Is Opportunity Declining? Becker

The United States has traditionally prided itself on being a country that provides “equality of opportunity”. By that is usually meant that individuals with ability and ambition who are born into families with modest means and education have a good chance of succeeding when they become adults. The experiences of different generations of immigrants coming from many countries have supported this view, for their children and grandchildren often succeeded very well as they blended into the mainstream of American life.

That rosy view of opportunities in the US is being challenged by a growing belief that opportunities are declining for children from modest backgrounds.  This belief is partly based on the strong evidence that human capital, including education, IQ and other measures of “ability”, have become much more important in determining economic success than was the case in the past. This new economic environment favors educated parents because they have both greater schooling and also higher average cognitive and non-cognitive skills.

Better-educated and higher income parents have always spent more on their children’s education and training, including quality of schools and after school activities. However, this gap in spending between families has grown in recent decades as the relation between so-called “enrichment” expenditures on children and family income has become much steeper. In addition, better off families complement their spending of money on their children by also spending more time with children through teaching them, helping with homework, and in other ways.

Countering this growing advantage of children from better off families is that different levels of government are doing more than in the past to improve education opportunities from children from poorer backgrounds. The many policies that work in this direction include subsidized pre kindergarten activities, head start programs, and greater attention to the public schools attended by poorer children.

Despite various claims about declining opportunities in the US, and the indirect evidence that supports this conclusion, there is little direct supporting evidence. Many commentators have confused the strong evidence that inequality in the distribution of earnings and other incomes has increased greatly since 1980 with declining opportunity for children from poorer families. This is a jump in logic since greater inequality of income is consistent with stable or even growing opportunities for these children.

To be sure, in comparisons among countries, greater inequality of incomes in fact does tend to go along with fewer opportunities for poorer children to rise up in the income scale. However, this finding does not imply that countries that have growing inequality in the distribution of incomes also have falling opportunities.

The direct evidence on what is happening over time to opportunities provides a mixed picture. On the one hand is the evidence on the IGE, which measures the average effect on children’s earnings of higher parental earnings. For example, an IGE of 0.5 means that when parents earnings are say 10% above average, their children’s earnings tend to be 5% above average. Most of the evidence suggests that the IGE in the United States changed little as inequality grew during the past 30 years. This direct evidence is limited in part because different studies provide a range for the IGE in the US from about 0.3 to about 0.7.

The other hand comes from work on what has happened over time between the performances on achievement tests of children from families at the lower and upper ends of the income distribution. In particular, a study in progress by a graduate student at the University of Chicago, Eric Nielsen, compares the performances of children in the late 1970s and 1990s that have parents in the top and bottom 20 percentiles of the income distribution. To make the comparisons he uses scores on the Armed Forces Qualifying Test (AFQT), a widely used measure of achievement. Using (“ordinal”) methods of comparison that he developed, Nielsen finds a considerable narrowing over this time period between the performances on this test of children from the high and low ends of the income distribution.

It is somewhat puzzling that the performance gap on achievement tests has apparently narrowed while the gap between high and low income families in their spending of time and money on their children’s human capital has apparently widened. One important piece of missing evidence is on possible changes over time in the link between the AFQT performance and adult earnings.

In summary, it is far from clear whether opportunities of children from poorer families have been declining in the US. Still, since abundant opportunity for these children is an important goal of an efficient and attractive society, more effort might be needed to improve their opportunities through better schools, better teachers, and perhaps in other ways as well.

Comments

[Gertrud Fremling]

Becker writes: It is somewhat puzzling that the performance gap on achievement tests has apparently narrowed while the gap between high and low income families in their spending of time and money on their children’s human capital has apparently widened.

Possible explanation: The internet improves education much more dramatically at the low-end of the cost spectrum. Take a concrete example: http://www.ixl.com/ It costs no more than 10 dollars per month and is interactive despite no teacher - just get an answer wrong and up comes the answer explained in detailed.

[Sivosh2000.blogspot.com]

'Playboy Magazine Index'

I would like to add to the 'various claims about declining opportunities in the US, and the indirect evidence that supports this conclusion'.

It's all about creating 3 things: jobs, jobs, jobs.
The opportunities for 'individuals with ability and ambition who are born into families with modest means and education' are highly correlated to the well being of the manufacturing sectors.
What happened to the US trade deficit, manufacturing sectors and unemployment rates could be easily understood from what I call:
"Playboy-Ads Index" (with some analogy to "Big Mac Index").

I kept a few issues of my Playboy Magazine as a teenager, dated back to the Sixties (pls. believe me this is no attempt to advertise). Certainly there are beautiful girls (with natural look of all kinds, colors and shapes) advertising plenty of 'Made in USA' products, ranging from Stereo and TV appliances, White-Line and Office appliances, Shoes & Garments to Motor Cars.
The only Non-American products were Japanese cameras, and later on scooters.
50 years later, the only 'made in USA products' advertised in the Playboy magazine are Bourbons and silicon (transplants, indirectly advertised)…
The figures and numbers are completely coherent with my qualitative "analysis".
What led to that situation was a mix of naïve arrogant and reckless conduct of US Economy Captains, which could equal only to its Airlines, Airports & Security Authorities' misconduct before 9\11…

The Obama's administration attitude towards Chrysler, for example, best demonstrates the total misunderstanding of the problem domain. It equals to a Captain of a clipper trying to get rid of a major mast, struggling to get rid of 'excessive weight'…

The immediate steps that could be in place begin with the comprehension that Trade Deficit is no less dangerous than Budget Deficit, and the urgency to manage it by authorities together with major trade-partners (perhaps for negotiated and agreed tariff-exchange rates measures) .

