeeding, Professor, LaFollette School of Public Affairs, University of Wisconsin-Madison]

Bowdoin.

[Tom Zinnen]

I blew it.

Bowdoin, Stanford, Utah, Vanderbilt, and the Maxwell School of Public Policy at Syracuse University before coming back to the University of Wisconsin.

Tonight, he’s going to talk about one of the great things in mathematics and public policy: inequality. Remember, this is the land of the free and the home of the brave, and we aspire to great equal opportunity in this country.

One of the tough things, I think, about being a sociologist or an economist, my wife is a sociologist, is sometimes you have to collect data that tells a story that doesn’t always match the national myth. I’m looking forward to hearing what Professor Smeeding has to say tonight about all that. Please join me in welcoming him to Wednesday Nite @ the Lab.

[applause]

[Tim Smeeding]

I’m Tim.

[laughter]

Hi, Tim. That’s it. I’m an extinguished professor of public affairs and ego comics in the La Follette School. I came in 2008 to direct the Poverty Institute, I did that to 2014.

And my work is on inequality and mobility. And so, that’s what were – I’m going to try and talk about, like I said, I – I can’t beat Rocks for Jocks next week, the geologists, but I’m hoping to do better than – hoping to do better than the Vice Presidential debate.

[laughter]

All right, so here is the questions I want to ask.

What do we know about the methods by which intergenerational transmission of advantage and disadvantage work through the life cycle? Some kids – kids can’t choose their parents. Some end up lucky, others don’t.

And what can you do about that?

Because if some are really advantaged and others disadvantaged you don’t have equality of opportunity.

So, how does inequality affect opportunity in intergenerational mobility? That’s, you know, I’ll define that in a minute. That’s I.G.M., that’s where a child, an offspring, ends up compared to where his or her parents were.

And if we don’t like that, what can we do about it? And this is a topic of some concern, except for I can’t imagine – I cant imagine, Hillary mentioned 17 things she wanted to do the other night, and this had to be one of them. But Donald couldn’t spell it.

[laughter]

All right, now, Americans care a lot more about inequalities in opportunity than in outcomes, okay? We want kids to have a chance. We don’t mind if somebody worked their butt off and, honestly, without big tax losses and other things, earned their way to the top. We wish our children could have the same opportunity and they could grow up to be, you know, Bill Gates or – or whoever else is your hero, or his or her hero. I think that’s great.

But the mobility is determined by two things. First of all, the differences in opportunities. Then you have to take advantage of the opportunities. Quite often some kids miss the boat, they don’t take advantage, you’re in a good school, you get pregnant, you have a baby before you finish lots of other things in your life, and it’s a much harder row to hoe. So, part of it is differences in taking advantage. Not enough low-income kids take advantages of opportunities. We need to do more in that.

But the problem is that if you ask me what the two biggest forces are, first, it’s parents and parenting, and then, secondly, it has to do with money, essentially. And connections, which go together. Parental education is another important indicator.

So, we’re going to look at those things, all right?

There’s two kinds of intergenerational mobility. One has to do with just relative mobility. And it’s a tough thing because it says that, well, from one to 100, where was your father or mother? Say they were an 80, okay? Where’s your kid going to end up? An 80, a 20, a 95, something like that. So, it – but the thing is it’s a zero-sum game because when somebody moves up, somebody else moves down.

So, part of what we talk about, ’cause it’s easier, is relative mobility; it’s your position in some sort of a distribution of well-being as compared to your kids. And so that’s one thing. And then there’s something called absolute intergenerational mobility. What that means is, will my kids be better off than I am? That’s a really important question. I’m better off than my father, a World War II vet, a union carpenter was, but I wonder if my kids will do as well as I did. Now, a lot of people in America are worried about that now.

Particularly people who have found that their jobs and their way of life is moving away from them, they’ve been laid off from what they did for 20 and 30 years, and they’re worried because their sons or daughters thought they’d follow them into the mill or into the union or into the whatever, and they’re not doing it, so that’s – thats a big concern. I think a lot of the Trump concern has got people who make $70,000, $80,000 on average who are behind him, but they’re worried that their kids aren’t going to have that same chance. So, that’s another worry. So, this is where this sort of plays out. Alright.

Now, there’s two ways to look at intergenerational mobility. One is – is the way that we’ve always done it. What you have to do if you’re going to fulfill any of this, if you’re going to see how well kids are when they grow up, you have to start with parents, and you know what the parents are. Then you have to wait until the kids grow up. And when they grow up, you see where they ended up. If you do it that way, you’re always looking backward, you’re never looking forward. You’re always saying, you know, we observe a parent in the ’60s or ’70s, the kid grows up to be 40 and, you know, in – in 35, 40, 45 years, and then we observe them, and that’s all great but the experiences of kids who grew up 40 years ago isn’t the same experience as the kids who are growing up today.

So, another way to do it is to say, okay, we learned something from who got ahead and who didn’t in the traditional way. Why don’t we talk about the attributes, institutions, policies that today’s kids need in order to succeed because it’s today’s kids who we’re making policy for. We’re trying to decide to improve their schooling, we’re trying to give them opportunities. So, looking forward turns out to be important.

So, I’m going to talk a little bit about both. Now, don’t get your panties in a wad here.

[laughter]

This says children’s – childrens destination depends on some linear regression, the log of income or the log of socioeconomic status. That beta tells you the relationship between the parents position, or a parent’s S.E.S., and a kid’s S.E.S., okay? It’s just one simple number, okay? It could be .4, .6, .5, but it tells you in society the average – the average relationship between parents and kids, okay?

