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The American Dream Is Not Dead

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The American Dream Is Not Dead

July 7, 2014

The following is an excerpt from Economics21's new inequality primer, Income Inequality: Fact and Fiction.

Intergenerational mobility has emerged in recent years as

a bipartisan policy priority. To the extent that upward mobility rates are low--relative to the past, to other countries, or simply to our intuitions about appropriate levels--the health of the American Dream is called into question. However, there are many misperceptions about the state of economic mobility in the United States, and a fuller appreciation of the various facets of the issue can aid policymakers as they develop proposals to promote upward mobility.

While it is often useful to think about mobility over the course of a person's adult life (see Gerald Auten's contribution in Chapter 5), discussions about opportunity generally have in mind intergenerational mobility: how much adult outcomes do, or do not, depart from those of their parents. Even focusing on intergenerational mobility leaves open what outcomes should be considered. Here I will discuss mobility in terms of family income, but mobility researchers have also considered earnings, educational attainment, occupational status, and wealth, among other outcomes.

Even restricting the focus to income still leaves two ways of thinking about mobility--in relative or absolute terms. "Relative mobility" is about how the ranking of adults against their peers is (or is not) tied to the ranking of their parents against their peers. That is to say, ignoring dollar amounts, did adults who rank high or low in the income distribution also have parents who ranked high or low? Careful research by the Pew Economic Mobility Project divides adult and parental income distributions into five equally-sized groups, or quintiles, ranked by income adjusted for family size. It then asks how likely it is that children starting in a given quintile end up in each quintile themselves as adults. If there were no connection between parent and child incomes, then a child growing up in any of the quintiles would have a 20 percent chance of ending up in any of the quintiles as adults. And for today's forty-somethings who grew up in the middle fifth around 1970, that is close to what we see: 19 percent ended up in the top fifth, 23 percent in the middle fifth, and 14 percent in the bottom fifth (Figure 3).

But children who grow up poor or rich see more limited mobility. Among those raised in the bottom fifth, 43 percent remain there as adults. Just 30 percent made it to the top three-fifths (whereas 60 percent would have if parental income had had no relationship to child income), and only 4 percent made it to the top fifth. Mobility among today's adults raised in the top fifth displays the mirror image: 40 percent remain at the top, 37 percent fall to the bottom three-fifths, and only 8 percent fall to the bottom-fifth. (These figures indicate less mobility than in Gerald Auten's contribution because they average multiple years of income together to net out volatility.)

While relative mobility in the United States appears uninspiring, the same cannot be said of "absolute mobility." Absolute mobility ignores rankings and simply considers whether adults tend to have higher, size-adjusted incomes than their parents did at the same age, after taking into account increases in the cost of living. The answer is, unambiguously, yes. Fully 84 percent of today's forty-somethings have higher size-adjusted family incomes than their parents did at the same age (Figure 1). Because poor parents have especially low income, adults who grew up in the bottom fifth are most likely to experience upward absolute mobility; 93 percent of them have higher incomes than their parents, compared with 70 percent of adults who grew up in the top fifth.

On the one hand, upward absolute mobility ought to affect how we think about limited relative mobility. A person "stuck in the bottom fifth" may end up much better off in absolute terms than her parents were. A forty-something in a family of four today could have $56,000 in income and be in the bottom-fifth of size-adjusted income (Figure 4). But that income would have put them squarely in the middle-fifth of size-adjusted income among parents around 1970. The richest forty-something in the bottom-fifth today is 85 percent richer than the top parent in the bottom-fifth was back then. Similarly, the forty-something in the middle of the middle-fifth today is 89 percent richer than the parent in the middle of the middle-fifth of parents was.

On the other hand, even though those stuck at the bottom are better off than their parents were, they still occupy the lowest rungs of the economic ladder. If today's security guards or food service workers wanted to be lawyers or architects growing up but were unable to, that should temper our enthusiasm for their upward absolute mobility. 

Of course, as many observers have pointed out, the fact of limited relative mobility does not necessarily indicate that opportunity is unequally distributed, and it is difficult to objectively assert what the ideal rate of upward or downward mobility would be. Reihan Salam put it well, noting that a world of perfect relative mobility is "one in which no matter how hard you work to provide your children with every advantage in life, they're just as likely to sink to the bottom of the heap as to rise to the top."

Still, relative mobility has not improved over time as we have become richer, and the United States has no better relative mobility than other industrialized nations that are less wealthy than we are (and probably worse mobility than some). No one in the middle and upper-middle classes would accept it if their children had a 70 percent chance of dropping out of the middle class. We should resist accepting that poor children--who do not choose their parents--have only a 30 percent chance of making it to the middle class.

Taken from the Economics21 issue brief, Income Inequality: Fact and Fiction.

Scott Winship is the Walter B. Wriston Fellow at the Manhattan Institute for Policy Research. You can follow him on Twitter here.

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