Society is concerned about the lack of income mobility...

Society is concerned about the lack of income mobility. Suppose a 2010 cross-sectional study finds that the poorest 20% of households earned 5% of total income. Ten years later another cross-sectional study finds the poorest 20% of households earned 5% of total income. In terms of income mobility: Group of answer choices the poor households of 2010 have remained equally poor the people in each study are not the same, so we can make no conclusion about income mobility the poor are worse off in terms of income the poor have probably risen out of poverty Everyone is worse off in terms of absolute wealth

Transcript

00:01 So here we're given some information about incomes, right? we're told that the income of the rich is equal to 13 times the income of the poor, right? we're rich and poor defined as the top and bottom quintiles.

00:15 But we're told that the consumption of the rich, the rich is equal to four times the consumption of the poor.

00:25 So there's a whole lot going on here, right? and the immediate thing you should notice is there are, is a very, you know, clear relationship here.

00:38 Income, or at least after tax, is split into consumption and savings, right? that's literally your options.

00:51 Once you pay your taxes, you have a choice about whether to spend or save.

00:55 So here, the rich are getting three, 13 times.

01:00 As much income, but only consuming four times as much, the obvious implication here is that the rich are saving much more, which makes sense, right? if you're poor, you probably need to spend all your income just to, you know, have the basics of life.

01:21 But if you're rich, you can save a lot of income because even with a fraction of your income, you have all you need to live a pretty night.

01:27 Slide right so um this is clearly coming from savings but let's look at these other options um poverty line misleading well there's nothing here about the poverty line at all right um whether the poverty line is defined at whatever it is this is there's nothing here about it right the only thing that would would talk to the poverty line if you said like if the government says the poverty line is x people change their behavior i don't think anyone changed changes their consumption or savings behavior in response to the poverty line.

02:02 So i don't really buy this as an explanation.

02:04 It seems unrelated.

02:06 Intergenerational mobility...

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