And it’s a persistence coefficient. The higher it is, the less mobile a society you’ve got. So, if every kid, if that coefficient was one or .9, that would mean, you know, that you started out at some rank and you ended up at a 90% chance of ending up in the same rank when you grew up, and, therefore, there wasn’t much mobility. If that coefficient is .2 or .3 or something like that, well, now it sounds like, you know, there’s a lot of movement in this society, a lot of chance to get ahead and so forth. So, that’s what we’re looking at.

That’s the only equation in the paper.

[laughter]

There’ll be a quiz in the morning.

[laughter]

So, these estimates have a lot of range of outcomes and ages and whatever, and they bounce around.

But almost every study like this that’s ever been done finds bunching in the corners.

So, if you started out at the bottom, your chances of ending up at the bottom are disproportionately higher. If you started out at the top, your chances of ending up at the top are disproportionately higher. Now, you don’t get that from this one coefficient, so that’s part of the issue, you have to look at matrices and so forth.

And if you went back and you took the original – the original mobility, I mean, suppose you took a sample of parents in the 1970s, and you followed them and their kids for 40 years. You missed about 40 million immigrants, what the hell? 11 million undocumented since 1980, and you missed anybody who’s been incarcerated because we don’t count them. They’re somewhere off in jail, okay?

So, if you – if you start in the past and go forward, you’re stuck with whoever you had at the start, and you miss important dynamics in society. That’s another reason I don’t like this perspective.

So, now this is kind of a Gatsby curve. This is in a book I did with a couple other guys. Here’s those betas, the betas are over here. And something called a Gini coefficient. Just realize that the further to the right it is, the more inequality you’ve got, okay? So, if you’re over there, you’ve got a higher Gini coefficient, you’ve got more inequality. If you’re over here, you’ve got more equality, okay?

And you see things – you see things, there’s no perfect correlation. And you see bunching, you see things that, well, gee, you see things like all these countries tend to have high mobility and low inequalities, Scandinavians. Well, the range of outcomes is much narrower, their institutions are much more equalizing.

The you go in the middle and you find Germany and Denmark, their inequality is about the same, okay? But one is much more mobile than the other because its got a lower beta, okay?

And then you go over here and you see the U.S. up there versus, lets say, Canada and Australia, and you have societies that are high inequality, but those Canadians and also Australians have way more mobility that the U.S.

So, this is, sort of, what you have to pick apart. And theres a book from Russell Sage, that I dont want you to buy or read, called From Parents to Children.

So, theyre related but theres not a one to one correspondence. This is essential what I just said. Theres some high inequality countries that have high mobility, Australia and Canada, while others do not, like the United States. Some of the medium inequality countries differed, Germany and Denmark. And the low inequality countries, Sweden, Norway and Finland. Now its very interesting, if I asked you which country had the biggest percentage increase in inequality over the last twenty years, how many of you would guess Sweden?

Its true; they started out from a low base, but theyve had a lot of inequality. Theyve rolled back their welfare state, theyve liberalized their markets. A lot of people are doing really well. I mean, their bottom is still pretty good, but their top end is running away there.

Im not going to talk too much about other countries. That was called the Titmuss lecture. I gave this one in England last year, more – more international. I want to talk about the U.S. today.

So, way one, you know, its – its most important, perhaps – I mean because, perhaps, the past may be a poor policy guy. Buy you do learn something from looking at the past. Their history does tell you something. And in the debate about the trends, whether mobility and opportunity have declined from previous generations, its only went on in the past, its not a way forward. So, who cares if you can say my fathers generation after World War II did really well compared to their parents who went through the Great Depression, and the next generation, me, Baby Boomers, did pretty good, but the next generation is not going to do so well.

How do you know? I mean, why doesnt it keep going up? Okay?

And, as a matter of policy, theres greater concern to bring bottom up than the top down, and Ill tell you why.

So, what we want to do is: what can we do for the next generation? So, Janet Yellen said this, its very interesting, I think this captures where I want to go right away. We know that families are the locus of both opportunities and barriers to economic mobility What individual or family characteristics predict who will achieve upward mobility? Whos going to move up? How much does someones initial circumstances in life influence how far that person can get or how hard he or she needs to work to get there? Researchers and policymakers need a better understanding of how much mobility individuals may experience over the course of their lives. Meaning the ones who havent experienced it yet, okay?

So, Im with Janet.

This is a nice picture; I had a graph in here. Theres – theres – Ive got about four papers, three or four papers at the end you can look at, but the New York Times versions are much easier. Tom Edsall writes about my stuff a lot, and so this is – he – he writes more clearly than I do. So, what this says is everybody in this graph started out in the bottom 20%. They were born to a parent whos in the bottom fifth of the distribution, okay?

Now the question is: where did they end up? And what you see at the top is if you were born white, the bottom, at 23, 19, 23 and then 35 for the top 40%, thats almost random, thats a great mobility. So, if youre a white kid and you started out at the bottom, you got yourself up and you moved ahead.

Now, suppose you were a black kid who started out on the bottom. You have a 51% chance of being in the bottom 20%. 27% chance of being in the next 20. That means 78% of the Black kids in America who started at the bottom end up below the median, okay? Thats what it tells you.

Do the same thing with – by parenthood. Mothers are continuously married looks a lot like whites. Discontinuously married, a little worse. If you were never married, 74%. If you mothers never married, 74% chance of being stuck at the bottom.

How about education? If your parents are college graduates, its – its amazing. It, sort of, jumps out at you. That looks like that, looks like that. That looks like a mobile society, but then you go down here. Less than high school, you know, youve got about an 80% chance of ending up below the median.
So, we know who it is whos having trouble: minorities, undereducated, kids who grow up in, more or less, a single parent family. Those have higher risk; you can tell that from this. I had a table – I had a table in the – in the paper, but this guy, Bill Mader, hes damn good at graphs. Im telling you, thats much better than I could do. I just copied it, I must admit it.

