The Predicament of ‘One Percent’ Parents

As inequality worsens, rich parents have more to lose from any upward mobility of their children’s competitors.

By Lars Osberg

The 1 percent already live in a separate world of gated resorts and exclusive neighborhoods that most people never experience. So should the 99 percent just try to ignore the top 1 percent? Does it really matter how rich the rich become?

As inequality increases, ‘one percent’ parents will purchase more influence over the social mobility process.

Yes, and here’s one reason why: inequality of opportunity for kids.

The data are very clear that countries with more income inequality have more inequality of opportunity. For decades, economists have recognized that more income inequality for adults inevitably produces more inequality of opportunity for children.

A century ago, the English economist Alfred Marshall remarked: “the professional classes especially, while generally eager to save some capital for their children are even more on the alert for opportunities of investing it in them” while the children of the working classes “go to their graves with undeveloped abilities and faculties.” Marshall insisted that “this evil is cumulative.”

Similarly, Chicago School economists Gary Becker and Nigel Tomes emphasized more than three decades ago that the unequal distribution of income of each cohort of parents is partly due to their own unequal inheritances of human and financial capital from the grandparent’s generation (who inherited from the great-grandparents) – and the unequal incomes of parents enables them to pass on unequal bequests to the next generation.

The income gap in America has already widened enormously – in 1984 the average top 1% income was $337,000 above median household income, but this gap had widened to $971,000 by 2012. If historic income growth rates continue, the gap will hit $1,980,000 by 2032 (all measured in 2012 dollars).

A widening income gap implies that “one percent” parents will try even harder to pass on their advantages to their children – which means purchasing as much influence over the social mobility process as they can. Since they have increasingly more income to spend, affluent parents can be expected to spend increasing amounts to purchase private schooling, better school districts and greater enrichment expenditures.

[pullquote] For the top 1 percent, the only future mobility is downwards. [/pullquote] As well, top slots are limited and real life is competitive. When elite schools and universities deny admission to some applicants, any improvement in the probability of success for some necessarily implies a poorer chance of success for others. Those who are already at the top can only lose from mobility – for the elite, the only future mobility is downwards. Hence, the darker side of increasing inequality is that affluent parents have a lot more to lose from improvements in the life chances of their children’s competitors.

The greater the gap between the incomes of affluent families and those of everyone else, the steeper is the “drop from the top.” Thus, when the income gap widens, it becomes ever more important for rich parents to give their children every possible advantage. Increasing inequality thus accentuates the reluctance of the elite to pay the taxes that could equalize opportunity by funding public expenditure on the human capital of all children – because their own children have the most to lose from such spending. [pullquote] The greater the income gap, the steeper is the ‘drop from the top.’ [/pullquote]

Wanting to see one’s own child win, in a fair race, is a normal parental aspiration. The rhetoric of fair equality of opportunity enjoys near universal approval among the economic elite—partly because it legitimizes their own position. However, making equal opportunity a reality is quite another thing.

When the drop from the top is not so severe—and the conflict between rhetoric and reality is not so large—one can find the same parents voicing support for public expenditures to offset inequality of opportunity while simultaneously investing heavily in their own children’s advantages. But when the costs of mobility to affluent families increase, elite support for compensatory public spending shrinks.

[pullquote] The costs of increasing inequality are also borne by children in the form of a greater ‘loss of childhood.’ [/pullquote] Additionally, a “loss of childhood” is one of the costs of increasing income inequality. Greater inequality raises the stakes in childhood educational achievement. As parents respond by increasingly pressurizing their children, the children lose in leisure time and enjoyment of life, in the additional stress associated with school success and in the increased costs of dysfunctional rebellion against greater pressures.

Over time, as the top end pulls further and further away from middle class living standards, the stakes involved in preventing downward mobility of their children are ever-increasing for the top 1 percent. But the greater is their success in ensuring the positions of their own children, the greater are the barriers erected to the upward mobility of poorer children. Hence, increasing inequality of opportunity is a good reason to worry about the increasing top 1 percent income gap.

 Lars Osberg is McCulloch Professor of Economics at Dalhousie University.