Economic Mobility and the American Dream

How to Get Ahead in the U.S.A.

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Economic mobility is the ability of someone to change their income or wealth. It is measured over generations or during one's lifetime. Research has found that the best way to improve one's mobility is through education. But the increasing cost of education is creating a block to those starting out in low-income families. It's a form of structural inequality that keeps the poor from improving their lives.

The biggest block to mobility is widening income inequality. But race also plays a significant role, affecting black men the most. As a result, the United States has lower levels of economic mobility than other developed countries.

Measurement

Mobility is calculated using earnings, income, or wealth. The measurement used will give different results. Earnings are wages and salaries from paid jobs and businesses, including farms. Income is revenue from all sources before taxes but after transfers. It includes earnings plus settlements, government programs, such as Social Security, and income from investments. Wealth is the net worth of the household.

The Federal Reserve Bank of Minneapolis found that age was the greatest determinant of mobility in all measurements. As people age, they get better jobs and have higher net worth. But older people who are retired have lower incomes, although they might have the highest wealth. 

Mobility is also measured through time. Some studies look at intergenerational, or whether children have higher incomes than their parents. Others only consider intragenerational, or how far someone can go in their lifetime.

Then there is absolute mobility, which is how likely children can exceed their parents' income at that same age. Relative mobility compares someone to others. It could be to foreigners, different races, or genders. 

Pathways

Research shows that the greatest single correlation of high income is the education level of one's parents.

The Fed study showed that income, earnings, and wealth increased with education levels. It also found that college graduates had the most wealth compared to earnings than those without college. They were able to save and invest more of their earnings.

  • In 2017, 29 percent of American adults had only a high school education. On average, they earned $712 per week. Those without a high school degree only earned $520 a week. Another 10 percent had an associates degree. They earned $836 a week.
  • The 21 percent with a college degree earned $1,173 per week on average. 
  • Only 9 percent had a Master's, earning $1,401 per week. Even fewer, 1 percent, had a professional degree, such as doctor or lawyer. They garnered $1,836 a week. The 2 percent of the population who were Ph.D.s earned $1,743 a week.

    The increasing cost of education makes that pathway more difficult for those in low income families. Instead of a pathway, it looks like a block. The best way to overcome that is to create more equity in education. It would provide more resources to those at the lowest levels to help them catch up.

    The group with the worst economic mobility were single women with children. They were also most likely to be in financial trouble.

    Blocks 

    Between 1979 and 2007, income inequality destroyed Americans' economic mobility. The gaps between the rich and the poor have grown wider. Household income increased 275 percent for the richest 1 percent of households. It rose 65 percent for the top fifth. The bottom fifth only increased 18 percent. That's true even after "wealth redistribution." In other words, subtracting all taxes, and adding all income from Social Security, welfare and other payments.

    Since the rich got richer faster, their piece of the pie grew larger. The richest 1 percent increased their share of total income by 10 percent. Everyone else saw their piece of the pie shrink by 1-2 percent. In other words, even though the income going to the poor improved, they fell further behind when compared to the richest. 

    The 2008 financial crisis worsened the gap. The rich got richer through the recovery. In 2012, the top 10 percent of earners took home 50 percent of all income. That's the highest percent in the last 100 years. The top 1 percent took home 20 percent of the income, according to a study by economists Emmanuel Saez and Thomas Piketty. 

    Race also plays a role. Black and Native Americans in upper-income families are more likely to lose their status than Caucasians, Hispanics, or Asian Americans, according to 2018 study. "Race and Economic Opportunity in the United States: An Intergenerational Perspective" reviewed racial disparities in income from 1989 to 2015.

    White children whose parents are in the top fifth of the income distribution have a 41.1 percent chance of staying there as adults; for Hispanic children, the rate is 30.6 percent, and for Asian-American children, 49.9 percent. 

    But for black children, it’s only 18 percent, and for American Indian children only 23 percent. They have the same likelihood to fall to the bottom fifth of the income distribution as to stay in the top fifth.

    Conversely, upward mobility for children born into the bottom fifth of the distribution is markedly higher among whites than among black or American Indian children. Among children who grew up in the bottom fifth of the distribution, 10.6 percent of whites make it into the top fifth of household incomes themselves, as do 25.5 percent of Asian-Americans. By contrast, only 7.1 percent of Hispanic children born in the bottom fifth make it to the top fifth, along with 3.3 percent of American Indian children and a tiny 2.5 percent of black children.

    The disadvantage is most striking among the men. Black men born into families at the 75th percentile of the income distribution wind up, on average, 12 percentiles below white men born into equally affluent families. Black and Caucasian women are more likely than men to remain in the income range they were born into. But women of both races earn less than men.

    As a result of all these blocks, most Americans don't aspire to get ahead. In a 2017 study, 85 percent of respondents more worried about falling behind. Almost 40 percent of those surveyed couldn't afford a $500 financial emergency. They had to go to friends or family to cover an unexpected bill that size. One reason is one-quarter of American workers makes less than $10 per hour. They are living below the federal poverty level. Their focus on short-term financial survival prevents them from pursuing long-term goals.

    United States Compared to Other Countries

    The United States has lower rates of income mobility than other developed countries. America scores lower than France, Germany, Sweden, Canada, Finland, Norway and Denmark. The researchers concluded that the idea of America as the land of opportunity was misplaced.

    Sociologist Richard Wilkinson commented that, "if Americans want to live the American dream, they should go to Denmark." (Sources: Jo Blanden, Paul Gregg and Stephen Machin, "Intergenerational Mobility in Europe and North America," April 2005. "How Economic Inequality Harms Society,"TED Talks, July 2011.)

    Mobility and the American Dream

    The American middle class has a fair amount of opportunity to move into the upper class. But it's very hard to move all the way from poor to rich. Research has shown that there is less intergenerational mobility than many Americans believe. This is according to "Getting Ahead or Losing Ground: Economic Mobility in America," by Ron Haskins, Julia Isaacs and Isabel Sawhill.

    As a result, the concept of rags-to-riches in a generation is no longer a realistic component of the American Dream. The American Dream is the ideal that the government should protect each person's opportunity to pursue their own idea of happiness. The Founding Fathers embodied it into the Constitution.

    They put into law the revolutionary idea that each person's desire to pursue happiness was not just self-indulgence. It was a part of what drives ambition and creativity. By legally protecting these values, they created a society that attracted those who want a better life. But decreasing economic mobility threatens that dream.