Prof. Paul Krugman is suggesting on the New York Times newspaper to hold China to account (on October 3rd 2011 ).
This advice didn't help that much.
I say, that rather than holding China to Account, it's about time that Americans start holding US Policy Makers to Account.

Itzik Sivosh
M.Sc., MBA

[Lex]

Enjoy your time off

[keith]

Becker,
You insightfully state that the time parents spend with their children is important then use as your guide a study/test that precludes accurate measure of such. Jim Valvano wisely stated "My Father gave me the greatest gift anyone could give another person, he believed in me." Measure that and do your study. I believe the correlates will be greater.

[Itzik Sivosh]

Thanks, Lex, btw a bit of humor could never hurt…
Now, what about the arguments?

[C.Kang]

The evidence provided doesn't satisfy all the implications of this notion. In fact, the evidence should be more clearly qualified because we are not provided with enough information about the IGE study to make a conclusive decision of whether or not the evidence is direct. What kind of sampling does this study derive it's information from? Do we know the varying demographics of the study participants? Is it cumulative of the whole United States in every state and city? Does the percentage account for inflation? 0.3 - 0.7 is a pretty big range.

Also, for the AFQT, there were studies done for children in the 1970s and 1990s. That is not a progressive study and in fact doesn't account for what is happening with what's going on in the 2010s. That would not be considered "direct" evidence. Also, the AFQT doesn't measure opportunities. It measures assessment. Firstly, there was two decades of information, improved methods of teaching and education, influx of study material, and the beginning of the internet that could've provided more people with the ability to do better on the test. Secondly, the fact that someone is smart enough does not always equate with the right opportunities. That's one of the problems of the labor force today.

However, even if the studies were absolutely qualified, it would still not change the fact that there are other contributive factors that could determine the connection between a wider income inequality with the decline of opportunities for poorer children by studying the effects of the inequality of income not just the measurement of income.

The gap in inequality does not stop at just income but it ends up affecting a spectrum of different issues - racial, social, psychological, etc. For example, people's perspectives tend to shift about what their opportunities are like based on the kind of socioeconomic background they grow up in. This shouldn't be an excuse as to whether or not they should be complacent but I am suggesting that it is what happens. I grew up in inner city schools where more than eighty percent of my fellow classmates were put on a government subsidized meal program. There were brilliant kids at my school, some of the most poetic, intelligent, and gifted students that refused to apply themselves or even apply to college because they didn't believe in a future for themselves.

I understand that little personal anecdote does not contradict the premise seeing that it's not the lack of opportunities but the unwillingness to grab it, therefore, it is does not seem applicable. However, I want to argue that it is because perspective is everything and your economic situation definitely affects your perspective.

When you walk around your school and see broken bathroom stall doors for four years or carry around a tattered World History book that still states that was are in the Soviet Union while the schools in the better neighborhoods have pristine bright baby blue bathroom stalls and shiny new textbooks, the inequality kind of seeps into your psyche. You would expect that those with enough tenacity would fight through the odds and become successful but those stories are beautiful for a reason, they are rare. If those opportunities don't seem available, it will never materialize. Teachers and communities start believing that it doesn't exist either and the little that was there, will disappear.

In this day and age of intense competition, not just from our fellow American peers, but from the global market, the deficit of employment and a rocky economy, there is a lack of opportunity for everyone. When it seems hopeless even for those who have successfully completed all the steps necessary for a bright future, who have a hard time securing a decent job, how much more for those who didn't hope before?

That's just looking at one issue.

[B Wilds]

Society must find a better way to divide labor and give more people a path to finding real and fulfilling work. The cost of inequality is taking a toll on our culture. Robots and new technology have streamlined production increased productivity and eliminated many jobs. Big business is good for big business but not necessarily for the masses. Consolidation often means a gain in efficiency, but this often comes at the cost of losing diversity and a "robustness" to both society and the economy.

The benefits of efficiency sometimes have a huge hidden cost, in the 1993 movie Demolition Man, "everything is Taco Bell". How the fruits of labor are divided is important, this includes not just the wage deserved by a common laborer, but how much CEO's, those in management, and those that can't, or choose not to work, receive. While we have become far more efficient in producing goods, all people should in their lifetime contribute to the good of society and the economic pie. In the following post I go deeper into this issue.

http://brucewilds.blogspot.com/2013/04/society-must-better-divide-labor.html

In principle, for any nation seeking fairness and equal opportunity for its people to grow and prosper, inequality is indeed an issue. Wage stagnation in part contributed to the financial crisis. The Bush-era answer to stagnating wages was cheaper credit that papered over the problem for a while and set America up for a terrible crash. Avoiding a repeat requires fixing the structural drivers of widening inequality. This means raising wages at the low end of the scale but a legislated rise in the minimum wage is not the answer. The only way a hike in the minimum wage “works” is if it creates incentives to increase labor productivity.