Lack of Income Mobility Hurts Us All


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When looking at the New York Times’ David Leonhardt’s fascinating research on how your location determines your income mobility, there are some obvious conclusions.

We all know that there are certain areas where poverty is rampant and multi-generational.  Those are areas where we would expect income mobility to be low.

What is striking is that even the earning potential of the affluent is affected by location.  In areas designated below average in income mobility, future income is also diminished for high income households.

Some will take this data and simply conclude that families must leave low income mobility areas in favor of high income mobility areas.  Certainly, we have seen instances where that has already taken place.

However, what if low income mobility areas greatly outnumber high income mobility areas?  There are certain regions of the U.S. where some combination of family traditions, marketable skill sets, and quality of life concerns limit where you are willing to move.  A look at the U.S. map shows there are very few states that are effectively avoiding this problem.

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Areas in blue and green indicate good income mobility, while red and orange areas suggest improvement is necessary.  Though it appears that the Great Plains region is excelling, the South and Southwest regions are not.

Therefore, what can be done to boost income mobility, so that overall living standards improve?

First, let us look at five common themes that drive good income mobility:

  1. Less segregation by income and race
  2. Lower levels of income inequality
  3. Better schools
  4. Lower rates of violent crime
  5. Larger share of two-parent households

Perceived cultural differences drive residential segregation patterns.  When there is the presence of unruly children and lack parental involvement in the schools of some communities, upwardly mobile parents are reluctant to place their children in those schools.

This mindset has implications that drive all five of the above factors.  White flight emerges and drives them away from blacks because there is a perception that black families have discipline issues and devalue education.  High income families isolate themselves from low income families for similar reasons.

Regions where there are one or two good schools surrounded by a number of under-performing schools can stigmatize a region and reduce overall investment and job creation.  Those economic factors often drive up violent crime and result in more unfavorable family compositions.

In order to address this problem, we must realize that solutions must come locally, rather than nationally.  In an era of high federal deficits and strained state budgets, it will be difficult to solve these socioeconomic problems with an influx of public funding.

Instead, it will take strong and inclusive civic leadership where serious dialogue takes place on race and social class.  Identifying influential leaders covering a broad spectrum of the community, including industry, education, non-profit organizations, and religious institutions, will be essential.  Establishing parameters that allow for free-flowing dialogue will be challenging, but necessary to overcome the wall of fear and mistrust.

Communities committed to active engagement and willingness to seek common ground on difficult issues will thrive.  On the other hand, communities accepting the status quo will continue to wilt.

Are you willing to start the dialogue and push your community forward?

Are We Seeing Weakness In U.S. Jobs Market?


March job numbers were disappointing.  Even though the unemployment rate was unchanged and this marked 61 months of positive job growth, job gains of 126,000 was the lowest since December 2013.  Though one should not overreact to data over a month’s period, we are seeing evidence of a disturbing trend.  Here’s the quarterly job rates over the last four quarters:

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Certainly, the last quarter of 2014 performance was strong, but the first quarter saw a decline of 39 percent and this was despite low gas prices that you would think boost consumer spending.  However, that has not occurred.  It is possible that a stronger U.S. dollar and Middle East turmoil might be finally filtering to U.S. employment figures.  A stronger dollar makes U.S. goods relatively more expensive than foreign goods, so that would lead to lower sales and dampened expectations for job growth.  Then factor in troubled spots throughout the global economy and that also diminishes outlook for U.S. exporters, who have gained greater influence over the overall economy.

So is this temporary or a precursor to further decline?

Most industries witnessed little growth, though there were some modest exceptions.  Retail trade employment rose at a similar rate to last year.  There are also steady gains in the health care industry.  Even though there were job gains in professional and business services, its rate of increase was less than last year.  However, there was not much growth in any other sectors.

Despite these concerns, there are some positive trends to note.  One, the unemployment rate is falling and the labor force participation rate is starting to stabilize a bit.  There has been little change in the labor force for over a year.  We can see this from the Atlanta Fed graph below.

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Another encouraging sign is that long-term unemployment continues to fall over the last year.  Over the last year, the percentage of long-term unemployment has fallen from 35.3 percent to 29.7 percent.  Due to this improvement, a broader gauge of unemployment (U-6) has fallen from 12.6 percent to 10.9 percent since March 2014.

On the other hand, there are troubling signs that appear to be on the horizon.

  1. Manufacturing activity is falling.
  2. Retail sales, excluding food, have fallen over the last couple of months.

With falling gas prices, one would think that it would loosen the pocketbook of consumers, but that has not come to fruition yet.  Retail sales have fallen below expectations over the last few months, which suggests that they are not pocketing this new-found wealth back into the economy.  A recent slowdown in manufacturing activity may mean that firms are not expecting robust growth this year.  That is consistent with a survey of CEOs, who are predicting modest growth that will fall below the 3 percent threshold that would point to good growth.

In summary, it appears that the downside risk outweigh the upside risk, so do not be surprised if turbulence returns to the labor market.