Perception versus reality: What Americans think about economic mobility

 
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July 15, 2019

Individual perception — for example, how people feel they are doing financially compared with others — often doesn’t jibe with reality.

Economic mobility is one area where beliefs solidify absent information. Research shows that Americans are chronically under-informed about the size of the economic inequality gap in the U.S. That leads people to think they are more economically mobile than they really might be. And misperception can impact policy.

“If we believe there is less inequality than there is, then how we allocate resources is determined by that,” says Shai Davidai, an assistant professor at Columbia Business School and a psychologist who studies economic inequality. “We say, ‘Why should we put a lot of money into promoting underprivileged groups?’”

Research on perceptions of economic mobility show a clear narrative: we still believe that through hard work we can improve our economic station, but we have a hard time understanding that the massive economic gap between the wealthiest and the poorest makes that American Dream truly just a dream for many.

Here are five recent studies that explore what we think when we think about economic mobility:

Intergenerational Mobility and Preferences for Redistribution
Alesina, Alberto; Stantcheva, Stefanie; Teso, Edoardo. American Economic Review, February 2018.

When it comes to moving up the economic ladder, American optimism runs high in the face of reality.

“We show that, paradoxically, optimism is particularly high in U.S. states where actual mobility is particularly low,” Alesina, Stantcheva and Teso write.

The authors describe economic status in quintiles — as they put it, imagine 500 families divided into fifths. There’s the richest 100 families, the second-richest 100, the middle 100, the second-poorest 100 and the poorest 100 families.

They analyze survey data for France, Italy, Sweden, the United Kingdom and the U.S. to examine perceptions of mobility compared to actual intergenerational mobility — whether children move to a higher quintile than their parents. They also look at the link between perceived mobility and policies aimed at redistributing wealth. Here are the survey sample sizes for each geographic region:

  • United States: 4,705 adult participants
  • United Kingdom and France, each: 2,148
  • Italy: 2,143
  • Sweden: 1,494

The surveys included roughly equal numbers of women and men across age and income groups. The authors asked about participants’ socioeconomic backgrounds and how they have moved along the economic ladder compared with their parents. They also asked whether participants think their country’s economic system is fair or unfair, and if they think people in the bottom wealth quintiles are likely to move up. Finally, they asked how involved the government should be in redistributing wealth.

Participants on the political left were more pessimistic than those on the right about economic mobility, while women, parents, lower-income respondents, and those without a college education were more likely to be optimistic. African Americans were also were more likely to be optimistic.

The authors explain the optimism expressed by African Americans, who comprise a “small share” of the total sample, may be due to something called system justification, “an idea supported by a large body of evidence from the social psychology literature.” The system justification explanation goes like this: “particularly bad social and economic situations tend to be self-justified by respondents to avoid cognitive dissonance and to lend some legitimacy to the suffering caused,” the authors write.

People tend to take too much credit for their own success and blame failure on outside forces, according to psychology literature the authors cite. Along those lines, the authors find that college-educated people tend to “believe more in the role of effort for improving the chances of moving out of the bottom quintile.”

U.S. respondents favor less government intervention to spread the wealth than do Europeans in the study. About 32% of respondents from the U.S. think it’s better to lower taxes on wealthy people and corporations to spur economic growth than to raise taxes on the wealthy to expand anti-poverty programs. The percentage was higher in France and Italy, the authors report. They suggest this finding may be because the U.S. already has low tax rates for corporations and high-wealth people, lower than France and Italy.

Overall, Europeans take a dimmer view of their economic prospects than Americans.

“Europeans are not only more pessimistic than Americans, but they are also too pessimistic relative to the true degree of mobility and have particularly gloomy views about the probability of a child born poor remaining stuck in the bottom quintile,” the authors write.

Why Do Americans Believe in Economic Mobility? Economic Inequality, External Attributions of Wealth and Poverty, and the Belief in Economic Mobility
Davidai, Shai. Journal of Experimental Social Psychology, November 2018.

Across five studies with more than 3,000 participants, Davidai explores why Americans believe that through hard work and determination they can move up the economic ladder even though, as he writes, “economic inequality in the United States has been consistently rising” since the 1970s.

“Americans, I argue, believe in economic mobility because they underestimate inequality but, at the same time, believe that inequality and mobility are negatively linked,” Davidai writes.

To test that hypothesis, Davidai recruited U.S. adults with a range of incomes from Amazon’s Mechanical Turk. Survey-takers believed that as economic inequality in the U.S. rises, economic mobility gets tougher. The catch is that respondents often didn’t know how big the inequality gap really is. When inequality is high, people blame things outside of their control, like random luck and politics, Davidai found. When inequality is lower, people tend to take credit for their success.

While participants were generally aware of inequality, this research finds they overestimate opportunities for economic mobility because they underestimate the true extent of economic inequality. Education about inequality can help realign expectations with reality, Davidai suggests. But knowledge — people understanding the true size of the  inequality gap — could also have consequences.