So, the idea is the usual look back cant really capture the inequality boom because inequality really took off in the ’80s in our country. Those kids aren’t old enough yet. If your kid was born in ’79 or ’80, they’re not going to be 40 for another – another four or five years. Then we have to go and measure them or whatever, so we don’t know what’s going to happen to them.

Now before 1980, I mean, incomes moved up pretty evenly. Everyone got ahead. I mean, it was great growing up in South Buffalo with Big Ed the carpenter ’cause every year we had a higher standard of living, you know? And, I mean, you could see the whole family moving up. And then all a sudden the top moved up and the bottom didn’t go anywhere, and it fell. So, that’s what we’re experiencing now. But we can’t tell what effect that had yet ’cause we haven’t waited, the kids aren’t old enough.

Now a different way is to look at youth and adults under age 30 today and ask: how are they moving through their lives? How likely are they to hit the success markers for joining the middle class, okay? Which is what I consider making the American dream.

So, it’s a life course approach, all right? How you grow up affects where you end up is the story. And there’s CRITA, the Cross-National Research, I’ll show you a diagram or a model that we use to do this. And we’re just going to do it in the U.S. There’s something called the social genome, which helps measure this, that the Urban Institute in Brookings have that I’ve been an advisor on, so, we’ll talk about that too.

So, the question is, given key parameters for child mobility, are we making much progress? And the answer is, in general, not much. I’ll show you.

So, this is the regression, only in a picture, okay? There’s parental S.E.S. This is where you end up as an adult, okay? You go through, there’s investments in institutions that are made publicly, that are made privately, and so forth, and those things happen in your birth year that are really important. Your early childhood, middle childhood, adolescence, early adulthood, and then you end up an adult, okay?

The things that affect things here are things like education, parents’ education, income, earnings, occupation, wealth, employment. These are the stages I just mentioned. And you have lots of different outcomes. Attainment, cognitive measures of – of – of progress, social, emotional, behavioral, employment, labor market, health, physical outcomes, lots of different outcomes, and investment through institutions which help you get through these or barriers which stop you. That’s why this was originally, at some point, somebody was calling the talk Gates, Gaps, and – and something else. But I’m not going to talk too much about that. And then you’ve got the outcome measures. So, this is the general way that people do it.

Now, that’s not very specific. So, what is it – what do you mean by, what does it take to go from, to get through that first stage, the second stage, the third stage successfully? What’s it mean?

Okay.

So, here’s the social genome model. It has all those same stages, but what it tells you is that what – what you need to end up in the middle class, so white picket fence near the middle of the distribution or above when you grow up to be an adult. The first thing is you’re born to a non-poor, married mother with at least a high school diploma. That’s important early on. If you don’t end up in that way, that’s okay, but you just have to work harder to get over the next step. It’s easier if you get over the first step. You have to have acceptable preparation for formal schooling, which means you’ve been to preschool or somehow you’re behaviorally okay, and you’re, you know, you’re – youre interested in reading and colors and things that you have to be ready to learn when you hit formal schooling.

Then formal schooling works for you. So, you add to your basic skills. You cumulatively move ahead. Reading, math, social, emotional skills as you go through school. Then you have to graduate from high school with an average G.P.A. and not be convicted of a crime. Now, the not convicted of a crime turns out to be a huge barrier in minority populations today. I do work in that too.

Then you have to live independently with a post-secondary degree somewhere in your late 20s. So, you’re not staying with mom or dad anymore, you might only have a technical degree, you might have an L.P.N., you might have gotten a certificate in advanced computing or something from community college, but – or more, okay?

And then, by the time you’re in your 30s and 40s, you’re at least 300% of poverty, which is about the 60th percentile. So, in other words, you’re middle class, in other words. So, the idea – these are all the steps it takes to get to middle class. And all we’re going to do is say, well, what happens in those steps? I mean, what – what – what are the trends? What’s going on? Can people – are people moving ahead in those steps?

And it comes down to five different things that turn out to be important. Independent forces, these are those institutions and investments and lack thereof. Family status early in life. We’re going to talk about diverging destinies hypothesis, birth conditions, age and education of mom, which are very important.

Then were going to talk about parents and parenting. Is the family stable? What human and material resources are available for the kid? Do you read to the kid? Is – is the kid being pounded and whatever? My father pounded me, but he read to me too, so it worked out.

[laughter]

Money, economic status of families and growing inequality. And it turns out that if you’ve got a bachelor’s degree and you want to make money and you can pick any country in the world to be in, this is the country. Because we have a real undersupply of people who’ve gotten four-year degrees. And that means when the market – the demand goes up, the supply – supply is behind. I’ll show you this later on, okay?

And the more human capital you’ve got, the more money you make, you have financial ability to raise children and provide a private safety net. I’m going to talk about the glass floor. I’m going to ask you, normally when I talk to a – a professorial or another audience I ask: “Have you ever done any of these for your kid?” And the answer is pretty much: “Yeah, at least one.” Well, the top end youll do all of these. We’ll get to that, okay?

Then social institutions. Level of pay, is education open? Do we subsidize education, like preschool? Is healthcare available at reasonable cost to everybody? And things like that, those are all important.

And then the role of place, where you live. It amplifies parenting differences and money differences.

So, these are all factors that produce differences in those outcomes, and we’re going to talk about them. So, this is not good.

Births and cohabitation at early ages, or marriage at early ages does not predict stability. College kids get married after they get their degree and after they’ve gone through a lot of other steps, I’ll go through in a second. Cohabitation outside marriage now is more common than marriage among those 30 and under. So, if you’re not living with your parents and you say, okay, and you’re not living alone, are you living with somebody else? The chances that you’re cohabiting are greater than the chances you’re married. That just happened last year. This is just – just a recent change.

