Saturday, February 26, 2011

Will This Generation Have a Lower Standard of Living Than Its Parents

Will today's kids be better off then their parents?  This question has been buzzed about since polling data shows that today's adults think their kids won't be better off.

Becker and Posner do a nice job spelling out three factors:

1. Per capita income growth. Is the whole society richer?  Well yes, each year increasing productivity combined with infrastructure investments make per capita income grow -- except for recessions, but generally growth happens. See the graph below.

2. Income inequality If the society is wealthier on average, but it is only because there is one super-rich guy and lots of poor people -- then the majority of people are poor.  Income inequality is growing because labor, especially unskilled labor, is less valuable in the US than it used to be.  The richest 1% of the population, makes 35% of the income.

3.  Mobility from poor to rich. A lot of the people who are super-rich today were not born that way, and so there is churn in the ranks. One of the equalizers is education. Education helps people make up for an impoverished childhood. 

In summary, if young people get an education, then they will make more than average, and since the society is getting richer and richer, most of them will be wealthier than their parents when they reach their parents age. Of course, there will be exceptions -- this is statistics.