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BLACK AND WHITE VI ECONOMIC MOBILITY OF FAMILIES. BY JULIA B. ISAACS, The Brookings Institution

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VI ECONOMIC MOBILITY OF BLACK AND WHITE FAMILIES BY JULIA B. ISAACS, The Brookings Institution The belief that one s child will be better off than oneself is a foundation of the American Dream. The dream
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VI ECONOMIC MOBILITY OF BLACK AND WHITE FAMILIES BY JULIA B. ISAACS, The Brookings Institution The belief that one s child will be better off than oneself is a foundation of the American Dream. The dream that one can rise up from humble beginnings and achieve a comfortable middle-class living, if not attain great wealth, transcends racial lines. But is this a reality for black and white families alike? This chapter explores the differences between white and black families with regard to economic success and income mobility. As with other chapters in this volume, it seeks to answer two main questions. The first, focusing on absolute mobility, asks about the economic progress of white and black families over recent generations. Do children of black and white Americans advance beyond their parents in terms of family income? The second question, focusing on relative mobility, asks about movement up and down the income ladder. Do black and white children starting on similar rungs on the ladder have an equal shot at rising in society? About the Study As described in the Chapter V Economic Mobility of Men and Women, economic mobility is increasingly a family enterprise. Accordingly the study focuses on family incomes. The analysis looks first at overall income trends, based on data from the U.S. Census Bureau s Current Population Survey (CPS). Then, a direct comparison is made between the incomes of individuals and their own parents, to measure changes across generations in both absolute income levels and relative economic standing. The analysis focuses solely on black and white families because of data constraints of the Panel Study of Income Dynamics (PSID), the longitudinal survey used for the intergenerational analysis. The PSID survey has repeatedly interviewed a sample of families and their descendents since 1968, allowing comparison of the children s income as adults with their family s income in childhood. 1 To reduce the effects of year-to-year fluctuations in income, total family incomes of the now-grown children are averaged across five recent years (1995, 1996, 1998, 2000 and 2002) and compared to the 5-year averages of their parents income in the period Further methodological discussion of the PSID data sample and how family income is defined is provided in Appendix A. REAL INCOME GROWTH OF WHITE AND BLACK INDIVIDUALS AND FAMILIES Over the past three decades, personal income has increased for both white and black women in their 30s, while falling for both white and black men of the same age. As illustrated in Figure 1, median personal income has increased more than fivefold for non-hispanic white women, after adjusting for inflation. In 1974, many white women in their 30s were stay-at-home mothers with little, if any, earnings, and median personal income was only $4, Thirty years later, median personal income was $22,000 for comparably aged white women. As in other chapters in this volume, this initial analysis of U.S. Census Bureau data focuses on personal incomes of adults in their 30s in 1974 and 2004 to facilitate comparison across a typical generation. 2 Income growth was not as large for black women ages 30 to 39 because they had much higher levels of employment and income (median of $12,000) in One generation later, median personal income for non-hispanic black women rose to $21,000, or about 95 percent the level of non-hispanic white women. FIGURE 1 Median Annual Personal Income FIGURE 2 Median Annual Family Income $50,000 $40,000 $30,000 $20,000 $10,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Incomes of black men have been fluctuating without improvement and were lower in 2004 than During this time period, , white and black men in their 30s experienced a decline in incomes, with the largest decline among black men. Non-Hispanic black men in their 30s today earn 12 percent less than men Median Personal Income of White and Black Men and Women Ages (2004 Dollars) NON-HISPANIC WHITE MEN $41,885 NON-HISPANIC BLACK MEN $29,095 NON-HISPANIC BLACK WOMEN $12,063 $4, Median Family Income of White and Black Adults, Ages (2004 Dollars) NON-HISPANIC WHITES $50,262 NON-HISPANIC BLACKS $31,833 NON-HISPANIC WHITE WOMEN $40,081 $25,600 $21,000 $60,000 $35, $22,030 Note: All men and women ages 30-39, including those with no personal income, are included in these estimates. Source: Brookings tabulations of data from the Annual Social and Economic Supplement to the CPS, Source: Brookings tabulations of data from the Annual Social and Economic Supplement to the CPS, in their father s generation earned. Median personal income for non- Hispanic black men for this age cohort is only 64 percent of median income for non-hispanic white men of the same age. Much of the difference between white and black men is tied to differences in wages of full-time workers. Among full-time workers age 16 and older, median weekly earnings of black men were 78 percent of white men s earnings in The black-white gap in male earnings has declined historically, with a large decline from the 1960s to the mid 1970s, but there has been much less improvement over the past three decades. 