Especially kids who aren’t doing well aren’t married. College kids get married. And they get married when they’re going to have kids, and it’s a commitment device for kids. So, college and up is okay, and I’ll show you this in a minute.

Now, there’s more cushions in some countries, more and better early childhood education. There’s some income support, wage setting, and continuous healthcare, those things help them overcome the fact that there’s only one parent, and they might not have as much money, okay? But still you’re at somewhat of a disadvantage.

So, here’s how I tell my students and this is – this is no different. I told the Governor’s Commission on the Future of the Family the same thing, okay? There’s four adult differences in life stages, that separate children and parents, okay? Education, work status, partnership, and planning.

So, increasingly, children come in at either end or the start of these stages, and it makes a huge difference. So, dissimilar families and children follow very different life course paths depending on where you had your children along the way.

So, here’s the problem at the bottom end. We all want our kids – I’ll tell you the good. We all want our kids to finish school.

Oops. It’s okay. I’m not falling down.

[laughter]

Finish school, okay? Get a job. Find a partner. Make a plan. Have a baby. Now put have a baby first. You haven’t finished your schooling, you don’t have a good job, you don’t have a partner, and you don’t have a plan. Unintended – unintended pregnancies are a hugely terrible problem. So, there is the two poles, okay? Women under 30 who have a first child at age 19 and 22 and then 1.6 more kids, the – the big families are the lower income families in our country.

They’re complex. By the time a biological child is nine, the chances that one or both of these parents will have another child with a different partner is 75%. So, you take the following. You take under 30, unmarried, man, woman, baby, okay? The chances that man or that woman will have another baby with another partner are three-quarters. It’s what you call a complex family. Two kids here and there and whatever. And this comes from the Wisconsin child support data. It comes from Fragile Families. It’s what my wife does and others. People are normally shocked at that, but it’s true. It’s very complex.

And almost 70% of births to women under age 30 are unintended, and those kids don’t do as well. So, there’s a lovely book by Belle Sawhill called “Generations.” And its – it’s like you slip into motherhood. It’s like: “Oops, I got pregnant. “Well, you know, I’m not sure and, okay, we’ll have the baby and we’ll see how because it’s okay in our neighborhood.” And that just doesn’t work very well. It doesn’t work very well for the mother or the kid, okay? So, that’s Belle Sawhill’s book.

Now, marriage: marriage is failing among all but college graduates, and those that marry early are more likely to divorce. The biggest declines in the last 10 or 15 years are among whites in their 20s and 30s. Charles Murray wrote a book called Coming Apart. No Latinos. No African Americans. I’m just going to look at white Anglos. And he looked at the same places that Bob Putnam did when he looked at our children. These are kids who grew up in blue collar places, and – and they’re just – they didn’t get educated, they’re not following their parents, they’re not finding jobs, and they don’t have the basis for getting married. So, marriage, it just isn’t happening among these – these 20s and mid-20s people.

But, on the other hand, college graduates remain high, little divorce and so forth, and they have fewer children, more money, more resources, fewer children.

Here’s some pictures. That’s a percent of all births that are non-marital, okay? Less than high school is the top line. High school, some college. College grad down at the bottom, okay?

College graduates don’t have babies outside of marriage. Many of you remember the TV show Murphy Brown. There’s about 1/10 of a percent of the mothers in America are Murphy Brown, okay? She had the baby and she’d be off directing the TV show and doing this and this. Whenever the baby was on, he wasn’t making any fuss or whatever, and he was nice, and she’d hand him off somewhere and go do her thing. It ain’t that way, okay? It just isn’t. You can look at this, you can see what happens. Less than high school, phew.

Never married mothers. These are mothers who were never married. Only 3% of college graduates, mothers, have never been married. It doesn’t happen. Look how high all the others are and where they’re going. You can follow lines and read charts. I don’t need to tell you.

This is this multiple partner fertility I mentioned. So, these are urban U.S. parents who have a child by another partner nine years after the focal, or the first birth, that you started to follow by marital status. So, if you’re married, you know, there’s a much smaller chance that you’ll have a birth with somebody else. You’ll probably stay together long enough.

If you’re unmarried, look at that. That’s where that 75% number comes from. And this makes a mess. Two different kids, two different fathers. My colleagues Dan Meyer and Maria Cancian write articles…

[checks his watch]

I’m doing okay.

…with things called: “I ain’t paying for his kid.” You can figure out what that means, right? We’ve got all the child support records in the state, the actual records, and we do all the work for D.C.F. on it, therefore we know more about child support and broken families than anybody else in the country, probably in the world, here. They’ve been doing it for 20 years.

And they can go out and find a mother who’s got a couple of kids who isn’t married and go and talk to both of the fathers. And they say: “I ain’t paying for his kid.” So, neither one of them pays anything, and the mother is stuck there in the middle with nothing, okay? The father may be in jail, maybe unemployed, maybe isn’t making enough that he has much to share to start with, but, I mean, that’s a problem when you start out at this end.

Now, factor number two are parents, money, and skills. I would argue with you, and I’ve always argued this, almost all parents want to do – I used to say “all” but somebody in the Education Department got pissed at me and said: “Not everybody does!” Almost all parents want to do everything they can for their kids, but some are better able. So, does anybody in this room think form the conception of their child, forget the birth, that that kid wasn’t going to college?

No, only about 60% of the kids actually do go to college, so, somebody’s thinking – not thinking about that, okay? And money and skills are important, okay? So, if you’re born at the 90th percentile, that’s the middle of the top quintile, you had $55,000 per kid to spend on each child in 2013. And if you ended up at the 10th percentile, you had $7,000. That’s for room, board, everything else. Everything else. Yeah, huge difference, that’s just for the kids, okay?

