The main source of income inequality: luck

Charles Kenny has a very smart article today in Bloomberg Business Week (of all places) talking about one of the main drivers of income inequality worldwide: sheer, pure, dumb luck.

First step in this "being lucky" ladder, of course, is who your parents are:

Silver spoon, anyone?
Silver spoon, anyone?

Take the importance of family. In the U.S., about 50 percent of variation of wealth and about 35 percent to 43 percent of variation in income of children can be explained by the relative wealth and income (PDF) of their parents, suggest economists Samuel Bowles and Herbert Gintis. One reason for this tight relationship is that parents who were educated are far more likely to educate their own kids (...).

Evan Soltas examined the General Social Survey data and concluded that if your father didn’t graduate high school, you are eight times more likely not to graduate high school yourself—a 22.2 percent chance, as compared to a 2.9 percent chance among kids whose fathers did graduate.

It doesn't stop there, however. One of the main sources of inequality is that some people happen to know the right people, and some don't:

The advantages of a privileged background don’t stop at graduation. Tufts economist Linda Loury suggests that half of all jobs in the U.S. are found through family, friends, or acquaintances. Canadian economists Miles Corak and Patrizio Piraino look at how often men end up working at the same company where their father worked, finding that as many as 40 percent have done that at some point. The proportion rises to 70 percent among the top 1 percent in income distribution.

Equal opportunity is a very nice concept in theory, but in order to get there it requires intensive, focused public investments. As we mentioned last week, the US and Connecticut has been doing a terrible job supporting these policies. The White House is very aware that policies like early care and education should be the cornerstone of any agenda in this regard, but Congress (or to be more precise, the Republican House) does not seem to be paying much attention.

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