5 Blacks also have lower income than whites due to lower employment rates. The percentage of men 16 and over who were employed in 2004 was 70.4 for white men and 59.3 percent for black men. 6 Family incomes have risen for both racial groups primarily because the increase in women s incomes has outpaced the decline in men s incomes. Family income, the primary focus of this study, often involves a combination of male and female personal incomes. For those who are married, family income is based on the cash income of both spouses as well as any other family members. For single individuals (who are treated as one-person families), family income is simply the individual s personal income. 3 There was no progress in reducing the gap in incomes between black and white families. Consistent with the trends in individual incomes, the increase in family incomes was larger for whites in their 30s (19 percent) than for blacks (10 percent). In 2004, the family income of blacks ages 30 to 39 was only 58 percent that of comparably aged whites ($35,000 compared to $60,000), as shown in Figure 2. 7 Blacks have lower incomes than whites across all age cohorts, not just the cohort aged 30 to 39. Income differences are particularly pronounced at the bottom of the income distribution. In 2006, close to one fourth (24.3 percent) of black individuals had family incomes below the federal poverty thresholds, a poverty rate that is nearly three times the 8.3 percent rate for non-hispanic whites. However, these rates do represent some progress since 1967, when black poverty rates were 39.3 percent and white poverty rates were 11.0 percent. 8 The lack of income growth for black men combined with low marriage rates in the black population has had a negative impact on trends in family incomes of blacks in the United States. While much of the racial disparity in family income and poverty rates is a result of lower earnings and incomes of blacks, particularly black men, large differences in family structure also contribute to differences in family economic well-being. As shown in Figure 3, blacks are less likely than whites to be in married-couple families, and both races have seen a decline in marriage across the generations. Low marriage rates undoubtedly contribute to low family incomes; high percentages of blacks in their 30s are single parents with children or single men and women, and so are largely reliant on income from only one adult in the family. 9 At the same time, many researchers believe that the low personal income of black men plays a role in explaining low marriage rates. 10 Many of the racial patterns in family income and composition evident in the U.S. Census Bureau s annual surveys are also found in the longitudinal data in the Panel Study on Income Dynamics (PSID), the sample used in the intergenerational analyses that follow. Although the age cohort is broader in the PSID and there are other differences between the data sets, the broad trends in family income are similar, as shown in Table Trends in family composition are also similar. 12 Black children grow up in families with much lower incomes than white children. FIGURE 3 Percent of Families 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Family Composition of White and Black Adults Ages % 5% 4% 7% 82% 1969 Whites 5% 8% 19% 10% 58% 1969 Blacks 1998 Whites 1998 Blacks Single women Single men Source: Brookings tabulations of data from the Annual Social and Economic Supplement to the CPS, 1970 and % 15% 9% 12% 55% 10% 19% 29% 10% 32% Single parents with children Married couples without children Married couples with children Median family income for parents of black children was $27,100 in , compared to $61,100 for parents of white children, in inflationadjusted dollars. The lower economic status into which black children are born is also evident in the fact that nearly two-thirds (62 percent) of black children were born to parents in the bottom fifth, or, of the overall income distribution. Only 8 percent of black children were born to parents in the middle fifth of the income distribution, compared to 22 percent 4 of white children. Note that there were too few black parents in the top to generate income or mobility statistics for this group of children. 