I’m going to show you these things. I’m going to show you some of the ideas of, you know, summer camp, enrichment, after school programs, all that stuff, computer at home, music lessons. All right, this is Katherine Magnuson, who’s my colleague in the La Follette School. Katherine wrote the child support quality standards for the state of Wisconsin, the Star standards. She wrote them, she’s good.

Here’s how much you spent if you’re in the top fifth and the bottom fifth. This only goes to 2006, but you can see this is how much you spent for your kids on enrichment activities, after school programs, summer camps, preschool programs, things that add something to their life. Huge differences, huge, okay, huge. Most of us are at – at that upper end, okay?

Here’s parenting and kid’s literacy skills. So, it’s all relative to the top quintile. So, one, two, three, four, the top quintile is at the zero line, okay? This is – this is the time you spent in literacy activities, like reading to your kid or interacting with your kid and talking with your kid, okay? If you start out at the bottom, you’re way below. It turns out that the people that are upper middle class actually do more, early on, when the kid is really young. But you can see it, go ahead, that you don’t read to your kid, you’re not interacting with your kid, you’re not talking to your kid, that’s not good. But that’s what happens depending on where you are in this distribution.

Now, this is something called parenting quality. Now, don’t, this is, they go out and they visit the home, and is anybody here a psychologist? There must be somebody. They do something called the home scale. They go out and they check it out. Is the place clean? Is the kid watching TV? Are there any books in the house? And so forth and so on. And if you – if you rank parents, and you can go right here and find the article, according to the weakest, the average, which is the middle 50, and the strongest parents, you can see at every stage, all those stages I mentioned before, the stronger parents kids do better at every one of those stages.

So, parenting makes a big difference on who gets ahead, okay. Who’s going to succeed? Who’s going to move up in school? Who’s going to stay in school? Who’s going to get a degree? Who’s going to have a job and so forth and so on. So, parents are incredibly important. Now, keep that in mind because in a minute we’re going to face a real conundrum when you try and tell a parent you can’t do everything you want, you can for your child. That’s a stopper. We’re not going to do that. So, that creates a big problem.

So, money matters, income is important. And children’s family income inequalities have widened. So, even if – if you assume that inequalities is represented by rungs in a ladder and just say that, you know, the rate at which people move up and down the ladder, that beta coefficient, hasn’t changed. But the rungs of that ladder have gotten much wider apart. So, being at the bottom or being at the top are very different things now than they were 25 years ago, okay? So, the stakes for ending up at the top or the bottom are much higher now, regardless of the trend. So, this is a showstopper.

This is a Congressional Budget Office data. This is the after-tax income of the bottom, middle, and top fifths in 2010 dollars. These are only households with children, okay?

So, here’s the top, here’s the middle, and here’s the bottom. And here’s the growth over time. You can see that there’s been a much bigger growth in the top relative to the middle than between the middle and the bottom. Neither the middle nor the bottom have done terribly well. At the top, things have exploded, okay – okay? It’s totally exploded, the gap is huge. So, I’ve got some summary.

I point to a picture, then I say it’s so, okay?

Middle has suffered real income declines, negative absolute mobility. In other words, they’re worse off now. Absolute and relative mobility are both important to the middle class. And that’s why I mean – the bodies in the World Bank, and the International Monetary Fund and people in Washington want shared prosperity and inclusive growth. You want something that brings the bottom up too and not just lets the top run away. So, you hear all these people saying growth is good, economic growth is good. Who gets the benefits of the growth? If all the growth goes to the top end of the distribution, that growth isn’t really helping. So, it has to be more widespread. It’s finally starting to be in the last year or two after a long, long time. I don’t know how long it will continue. But finally, people at the bottom are starting to move up. Their real incomes are increasing. But this is eight years after the Great Recession, or seven years after the Great Recession, okay?

So, there’s a big income inequality. Now, wealth is even more important than income, okay? Income is a flow, you get so much a year, whatever. Wealth is what you’ve got sitting there that you’ve built up by saving or you’ve inherited it, or somebody gave it to you, or you got lucky or whatever, and your wealth builds up. And wealth is insurance. You can use that money to do whatever you want. I’ll show you what – what happens, okay? And I’m going to show you – you can read that – but I want to show you a picture here.

This is – this is the O.E.C.D. data. And this is the income share of the top 10%. You can see in the United States, it’s the highest. We have the biggest, the top 10% is the biggest share of the pie in the U.S. And then you look at wealth. They’ve got an even big share of this, bigger shot. Almost above 70%. That’s wealth. Assets, stocks, bonds, housing, businesses.

So, we’ve got a big issue here. And when you look at inequality in all of these, just know that they’re all going up. They’re not always going up incredibly fast. That’s because these – I – I – there’s a trick, you know, you can make these axes much bigger and it’ll grow much faster, but – but they’re all going up. So, all inequality in consumption, inequality in income, inequality in wealth are all going up. So, you – it’s not just inequality in income, it’s in wealth too. And I’ll explain why.

Here you go: heres my – my how often – how many of you guys have done this? Since I see a lot of people out there that are about my age, which is 68, a lot of you have been through this. You buy an expensive home in a good, safe school district so your kid goes to a good school. Your children graduate college and often a post-grad with no debt, so, in other words, somebody paid for their college, they’re not in debt. Your children, my child, one of my boys, grew up in Syracuse, New York. Patrick is a hell of a hard worker, but you couldn’t do squat in Syracuse in the Great Recession. First and last month’s rent to go to Boston. He’s got an incredible job, he makes 100,000 bucks a year, and he loves it at age 28, okay? But whose dad had the money to get him there to overcome the job mismatch and put a bright, young kid in a place where he could get a good job?

