The Great Income-Mobility Debate

OF the poorest one-fifth of Americans in 1979, 1 in 7 had moved into the richest fifth 10 years later.

Among the richest 20 percent in 1979, more than a one-third had fallen out of that group a decade later.

So says a study released by the United States Treasury early this month, showing substantial movement up and down the income ladder.

But another study out this month shows a different, more static, picture. According to the Urban Institute, a think-tank, only 1 in 25 of the poorest in 1977 joined the ranks of the richest by 1987 - moving from the bottom fifth to the top fifth.

The difference matters because it is part of a much larger argument about the growing distance between rich and poor in the 1980s and how much opportunity the American economy offers to have-nots.

On one side are conservatives who argue that the "supply-side" economics of the Reagan years brought prosperity to all Americans. On the other side are liberals who claim that "Reaganomics" benefitted only the rich, and that the US needs more social welfare programs to help the poor.

One point of consensus is that inequality between incomes grew during the late 1970s and 1980s. The rich grew richer. That the poor grew poorer is widely held and quite possibly true - but not at all certain.

The debate opens simply enough. Between 1979 and 1989, the average family income rose 7.2 percent, using the latest methods for canceling out inflation. But the average income in the bottom fifth dropped by 2.1 percent while the top fifth rose 13.9 percent.

So the rich grew richer, the poor slightly poorer, and the middle held about even.

But wait, say conservatives, defending the Reagan era against charges of unfairness: those groups did not contain the same people from year to year. When individual families are tracked through the years, the poor ones are not getting poorer at all. And some of those ever-richer rich are newcomers, wearing silk stockings for the first time.

The conservatives are "absolutely correct," says Isabel Sawhill, who is not one. She is a senior fellow at the Urban Institute who co-authored the recent report on income mobility.

In fact, when families in the poorest fifth in 1977 are followed through the decade, their incomes grew an average of 77 percent to the 1991 equivalent of $27,998. That whopping progress far surpasses the conservative 5 percent improvement for the families in the top fifth in 1977.

But wait, says Dr. Sawhill. Some of those poor in 1977 were farmers and business owners just having a bad year. Others were well-educated young people in entry-level jobs. In other words, much of that progress is not true social mobility, just routine progress through careers and business cycles.

And all this concerns the income of families, a shifting target. Families are shrinking. Since $32,978, the average family income in 1989, goes farther for a single adult than a family of four, household income can be a poor measure of standard of living. Yet measuring income per person is also misleading. A family of four does not cost four times as much to maintain as a single adult.

The Green Book, an annual volume of data on incomes and entitlement programs put out by the staff of the House Ways and Means Committee, tries to calculate in these and other concerns.

With all these adjustments, the Green Book still shows the poorest one-fifth dropping 2.1 percent in income between 1979 and 1989. The richest fifth gained 20.4 percent.

"The Green Book is wrong," says Gary Robbins, a conservative fiscal analyst and former Treasury official. Families have changed more than just growing smaller, he says. Their composition has changed: through divorce and out-of-wedlock births, more women are single parents.

"Divorces are one of the biggest causes of poverty around," he says, adding that is is often a temporary poverty as divorced women usually enter the work force and build up their earning power. He guesses that the divorce rate explains 20 percent of the greater gap between rich and poor.

The latest studies of income mobility each have their weaknesses. The Treasury study uses tax returns to track thousands of families through a decade, but it excluded any family which did not file a tax return for each of the ten years. That left out many of the poorest families from the study altogether, since they earn too little to pay taxes.

The Urban Institute used data that returned to many of the same people year after year. The data covers a better sample of the American public than tax returns do. But tax returns have a much more accurate accounting of income, says Dr. Robbins. In surveys, people regularly under- report their capital gains by as much as one-half the actual amounts and salaries by as much as one-third.

So the truth, he says, is probably somewhere in between the two studies. "Individual mobility in the United States falls somewhere between `a lot' and `a little,' " says Sawhill in her report.