13 As documented in Chapter I Economic Mobility of Families Across Generations, parental income has a strong influence on childhood economic success. Given the lower economic circumstances of black children, it does not seem likely that black and white children have equal chances of economic success. Indeed, median family income for the second generation was much lower for blacks than whites, $41,900 for blacks and $78,800 for whites. dollars (absolute mobility) and how families move up and down the income ladder relative to others in the population (relative mobility). ABSOLUTE MOBILITY: BLACKS ARE LESS LIKELY THAN WHITES TO ADVANCE BEYOND PARENTS AT EACH INCOME LEVEL As reported earlier in this volume, two out of three Americans who were children in 1968 grow up to have higher incomes than their parents, after adjusting for inflation. But is this equally true for both black and white children? When the data are not controlled for income, blacks and whites have similar chances of having adult incomes higher than their parents. About two-thirds of blacks and whites have higher family incomes, as shown in Figure 4 (the difference between the two racial groups is not statistically significant). This outcome, however, is driven by the disproportionate number of blacks in the lowest, where the probability of surpassing low parental income is high for both whites and blacks (90 percent for whites and 73 percent for blacks). But the further question here is whether blacks and whites with parents of similar income levels have equal experiences of mobility. The study explores both how overall trends in economic growth translate into upward movement in absolute Using the data in the PSID sample, direct comparisons can be made between the family incomes of individuals and their own parents, providing a new measure of mobility that goes beyond the simple comparisons across generations. When the data are controlled for parental income, at each income level, black adult children are less likely than their white counterparts to have higher income than their parents. TABLE 1 Parents Income of White and Black Children in PSID Sample White Children Black Children Median Family Income of Parents, (In 2006 Dollars) $61,100 $27,100 $55,600 Percentage of Children Living in Each Income, based on Parental Income * Interpret data with caution due to small sample size. ** Too few observations to report estimate. Source: Brookings tabulations of PSID data on family income All Children Parents in top fifth: ($81,200 or more) 23 % ** % 20% Parents in fourth fifth: ($65,100--$81,200) 23 7* 20 Parents in middle fifth: ($48,800-$65,100) Parents in second fifth: ($33,800-$48,800) Parents in bottom fifth: (0 to $33,800) All Children The difference is particularly pronounced for the middle-income group. After adjusting for inflation, the analysis found that two out of three white children from the middle grow up to have higher real family incomes than their parents. In stark contrast, only one out of three black children from the same income group surpass their parents in absolute income levels. In other words, a majority of black children born to parents in the middle grow up to have less family income than their parents in inflation- 5 adjusted dollars. Outcomes are better for black children from other income groups, but still substantially below outcomes for white children. 14 The comparison of children s income to their own parents income is extended in Figure 5, which reports the median family income of adult children for each racial and parental income group. Children from middle- and upper-middle-class black families experience a generational drop in income that is in sharp contrast to the traditional American expectation that each generation will do better than the one that came before it. With the exception of children born to parents in the top, white children end up having higher incomes than their parents. Only two groups of black children those in the two lowest income groups also experience income growth above their parents, though not as large as do white children born to parents in the same s. Black children in the third and fourth s end up with lower median income than their parents by 7 percent and 16 percent, respectively. 15 FIGURE 4 ALL CHILDREN PARENTS IN TOP QUINTILE PARENTS IN 4TH QUINTILE PARENTS IN MIDDLE QUINTILE PARENTS IN 2ND QUINTILE PARENTS IN BOTTOM QUINTILE ** RELATIVE MOBILITY: BLACKS EXPERIENCE LESS UPWARD MOBILITY AND MORE DOWNWARD MOBILITY THAN WHITES For every parental income group, white children are more likely Percent of Children with Family Income above their Parents Family Income, by Race 31% 44% 49%* 52% 67% 63% 67% whites blacks 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Children with Higher Income than their Parents (Inflation-adjusted) * Interpret data with caution due to small sample size. ** Too few observations to report estimate. Source: Brookings tabulations of PSID data. 68% 73% 78% 90% FIGURE 5 Children s Income, by Race, Compared to Parental Income and Generational Average (2006 Dollars) Median Family Income per $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $27,700 $55,900 $35,600 $41,900 $20,000 $67,800 $42,100 $40,500 $55,800 $73,700 $53,700 $44,900 $72,700 $92,000 $72,200* $66,900* $100,100 $97,900 ** Median Family Income: White Parents $61,100 White Children $78,800 Black Parents $27,100 Black Children $41,900 White parents White children Black parents Black children $0 Bottom Second Middle Fourth Top Parents Family Income * Interpret data with caution due to small sample size. ** Too few observations to report. Source: Brookings tabulations of PSID data. 6 than black children to move ahead of their parents economic rank, while black children are more likely than white children to fall behind. The intergenerational analysis tracks the extent to which children move to different income s from those occupied by their parents. 