Parents buy a first home at favorable interest rates. Interest rates have been incredibly low. I mean, all these developers who have built all these things borrowed that money at 0.5%, they’ve done incredibly well. And my mortgage, and I mean 2 – 2.4% on a 15-year mortgage. I mean thats – when interest rates went down, we all refinanced. That saves you gazillions of dollars. Now your son or daughter just graduated from college, and they got their girlfriend and they want to get a place somewhere, want to buy a condo, it looks like a good investment, but they don’t qualify because they don’t have a good enough credit history.

[waves]

[laughter]

Co-sign.

Bada- bing.

And then there’s this evidence in the United States, Denmark, and Canada that if you’re in the top 5%, the chances that a kid who grows up with a parent in the top 5% will go to work in the family business are about 25% in each of those. I taught these kids at Bowdoin. They didn’t give a sh** about anything. They didn’t want to learn and whatever. They have a big party, have a good time out in the woods because: “Oh, I’m going to work on the family farm.” I’m going to go to work for wherever, okay?

These are all the advantages that the kids at the top have. You – you can overcome it. You can – I got over a lot of them, your kids probably did too. But those are all the things that a rich kid can do, not to mention things like, you know, if your kid gets caught smoking dope some night, or drunk and disorderly, you got a lawyer there in 52 seconds and he’s going to be okay. If it’s a black kid, that’s one strike, then he gets a second strike, and he hauls you in and there’s way more police in their neighborhoods and so forth and so on. So, we do this, we protect our children, we do it. We can afford to do it. We can afford to tell them how important it is to do X, Y, and Z to get ahead and so forth. And so, this is – this is sort of what you’re up against. This is what’s going on at the top. And we’ll go right into that in a minute, I’m almost there.

[Checks his watch]

We’re getting there, I got another 15 minutes I’m told. This is a talk where they tell you talk 52 to 55 minutes.

[laughter]

I’m doing my best, okay?

So, you know, there’s things. Social institutions are really important in the United States and the rest of, in Europe, they have universal healthcare. Everyone in the world except for us has universal healthcare, and it’s much less expensive, of course.

They have universal programs for healthcare, childcare, subsidized from early on, high quality childcare. And for us, you get some of that if you’re low income and you work now, but you have to work a certain amount and so forth. But in the other end, we have big tax subsidies for the rest of us in education, healthcare, and so forth. It’s not at the bottom, you subsidize the top. How many people here have 529 plans to save for their kids to go to college? All right, the hands are up. How many of us got that mortgage tax break so we can buy a good house? Uh-huh, okay. We can put our pension money away without paying for it. Ah, now there’s a set-aside program where you can pay for your healthcare, out of pocket expenses, and your childcare at pretax dollars.

Who are we subsidizing? The people I had on the last page, not the people who need it. Not the middle class and not the bottom.

So, this is, essentially, that’s what this says. Its called – O.E.C. calls it T.B.S.P., tax breaks for social purposes, and they mainly go to people at the top.

M.O.O.P. is medical out of pocket expenses, all that. I mean, this is just a list.

Okay.

So, our social institutions don’t really help much. It subsidizes rich kids whose parents already have high income and wealth, and that means that the rich don’t want to support direct universal benefits. Why should I? I don’t want any competition for my kid. I saved for my kid. Of course, I made seven times more than this person, but I saved for my kid. And we can opt out from public support. Why vote for public health insurance and public university? I don’t need that. I can buy my own healthcare plan, I get a great healthcare plan from my employer, and I can put my kids through private school if I want, so why – why should I spend all this money on these other programs?

It’s – its pretty selfish and hard, but there’s a lot of that out there, okay?

Last thing, factor five: neighborhoods. The place where kids are raised amplifies parenting and money differences, okay? Home mortgages, zoning, these tax breaks for social programs. You get a good neighborhood and you have zoning and other things to exclude the poor. Even middle-class kids in poor neighborhoods don’t do well. So, this is Raj Chetty and Nathan Hendren who’ve measured all this stuff. Neighborhood effects are substantial, especially for children in low-income families. The U.S. county in which a child grows up explains nearly half as much as the variation in their earnings as their parents’ incomes. So, parents’ incomes might explain more, but this – where you are, the quality of the, you know, look around, go over right here. I live over here in University Heights. The playgrounds are nice, the streets are clean. A few drunken students, but you got to put up with that because otherwise you wouldn’t have this business we’re in and so forth. But, you know, I don’t go out there on Allied Drive and – and duck when I hear something go crack in the middle of the night and afraid that my kid, you know, leave my kid go out at night and so forth. So, that’s important too.

All right, so that’s it.

All the ingredients seem to be going, or a lot of them are going in the wrong way. If you believe in equality of opportunity, you probably don’t have it.

Even if the trend is questioned, virtually everybody agrees the amount of mobility we have in our country is too low. We – I mean, there are these 40% stuck at the top and about 35% stuck on the bottom, and in between, the middle – the low-middle class moves around pretty well but the others don’t.

So, what are we going to do about it?

It’s possible to provide more equal life chances than is the case, in ways that do not violate family autonomy. But this is the hard thing to jump through. But there are limits to these policies because parental influences are evident everywhere, and the rich buy out of public goods that are subsidized to do so in our country. You know, Obama, for three days he tried to get rid of 529 plans, the special breaks in 529 plans. The roar was huge, and he backed off.

