New Analysis Reveals Regions with Larger Middle Classes Have More Economic Mobility

Washington, D.C.–(ENEWSPF)–Septemer 4, 2013.  A report released today by the Center for American Progress provides powerful new evidence that a strong middle class and economic opportunity go hand in hand. According to the report, regions with large middle classes have far more economic mobility than areas with small middle classes, bolstering the theory of “middle-out” economics that President Barack Obama has advanced in recent weeks.

“Low-income children from areas with a large middle class have a much better chance of getting ahead,” said Ben Olinsky, co-author of the report and Senior Fellow at CAP. “We all want to live in a country where anyone can succeed with talent and hard work, and this new finding helps show us how to make that aspiration a reality.”

“The evidence suggests that policymakers should focus on strengthening the middle class rather than following the flawed theory of trickle-down economics,” added Sasha Post, co-author of the report and Advisor to CAP President Neera Tanden.

CAP’s new report builds on a study released last month by four economists from Harvard University and the University of California, Berkeley: Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez. Their study reveals that mobility varies substantially across geographic regions and shows that these variations are linked to a variety of regional characteristics, such as school quality, sprawl, and the share of single-parent families. It also found that regions with greater inequality have less mobility.

The CAP report released today picks up where Chetty and his colleagues left off by examining the connection between mobility and the size of a region’s middle class. Using the same data and methodology employed by Chetty and his colleagues, the report demonstrates an extremely strong statistical relationship between mobility and the middle class. In fact, according to the analysis, the size of a region’s middle class is a stronger predictor of economic mobility than all but 2 of the 28 regional characteristics tested by Chetty and his colleagues. This new finding provides strong support for the theory of middle-out economics.

The Chetty study also undercuts the central premise of supply-side economics, which argues that higher taxes are anathema to prosperity. If supply-side theory was right, we would expect regions with higher taxes to have lower economic mobility. But, in fact, the opposite is true: Regions with higher state income tax levels have more mobility than regions with lower state tax levels. Moreover, supply-side theory predicts that asking the rich to pay more taxes will diminish mobility, but Chetty and his colleagues found that states with more progressive income taxes actually had greater mobility. The Chetty study thus undercuts the supply-side theory that taxing the rich will reduce prosperity for all.

Read the report: Middle-Out Mobility: Regions with Larger Middle Classes Have More Economic Mobility by Ben Olinsky and Sasha Post

Source: americanprogress.org