16 The analysis reveals that black children and white children do not have equal chances of moving up the income ladder, even after controlling for initial placement. This racial difference can be seen by examining movements of children in the middle-income group, depicted in the central bars of Figure 6. More than one-third (37 percent) of white children born to parents in the middleincome group move upward to the fourth or fifth, compared to only 17 percent of black children whose parents have approximately the same levels of income. Achieving middle-income status with parental incomes of about $49,000 to $65,000 in 2006 dollars does not appear to protect black children from future economic adversity the same way it protects white children. A startling 45 percent of black children whose parents were solidly middle income end up falling to the bottom income, while only 16 percent of white children born to parents in the middle make this descent. Similar trends are found in other income groups as well. In another disturbing example, 48 percent of black children and 20 percent of white children descend from the second-to-bottom income group to the bottom income group. In addition, black children who start at the bottom are more likely to remain there than white children (54 percent compared to 31 percent). In general, white children in the sample are roughly twice as likely as black children to rise to the top after controlling for parental income levels. Black children are much more likely to fall to the bottom. NEW MOBILITY TYPOLOGY REINFORCES FINDINGS As a final step in the analysis, the absolute and relative mobility measures presented in this chapter were integrated in a combined analysis that shows the chances that white and black children move beyond their parents in both absolute income levels and relative economic standing. 17 As shown in detail in Appendix D, this integrated mobility analysis reinforces the findings already reported on absolute mobility. When the data are not controlled for income, there is not much difference in the mobility experiences of black and white Americans. However, Percent Reaching Income FIGURE 6 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 8% 12% 25% 24% 31% Chances of Getting Ahead or Falling Behind in Income Ranking, by Parental Income and Race 4% 9% 13% 22% 54% Bottom 11% 20% 27% 22% 20% 6% 9% 12% 26% 48% 20% 17% 23% 24% 16% 8% 9% 14% 24% 45% Second Middle Parents Income 26% 33% 19% 14% 8% 11% 22% 21% 40% 6% Fourth* 38% 23% 15% 15% 9% ** Top White children: in the top in the fourth in the middle in the second in the bottom Black children: in the top in the fourth in the middle in the second in the bottom Notes: * Interpret data with caution due to small sample size. ** Too few observations to report. Source: Brookings tabulations of PSID data. 7 within income groups, there are large differences, with white children more upwardly mobile than black children. This apparent contradiction is explained by the fact that outcomes for blacks are strongly influenced by the large number of black children in the bottom fifth of the income distribution and low-income children of both races have good odds of surpassing their own parents income. FINDINGS ARE CONSISTENT WITH AVAILABLE LITERATURE BUT UNANSWERED QUESTIONS REMAIN Many readers will want to know more about the robustness of these findings, as well as the underlying factors contributing to the sharp differences in both absolute and relative mobility experiences of white and black families. Are the findings reported for this sample true of black families more generally? And would the differences remain if the analysis controlled not just for income, but also for educational and occupational status, family wealth, family structure, health status, neighborhood, parental attitudes and behaviors, and other variables? While the literature on intergenerational mobility by race is limited, similar black-white differences are emerging in other studies (see Appendix E). A few studies also suggest that the racial gap is reduced but not eliminated when additional factors are included in the analysis. It is important to note that the literature is uniformly hindered by the small number of minority households in the longitudinal surveys. In addition, the PSID, which is the data source for this study and much of the research on intergenerational mobility, has been criticized for having insufficient documentation of the procedures used to sample low-income minority households. 18 Analysis of additional data sets (including administrative
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