And that’s, you know, they’re great devices. You put your money away for your kids or your grandkids, they build up, two of my boys, three of my kids actually, you know, it was very helpful for them to get through school, I could save for them to go to school without any tax penalty. It’d build up over time, and I spent it on their schooling. But it was an advantage I had, and if you didn’t have that money, you couldn’t.

And then self-interested parents have every reason to fight against such policies to give their children more advantages. If you havent – if you don’t see this, there was a great “Law and Order” episode one night, and the cops go and theres this and – and what’s happened is the director of admissions at a preschool was murdered. So, they go and they, ah-ha, so and so’s daughter didn’t get in. So, they go, and they knock on the door. This really cute little five-year-old girl comes up and says: “Good afternoon, hello, how are you? “Oh, come on in, ” unbelievably nice. And her mother’s in there and she’s packing. So: “Why are you packing?” She says: “We have to move.” “Why are you moving?” “My daughter didn’t get into the right preschool. “We’re moving to Connecticut because she cant – we can’t live in this city because she didn’t get into the right preschool at age five, okay, I mean.

Now, here’s an example of where you run into conflicts, you’re trying to set policy. James Fishkin has a trilemma. These -if you would probably agree with all three of these things, but then try and find a policy that meets all three of them.

The first thing is the principle of merit. Society believes in procedural fairness in evaluating qualifications for school or jobs or other prizes; in other words, if you got better grades, if you do better in the interview, you should get the job. I mean, that’s why we do these things. Meritocracy is what we would call it.

Equality of life chances. Your chances or prospects for children shouldn’t vary systematically with any native characteristic. Parental advantage, S.E.S., race, ethnicity. Kids didn’t pick their parents; they should have a fair shot.

But then autonomy of the family. You should not coercively interfere with parents except to ensure prerequisites for adult life and to provide safety for children. That means, and probably right, it’s inefficient, impolitic, and certainly we’re unable to say, hey, you can’t do that for a kid. It’s not going to happen. So, the only thing we seem to be able to do is to try and give more opportunities to kids at the bottom. Give them a better shot at getting to the middle class, to try and do our best in schools and other policies to, you know, follow the- the top two. Because we’re not going to tell parents they can’t do what they want to do with their kids. I mean, can you imagine? Go talk to your neighbor, I don’t think you can do that, I don’t want you to. What do you mean you don’t want to, it’s my kid, I can do that.

Anyway.

So, here’s some things. First, most important, eliminate out of wedlock childbirth. If 70% of those births at the bottom are unintentional, we need to say if you didn’t intend to have, if you really don’t want to get pregnant, use this, an I.U.D. or its called a long-acting reversible contraceptive. They’re using it all over, not in Milwaukee, but all over the rest of the country, tremendous effects. If there’s one thing my wife and I, I’ve studied poverty my whole life, one thing I would say to prevent poor kids is to wait until you’re older to have kids. You may not be married but wait until you’re older. You’re more experienced, you’ve got your schooling done. You’ve got a job, maybe you got a partner, just wait. Because having a kid early on, the kid’s going to have a hard time and you’re going to have a hard time, okay? So, that’s important.

Also, early preschool has a causal effect. It partially closes the gap. You’re never going to totally close the gap. But it does, kids, low income kids, who go to a preschool, go to a good preschool, do do better in school and do end up better at the end of the day. Jim Heckman can tell you all about that.

Now, we’re finding out so much now – more now about the effect of the physical environment on kid outcomes and on birth outcomes, it is amazing. If you live on the wrong side of the tracks or there’s a much higher level of pollution, or you lived near a toxic waste dump, your kids systematically do worse. We find some maternal and child healthcare and the women’s, infants’ and children feeding are important. We have something that actually works called nurse home visiting. That means if you’re a first-time young mother who has no experience, a nurse comes to their home and says: “Hey, do you have any problems? How’s things going with the kid?” And if you’re really smart, the mom looks – er- nurse looks around and says: “Gee, you know, there’s this unruly guy screaming and yelling and drinking in the – in the – in the – in the living room. I mean, you know: what’s going on here? “Do you need any other help? “Can we get you some help,” and so forth. That thing turns out to work.

And then there’s something called Two-Generation healthcare. So, I’m on the American Pediatrics Association Task Force on Child Poverty. Those pediatricians say: “Higher minimum wage! “More preschool!” And I say, wait a minute, between birth and preschool, who’s the major social institution that these kids run into? You. Wouldn’t you like to know, when you’re examining that baby, whether the mother is clinically depressed? Would you like to know if the mother had some problems during her pregnancy with either substance abuse or with other physical issues and so forth? It turns out the most important thing from zero to two is the relationship between the mother and the kid. It’s just the way it is, so, we could do that. We have the ability to do that, we can bend HIPPA rules and do that, we should do more of that.

Money and time. They make a difference. There’s good evidence that this earned income tax credit, these things, small amounts of money improve the health status and outcomes for mothers and babies, and that’s the basis for something that the rest of the world calls child allowances. I spent last week at the White House and in Senator Baldwin’s office and a couple other offices talking about child allowance.

Here’s what you do. You get rid of the deduction – tax deduction we have for kids and the tax credit. Every kid in America under age 18, they all have social security numbers if they’re legal kids- legal. Every kid gets a deposit of 175 bucks a month in an account. The mother has that in the account, or the father, or the both of them if they file jointly, goes into an account, every month, every kid, everywhere. 40 million families, 79 million kids, everyone gets this every month. So, nobody lives on less than $2 a day. Everyone knows that there’s at least something coming in. If you get laid off, if the guy moves out, or whatever. And it doesn’t cost anything. The costs are equal at that level.