“There is another important question: is it bad that people have misperceptions?” Davidai says. “There is something about misperceiving economic mobility that may benefit people. There is some research suggesting if you believe in mobility and work harder in school you can achieve better outcomes. On the one hand, that’s the benefit. But the drawback would be if you believe in mobility and work hard and don’t succeed, what would be the repercussions? It’s a double-edged sword.”

(Mis)perceptions of Inequality
Hauser, Oliver; Norton, Michael. Current Opinion in Psychology, December 2017.

In this literature review, the authors lay out the current academic understanding of how people perceive economic inequality. Bottom line: people have a hard time estimating inequality gaps, and that’s not only true of Americans.

“The misperception of how wealth in the United States is distributed is not only prevalent among adults, but it is even more pronounced among adolescents,” Hauser and Norton write. “Likewise, despite the fact that Australia has a more equal distribution of wealth than the United States, respondents in Australia also underestimate current levels of wealth inequality in their country, suggesting that misperceptions of wealth inequality also exist outside the United States.”

When Americans learn the true extent of inequality in the U.S. they don’t much change their views on policies that would redistribute income from the rich to the poor, except when it comes to the estate tax, according to the authors, citing a 2015 study in the American Economic Review. When respondents learned how few people pay the estate tax, support for it doubled.

Inequality that is visceral and in your face — think of a town with a rich neighborhood close to a poor neighborhood, or walking through first class on your way to coach — can shape people’s overall perceptions of equality, the authors explain. The next paper deals with this exact phenomenon.

Who Sees an Hourglass? Assessing Citizens’ Perception of Local Economic Inequality
Newman, Benjamin; Shah, Sono; Lauterbach, Erinn. Research & Politics, August 2018.

Economists in the early 1980s theorized that as inequality in the U.S. increased, people from the lower and middle economic classes would demand policies to redistribute wealth. But that theory made an assumption that hasn’t borne out: that people would have accurate perceptions of national economic inequality.

What has happened, in fact, is that “Americans largely offer inaccurate estimates of macroeconomic statistics such as inflation, unemployment, and the median income,” Newman, Shah and Lauterbach write.

To explore perceptions of economic mobility at the local level — given yet more research showing citizens are not good at estimating economic inequality in their country — the authors analyzed 1,000 responses from the 2016 Cooperative Congressional Election Study, a national survey that a team of researchers from Harvard University, Tufts University and the market research company YouGov conduct during federal election years.

The 2016 survey included this salient question:

“To the best of your knowledge, how much economic inequality (that is, the size of the gap between the rich and the poor) would you say there is in your local area?”

As actual inequality within counties went up, so too did the probability that people would recognize their localities as having higher levels of inequality, the authors find.

“Importantly, while citizens evince awareness of local inequality, our findings — as well as those reported by [researchers] Minkoff and Lyons and Solt et al. — indicate that they do not translate local conditions into perceptions of economic conditions in the nation as a whole,” the authors write.

Trust in Government and the American Public’s Responsiveness to Rising Inequality
Macdonald, David. Political Research Quarterly, July 2019.

Inequality is rising but there is scant support for new policies to redistribute wealth, even among lower-income Americans, Macdonald writes. The reason for these two seemingly at-odds facts, he argues, has to do with trust.

Trust is about perception. And there is a perception, according to Macdonald, that the government can’t be trusted: “people have low trust in the actor most responsible for enacting redistributive policies — the federal government.”

To explore the relationship between public trust and wealth redistribution, Macdonald analyzed information on state-level income inequality from the IRS and from American National Election Studies survey data collected from 1984 to 2016. ANES conducts national surveys every presidential election year to capture public sentiment on a range of issues, including trust in government. When the public trusts the federal government more, they tend to favor redistributive policies as inequality rises, Macdonald finds.

“If trust returned near its mean level in 1964 (pre-Vietnam and pre-Watergate), the public would respond to higher inequality by demanding more redistribution, pressuring government to alleviate economic inequities,” he writes. “The low levels of trust observed today, however, suggest that the mass public is unlikely to respond to higher inequality, via increased support for economic redistribution.”

“Perceptions of Reality”

Americans also have skewed perceptions of U.S.-China trade relations. Most economists agree that U.S.-China trade is a net good because both countries win, says Davidai. But, he says, people on both the political right and left tend to think of U.S.-China trade as a zero sum game — when one country wins, the other loses.

That, in turn, could lead Americans to vote for politicians who promise to pursue tough-on-China policies that cause both countries to lose out on trade benefits, Davidai says.

“What moves people is not reality but perceptions of reality,” he says. “Especially nowadays we see politics strafed with a lot of misperception. It’s not just the general public misperceiving reality, it’s policymakers too. I would want to see more work just polling people. What do you think happens in that meeting point between perception and reality? Journalism is a great place for that to happen. Journalists who have the facts are in a position to see what the layperson from the street believes.”

For more on the reality of the trade war, check out our roundup, “How consumers are footing the bill for the U.S.-China trade war.”

 

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