This is a no-brainer to me. I believe people would have much more confidence in government. Right now, your tax deduction for kids, you go put your parameter, you put your earnings and stuff into TurboTax and you push a button and out comes a number. You don’t know how it all worked out. But here, every month, 175 bucks for each kid shows up in your bank account. Social Security knows how to do this. They know how to police it. We have something called a representative payee program, which is when you have an aged parent who can’t handle their own financial affairs, and they name you their representative payee. They check, are you really doing what you’re supposed to be doing? You do the same thing with kids.

We should be doing this. It’s incredibly progressive and wouldn’t cost us anything. And so, it will be in the New York Times in about two weeks. We just finished the paper, but we’re shopping it around at various places, and hopefully this will catch hold. And it gives you a little bottle of money at the bottom. Now we’re going stay with this earned income tax credit, which pays you more if you work as an incentive to go to work, so that goes with it.

We need a higher than $7.65 minimum wage. No, we do not need a $15 minimum wage, 10 would be the most. But if you look around Madison right now, the economy here is, have you been- have you seen any place, any retail establishment that doesn’t have a sign on the window that says hiring all shifts, all hours, whatever? The de facto minimum wage right now because our economy is so hot is about 11 bucks an hour. That’s what people are paying because you need that to get kids. But that’s only in Madison, that’s not Milwaukee, it’s not a lot of other places and so forth. But making work pay better is important.

And then work schedules that are consistent with good parenting. Here’s an example of workplace flexibility. This is part of the problem. During the Great Recession, we had way more workers than we had jobs. So, you got your childcare for eight hours and you go in and you’re punching in at eight o’clock in the morning and the boss at Target or Walmart or wherever says: “No, don’t punch in. We don’t need you on the floor yet.” You wait, 10 o’clock you punch in. Two o’clock: Nope, there aren’t enough people, punch out, go home. That’s workplace flexibility. I thought Id go to work – I got eight hours of childcare, I thought I’d go to work for eight hours of pay and you let me work four. That happens, it’s happened a lot. And it needs – there needs to be some balance there. You can’t schedule – there’s laws on the books that need to be enforced that you have to, at least, give people a week’s notice before you change their schedule. You can’t say: “Oh, come on in tomorrow night for a double shift.” “Well, I got kids here and I got nobody to watch them.”

Educational system. Don’t ask, I have no idea, get somebody else. All I know, in 1983, Ted Bell said we’re a nation at risk. Were only – of each cohort, each group of kids, you know, by age, following them, are only graduating from high school, 75% of them. Well, now we’re all the way up to 77%. So, 23% don’t graduate. Milwaukee public schools, about 40% graduate on time, within six years being on time, okay? We really need to do more about this.

Finally, tertiary education policy.

[Checks his watch]

Oh, good, I’m getting right there.

We need efforts to get kids through school. And I’ll show you this in just a minute. It’s not getting them in the school, it’s getting them through school. You need incentives for kids to get there, get through, get done, okay? Even those with clear and technical training can even get good jobs in computing, and basic math, and science, and technology. You can get a good job today with those too. You can in this economy, okay?

But here’s their problem, right here. Okay, these are what we call age groups. So, I’m even older than the 55 to 64, but pretend that’s me, and just look at the yellow bars. Which country had the highest percentage of 55 to 64 who’ve graduated, whove – who’ve either got an associate degree, a bachelors degree, or an advanced degree? Who’s the highest, the yellow? U.S.A.! U.S..A! But then, we went flat. We’re flat. Every other country. Bing, bing, bing. Bing, bing, bing, bing. Bing, bing, bing. You can see the progress in every other country moving up. And we’re just not doing it. Their kids aren’t getting through.

These aren’t the kids we teach here. They’re smart, they’re bright, they get in, they work hard. They’ll get out in four or five years. But it’s in a lot of the other schools that are in our system and whatever, you can’t make money, you didn’t really get a good high school education, so you can’t handle this course and that course. I mean, this is a real problem, and this is where we are. We’re just not making a lot of progress.

Why should we care? This is kind of cool. This is an O.E.C.D. graph that shows that inequality shapes the opportunities. Higher inequality lowers the years of schooling for kids who have low – low educational ability. So, if you’re a high-income kid, it doesn’t matter how much inequality is in the society, you’re going to get through. If you’re a middle-income kid, the more inequality, there’s a small decrease in your chances of getting through. But if you’re in a high inequality country, much lower chance of getting through four-year education. Much lower chance.

Everyone got that picture?

Okay, this is our problem. I’m hoping some serious candidate will do something about it.

We’re not in good shape in this country, and we’re never going to eradicate S.E.S. differences. You’re not going to – youre not going to outperform two bright parents who’ve got one kid and do all the right things for that kid and, if they can’t do it, buy all the right things for that kid and have all the right connections and so forth, okay, but you can bring the bottom up to a better place, okay? And that – that – that we can do, okay?

And this is my biggest problem in the inequality boom. It’s not the current generation, it’s the next generation. It’s what kids are going to get. So, that’s where I am.

I love comments. Here’s some of the sources, they’re at the bottom. This is the ones – the ones in bold are the New York Times writing about these articles that I wrote, and they’re easier to, it’s much easier to, you get a bigger, a quicker picture from Tom. Tom Edsall did both of them, I think.

And I’m working with Harry Brighouse on a nice paper called “The Cost of a Well-Raised Child.” So, how much does it cost to pay for a kid who has a decent chance, a reasonable chance of – we have to define reasonable – of making the middle class? And it’s more than being not just poor. It has to do tremendously with how much healthcare and childcare, which are really expensive, are subsidized. And you can’t afford, if you’re making eight bucks an hour, you’re not going to afford $6 or $3 or $4 an hour on childcare, you can’t do it, it doesn’t work. You aren’t going to be able to do that.

So, that’s it.

Okay.

Done.

Talk.

Questions.

[applause]